Blockchain/Bitcoin Malta

Gambling industry – How Blockchain Can Make It More Transparent

by Sacha Huber June 10, 2016

Following Bitcoin’s significant rise in popularity among the online gambling community, eyes are now turning to its underlying technology, blockchain, which is expected to have a hugely disruptive impact on the industry.

With the bulk of gambling globally having moved from the downtown ‘brick-and- mortar’ casino and onto the internet, and given the growth of blockchain-related applications over the last year or so including smart contracts and peer-to-peer Bitcoin exchanges, the widespread application of blockchain appears to be the next logical evolutionary step for the $41 billion gambling industry. The cost-saving implications of applying such technology on an industry-wide basis are also thought to be substantial.

Blockchain makes online gambling fairer by it own decentralized system

The US has already seen a healthy rise in Bitcoin casino and Bitcoin sports betting sites on the web, and now such gamblers are looking to improve issues of trust and transparency using blockchain’s technology. Indeed, trust has always been one of the biggest concerns for online gamblers, but now start-ups are emerging which entirely removes this concept as a source of uncertainty.

On blockchain’s decentralized system, which is built by a coordinated network of independent nodes, no particular individual or entity can have a centralized advantage at any stage of the gambling process. Gambling companies can use blockchain to assure users that they are completely incapable of knowing the result of an outcome – such as the dealing of a particular card – in advance. By removing the entire concept of centralization, and by putting the verification of bets in the hands of the network of nodes, the requirement for a third-party point of trust automatically becomes redundant.

Blockchain offers greater financial transparency on gambling

With each transaction or bet being visible for verification on the blockchain, the technology provides greater financial transparency for the gambling industry. Indeed, it seems that Bitcoin gamblers have a strong preference for fully transparent systems that exist on blockchain, whereby every transaction is conducted on a person-to-person (P2P) basis and the operator is completely prevented from accessing money. As such, new “Bitcoin 2.0” solutions have arisen including BetXCP.com and Xbet.io, which are suited to gambling activities such as sports betting, but are somewhat less applicable to real-time casino games at present.

Gambling-platform Augur leads in applying Blockchain

At this stage, California-based Augur is among the start-ups leading the transformation of gambling platforms onto blockchain-based technology. Augur is described as a ‘prediction market’, one which provides a platform for people to bet on any future event that they desire; for example, the US presidential elections at the end of 2016. Augur is expected to launch on the Ethereum network imminently, having raised over $5m in crowdfunding in October and then releasing the beta version of its application in mid-March. Operating as a decentralized peer-to-peer marketplace, Augur will not be controlled by any one person or institution.

This will ostensibly allow everyone involved to be connected to a global forecasting network. It will also remove the need for a middleman, thus removing counterparty risk and implying that Augur will take a considerably lower cut than bookmakers from users’ betting activity. No individual will have access to fund transfers, while the custodial holding of money at every point will be secured using code on the blockchain. With all money in Augur’s system being in cryptocurrencies, moreover, no banking institutions or credit card companies will be involved.

Indeed, digital currency tokens lie at the heart of Augur’s model. Bitcoins can be transferred to the specific addresses of those users on the network who have placed a wager. In order to confirm that an actual event has occurred, the decentralized reporting system is subject to a thorough reputational assessment. Rather than using a centralized body, referees are randomly assigned to each prediction market on the blockchain network, and are required to report the outcome of each event in a reliable and transparent manner.

‘Reputation’ tokens are used to incentivize referees for this purpose, while a sophisticated ‘lie-detector’ is also implemented using a complex algorithm. Should the decisions made by a particular referee consistently stick out from the consensus, the lie-detector will redistribute their token value towards more trustworthy referees, and thus their rating will decline. According to Augur’s director Jeremy Gardner, this method “ensures the integrity of the system”.

Playshares is also applying ensure fairness in gambling

Blockchain-based Chinese casino Play also emerged last year, and much like Augur, is developing a prediction market betting system. It is also placing the underlying logic of the games it offers onto the decentralized system, in order to ensure fairness for its gamers. Additionally, it has introduced tokens for the system that also function as chips that used in play by Play’s gamers, called Playshares (PLS). The tokens are designed to be both shares of the system and the units in which dividends are paid to network users and delegates of PLAY for their contributions to the system. Given that PLS tokens are used for system ownership purposes by individual players, as well as play games using PLS, ultimately if the house wins then such players also subsequently win.

The Isle of Man attracts blockchain entities to its shores

The Isle of Man appears to be among the biggest proponent countries of the adoption of blockchain in the gambling industry. Dubbed the ‘Bitcoin Isle’, the Isle of Man hopes to introduce new regulation and funding schemes to attract blockchain entities to its shores. Brian Donegan, head of digital business at the island’s Department of Economic Development, sees the e-gaming industry on the island especially benefiting from such a move, with due diligence, compliance checks, testing and certification all potentially being transferred to the decentralized ledger. Furthermore, Nick Williamson, CEO of start-up Credits, which helps the Isle of Man government to run its blockchain registry, has also expressed optimism that the Isle can capably adopt this technology in the future.

Blockchain agreedly benefits the gambling industry

Malta and Alderney are also heavily advocating the use of blockchain to boost the credibility of their respective gambling industries. EY Malta senior manager Chris Meilak recently stated that the Malta Gaming Authority is in discussion with other Malta regulators, although no firm position has been taken as of yet. Meanwhile, André Wilsenach, executive director of the Alderney Gambling Control Commission has asserted that “shared, digitalized, decentralized” information in a blockchain-based ledger system would provide regulators with significantly easier access to important data.

According to Calvin Ayre, the founder of Bodog – an online gambling operator – the application of blockchain to online gambling will fundamentally change the way the gambling industry is perceived. Once combined with virtual reality gaming products, Ayre believes that the gambling industry will “will finally get away” from having hundreds of the same games distributed over the internet.

Meanwhile, the founder of SportingBet and celebrated investor in the online gambling industry, Mark Blandford, who recently entered the blockchain world by investing in Coinsilium, a blockchain technology incubator, advised that people should “think about how applications of blockchain would work in their particular branch of the online gaming industry”. Blandford specifically cited the technology’s benefits to the anti-money laundering process, whereby “everything is going to be auditable and traceable in a far more transparent way than has previously been the case”.

According to both Blandford and Ayre, the focus for the online gambling industry going forward should be on blockchain technology, rather than solely being on the cryptocurrencies which it underpins. The shared, digitalised and decentralised information within the blockchain-based system provides both the player and the regulators with ease. There will be tremendous demand for solutions around the ‘satoshi dice or blockchain casino’, which they can develop and monetize as projected by the booming Bitcoin gambling industry today. With this, the future of the blockchain technology can be expected to provide more revolutionary solutions.