What is the future for blockchain based gambling?

Thu, 17 Aug, 2017

Previously seen as a risk or misunderstood, in recent years blockchain’s true potential has begun to be realised, with sectors from finance to national security and ride-sharing services to KYC processes appreciating the benefits that the technology can bring.

The mainstream gambling industry though has been slow to move on the technology, and most will be surprised to hear that even by 2013 over half of all bitcoin transactions were gambling related, and it’s estimated that since 2014 $4.5bn in bitcoin has been wagered. If these figures are a sign of things to come, will blockchain casinos, poker sites and prediction markets become tomorrow’s gambling industry leaders? Will large operators be forced to move to cryptocurrency based systems?

Blockchains are peer-to-peer distributed ledger systems that authenticate and validate across the network giving a permanent, immutable record of every transaction. This means that there is no need for a regulatory body or third-party intermediary; the system is transparent and trustless. While bitcoin grabs most headlines, and is far and away the most valuable of the cryptocurrencies, of particular interest for many industries is the growth of Distributed Applications built on the Ethereum blockchain.

Distributed Applications allow the creation of permanent records of interactions and the development of smart contracts. Creating an immediately replicated, immutable record of an action that is then shared amongst the entire network, means that disputes fall and business interactions can become trustless. While there are still limitations, including speed and capacity (due to the need to record actions across the entire ledger), it’s the underlying principles of the Ethereum blockchain and the use of DApps, rather than the ether currency itself, that have proven of most interest in many industries, and this is where gambling is again seeing the most uptake.

Virtue Poker based on Ethereum uses smart contracts to hold funds in escrow until the player leaves the table – giving an immutable, verifiable point of entry and exit. The coins are never held by Virtue Poker and so there is no question of trust. Whilst at the table, each individual has a shuffle token which the game pools to ensure a provably fair poker system – there are no centralised servers involved that could sway the hands or create bias in the game, and no code that could be altered or hacked.

Similarly, quanta.im use smart contracts to transparently record and prove fairness in their lottery games; these cover the ticket sales, random number generation, winning tickets and prize pay outs. This process greatly reduces administrative costs and eradicates charge-backs and by doing so, they are able to redistribute a far higher percentage of revenue as winnings for players than a traditional lottery.

FunFair casino games have built a capability that overcomes the speed issues and ‘gas’ costs that arise when using Ethereum. Their “Fate Channels” take users off the blockchain while they are playing, and then re-verify at the end of the playing session – maintaining the immutability, but removing the time delays and costs that otherwise occur if constantly recording into the chain. FunFair recently raised $26m via their ICO (initial coin offering), so their Fate Channels solution seems to at least have traction with investors.

The above three examples are looking to disrupt established gambling formats, but a new use-case for blockchain is prediction markets. As previously written about, Augur and Gnosis are two of these, allowing markets to be created on any event, and through the power of the crowd and market forces, an accurate prediction and value can be found. Again, players do not need to know or inherently trust the site, market creator, or other investors; the blockchain takes uncertainty out of the equation. Prediction markets are a use case that are specifically designed around the benefits DApps bring, and would otherwise struggle to exist outside of a blockchain setting.

While these companies provide examples of what’s possible, and the introductory stats seem impressive, the gambling industry as a whole is seen as being two or three years behind other sectors. In finance for example, the R3 banking consortium has 80 global banks as members and IBM is already building a blockchain technology that HSBC, Rabobank and 5 other global banks will use to facilitate international trade for small and medium sized enterprises. For gambling, publications are dedicating more column inches to the technology and conferences will generally have a session on the topic, but few if any major operators have yet committed themselves.

The potential blockchain holds though, means that staying aware of the technology is the least any large operator should do, and in fact it may now be the time to experiment and explore. By removing chargebacks, raising trust with customers, limiting fraud opportunities, lowering administrative costs, and offering completely new game-types, cryptocurrencies certainly have the potential to disrupt the gambling industry. It may well be that high-street banks go beyond just exploring, and if cryptocurrencies are offered as a regular payment method, then the knock-on effect could impact many industries including our own. At that point, those who have not investigated and prepared could well see consumers flocking to safer sites offering higher returns.