Blockchain technology is being introduced across a whole host of industries, from IT organizations to banks. But what is it and how could it affect the world of gambling?
We delve into the basics of blockchain technology before assessing what impact it’s already having on the gambling industry – and how it could develop in the future.
In simple terms, a blockchain is a decentralized, digital public ledger of all the transactions that take place using cryptocurrency. This grows when more blocks (transactions) are added to it and allows people to monitor their transactions without them being held in one central place (i.e. a bank).
Blockchain was originally developed for Bitcoin (a type of cryptocurrency) and allows users to verify transactions, creating a record that can’t be changed.
Essentially, blockchain was created for cryptocurrencies to make sure all transactions are indelible and can never be deleted or copied. People favor this type of currency for its anonymity and independence from banks and governments.
But how does this work with the gambling industry?
Currently, casinos in the UK have to, by law, ask players to prove they have sufficient funds when they’re depositing a certain amount of money into their online account. However, when they accept cryptographic coins, this is done anonymously and, therefore, goes against the transparency and regulations required in the industry.
Furthermore, when using cryptocurrency as a form of payment, there’s no guarantee of its value, with Bitcoin renowned for dramatic increases and decreases in value. This doesn’t provide gamblers with a practical short-term solution for their gambling funds.
Many people consider the investment in bitcoin as the same as gambling in a casino. However, while gambling on games like roulette often requires an understanding of roulette odds and strategy play successfully, a similarly considered approach to investing in cryptocurrency might be futile. This is due to its sheer volatility, which has seen it drop 40% in value in a single day. Cryptocurrency’s unpredictable, uncontrollable nature makes it impossible to make money on it with an investment strategy.
The Gambling Commission has already accepted that cryptocurrencies can be used for gambling. This is because it’s classed as ‘money or money’s worth’ in the Gambling Act 2005. But it has expressed concerns about how well casinos will be able to put effective controls in place that manage the various risks involved with these cryptocurrencies.
Therefore, while digital currencies may be used, anyone working with a virtual currency may need to make sure they have additional policies in place to reduce any breaches of license conditions and codes of practice social responsibility requirements and/or money-laundering activities.
The future of the gambling industry could well feature bitcoin. For users, it’s much more secure way of collecting your winnings than carrying away cash – for casinos, it’s a way of circumventing cash handling commissions or banking charges.
At one point, Bitcoin-supported online betting site SatoshiDice comprised half of the transactions on the entire Bitcoin network – since then, however, the poker world has been slow to adopt the digital currency.
For users, anonymity is a key benefit. Gamblers never have to put in their personal details when it comes to transactions – eliminating the potential risk of personal data theft by website hackers. Then there’s the fact that the transaction fees themselves amount to little or nothing because there’s no need for an intermediary (such as a bank) to be involved. Most importantly, perhaps, Bitcoin is in some ways more stable than traditional currencies. Only a finite number of units will ever be produced, meaning that Bitcoin will steadily increase in value and not be prone to the same market crashes.
However, there are a number of disadvantages to players, too. Bitcoin is not currently widely accepted as a payment option on online gambling websites, making it unpopular among players. And what’s stopping another form of online cryptocurrency being released to compete with Bitcoin, which could divide the market and potentially plummet Bitcoin’s value? And whenever Bitcoin is hosted on a centralized network such as a poker or casino website, there’s the danger that hackers will be able to hack into that network’s own security system – putting players’ funds at risk.
On top of that, there’s the perceived ‘dark side’ of Bitcoin trading. After all, it built up its popularity on the Dark Web, as a way to illegal trade arms and enable international crime and terror organizations.
Kibo, a decentralized gaming platform that was launched last year, created an initial coin offering (ICO) that would help raise funds for this online platform. The operators behind it said that their platform would help address a number of deficiencies including creating fair results and draws – because when participating in online gambling, there’s no way for players to check whether the result or draw is fair; their trust lies solely with the operator and whatever audits and checks they have in place.
ICOs have attracted controversy due to the fact operators have used celebrities – such as Paris Hilton, Floyd Mayweather, and The Game – to promote them, potentially breaking US securities law.
However, ICO operators also suggested that it would create more transparency with payouts, as players can’t often verify whether or not lottery winnings are being distributed fairly.
But will blockchain provide the right answer?
It certainly appears to address some of these issues. Due to its decentralized attributes and the fact it isn’t controlled by one person or organization, it makes it virtually impossible to alter any data. By being able to verify trades or transactions, it ensures no one is at an advantage throughout the various stages of the gambling process. This offers greater protection against online fraud and prevents anyone from manipulating data within the ‘chain’. As all of the transactions carried out through blockchain are transparent to everyone else using the network, meaning they’re verifiable.
The technology also provides ‘provable fairness’ in so far that all payouts, bets and lottery entries made are verifiable and viewable. Unlike casino games and lottery draws that take place somewhere within the operator’s database, the algorithms used in these games can be placed into blockchain so everyone has access to them.
There are, obviously, regulatory concerns that surround blockchain within the gambling industry (as mentioned previously). For example, operators and regulators will need to allow for remote gambling equipment potentially being held in multiple locations. Therefore, if part of the blockchain network is classed as being in Great Britain, the gambling activity conducted on it would need to adhere to the Gambling Act 2005, even if the British market isn’t the target.
Equally, third-parties and regulators who are responsible for testing organizations will need to put new standards and protocols in place to test any blockchain-based activities.
But one of the primary concerns is the anonymity factor. While blockchain services are hailed for this anonymity, this feature isn’t likely to sit well with regulations. How would anonymous gambling allow for effective age checks, anti-money laundering processes and self-exclusion facilities?
Aside from regulations, there are a number of other challenges including how the technology could be rolled out so widely, the danger of it being misused, and raising awareness of cryptocurrencies in public.
What does this mean for blockchain in the gambling industry?
Despite the potential challenges and controversies involved, blockchain is an emerging technology that cannot be ignored, particularly in technology-based businesses like online casinos. Over the next ten years or so, experts predict that blockchain will transform almost every industry – including gambling.
The very nature of the technology allows players to improve the fairness and transparency of online gambling. However, the regulatory issues involved in introducing blockchain could prove to be the biggest stumbling block companies face.
That said, some places are already starting to adopt laws that allow casinos and gambling operators to accept cryptocurrencies as legal tender (the Isle of Man, for instance). And if these regulatory challenges can be overcome, it’s highly likely we’ll witness blockchain being more regularly adopted to audit, monitor and record different parts of the supply chain – from the players and operators to the games themselves.