Blockchain in the gambling industry

July 16, 2018
Chris Wheal

Finding an online gambling site you can trust is a lottery itself. How do you know it will pay out your winnings or give you the right odds? Do you go by its reputation or the fame of the company’s figurehead? Now there is a new option – is it based on a blockchain?

While cryptocurrencies have been accepted by some gambling sites for a while, the additional benefits of running a site on a blockchain are just starting to be appreciated by the gambling industry.

In a paper called “How Blockchain And Cryptocurrency Technology Could Revolutionize Online Gambling” University of Sydney academics Dr Sally Gainsbury and Professor Alex Blaszczynski point out: “The impact of blockchain gambling extends well beyond the use of cryptocurrency for payments. Blockchain gambles are open to verification, so gamblers can ensure that games are fair.”

Trust and fairness

Traditional online betting sites are run by an operator who sets the odds, takes the money and decides whether to pay you any winnings. You have to trust that the operator does all this fairly because you can’t check what is going on behind the pretty graphics on your screen.

As blockchain-based gambling is decentralized there is no operator who can play with the odds and winnings are paid out automatically once certain conditions have been satisfied, say when the result of a football match is the same as you predicted.

And blockchain’s dogged insistence on keeping everything for posterity means that players can check that the game is being run fairly. So with games such as roulette that rely on random number generation you can check that the numbers truly have been random. And again, any winnings will be there for all to see as well.

Anonymity for players is also guaranteed as using cryptocurrency there is no need for registration or documentation.

FunFair builds casino suites for companies to licence. It says: “Every game built for the FunFair platform is provably fair, transparent and publicly auditable, so players are always assured that the odds aren’t stacked against them (luck still a prerequisite).”

edgeless logo

Edgeless is a new type of casino

Working smart

A popular way of running games is using smart contracts on the Ethereum blockchain. Smart contracts work on the if/then basis so if your number comes up, then you will be paid. As there is no central operator of the game, payment will be made automatically to your wallet.

Edgeless is a casino based on the Ethereum blockchain. Its cofounder Tomas Draksas says: “Even traditional offline casinos can’t ignore the fundamental problems that blockchain solves so there is no doubt a smart-contract Ethereum technology will be an industry standard in a gambling industry in the next decade.”

Ethereum is not perfect, however, and Edgeless’s site warns that transaction speed depends on the current state of the blockchain. “Ethereum overload might cause delays,” it cautions.

Betting machines

Taking things full circle, Ethereum smart contracts are also being used to break out of the virtual world and into the physical one, with developers using them for machines set for casinos.

SmartPlay.tech is currently testing its SmartBox machine that runs a roulette game. The company plans to add slots, poker, bingo and blackjack. The machine has a touchscreen gaming table, a QR machine to read cryptocurrency wallets and a terminal for conventional currencies.

smartbox logo

Can the SmartBox take blockchain betting into casinos?

New model

New business models are also emerging on Ethereum. Edgeless takes its name from the fact has ditched the casino’s traditional house edge in its business model. The house edge being the advantage the house has over the player. For example on a roulette table with a double zero the house edge is around 5%.

Instead, as it offers games that have an element of skill (currently dice, blackjack and poker) Edgeless relies on most gamblers not being able to play the perfect game. It has calculated that this gives it an edge of around 0.83%.

Market shifting

Online gambling has really taken off in the last few years, with the market worth almost £5bn a year in the UK alone. Draksas predicts that blockchain-based sites will pick up speed in the same way. “Crypto gambling is not even 1% of the entire online gambling market,” he says. “But that number is shifting rapidly, like online gambling five years ago.”

Blockchain-based gambling may also be well placed to take advantage of a likely shake up of the US gambling market where the Supreme Court has upheld New Jersey’s challenge to the rule that only Nevada could offer sports betting. This will allow individual states to decide whether to allow sports betting, much of which is done online, or to expand legal gambling into other areas.

Downsides

The gambling industry has much more to gain from blockchain technology than most. Making the industry more transparent and being able to prove that odds are fair will do much to improve trust in the sector. So it is hard to find people who disagree that adding blockchain to betting is a good thing.

People who are not fans of blockchain in general are the ones who would disagree. The UK Treasury Committee is currently running an inquiry into digital currencies. David Gerrard author of Attack of the 50 Foot Blockchain said: “Cryptocurrency and blockchain enterprises tend to make spectacular promises, claiming that work is underway that will give results in a matter of months or a few years. These almost never eventuate. The sector is notorious for its high hype-to-production ratio.”

And Professor Jorge Stolfi of UNICAMP in Brazil told the committee he was equally unimpressed: “I am not aware of any ‘blockchain solution’ that was effectively deployed and proved to be significantly better, in any aspect, than a solution using traditional shared database technology,” he said.

Those criticisms makes it sound like the odds on blockchain’s success are only even, but for some in the industry, blockchain is a safe bet.

Post written by Chris Wheal
Chris Wheal is editor of OpenLedger's news and features service. An award-wining business journalists himself, he runs a team of freelance journalists from across the UK and north America.

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