Betting on the Future of Decentralized Gambling
This month, our chat about decentralized, online gambling marked our first event co-hosting the Hamilton Blockchain Meet Up. The original plan involved Coinaccord and Virtue Poker's Ryan Gittleson skyping in to provide an in-depth point of view on the future of peer-to-peer, decentralized gambling. In Ryan's case, being the co-founder of a peer-to-peer poker startup has given him experience and expertise when creating a web 3.0 gambling platform. Unfortunately, and understandably, with the completion of Virtue Poker's token sale wrapping up just a week ago, Ryan had some important, last minute details to attend to. And so, our quick introduction into the industry became a little bit longer.
The Problem with Gambling
There are a handful of issues that run rampant in the gambling industry, and with the advent of online gambling, some of these issues were further compounded. We started off by addressing a few problems that those partaking in online gambling platforms are already facing.
The first crux in using traditional systems occurs when you begin divulging personal information and providing funds to centralized entities. Let's start with your online account, because these companies are dealing with currencies, they may stipulate that they need more information from you than a standard name and email. In some cases, a phone number, home address, or more may be required to create a profile. This profile is then owned by the platform you are joining, meaning it can be closed at any time. Reading through Bet365's Terms of Service, you’ll come across items such
"we reserve the right to suspend the account and treat any deposits into the gambling account as being invalid (and any winnings arising from such deposits as void."
Stories of winners being locked out of their accounts, and losing access to not only their winnings, but also their initial investments are not in short supply. As is the case with any centralized gambling organization, their money is made through house odds and various fees. Fees on withdrawals, winnings, administration tasks, and potentially every bet you make can start to add up.
The gambling industry is already at the top of the list when it comes to fraudulent activities, in fact, almost 5% of all online gambling transactions are fraudulent. Not only is this reflected in companies charging higher fees to get back some of their lost revenue, but it is also a prevalent issue for users joining new online platforms. In some instances, a user may be providing personal information and funds to an online entity that takes their data and money without providing any services. This fraud can range from being as blatant as never operating a platform and instead just stealing funds, to operating a functional gambling platform that doesn't pay out the full balance of winnings. In either case, users can be swindled out of both their winnings and their initial deposits into their accounts. However, even if they have not lost funds, their personal data may still be at risk of theft or sale to unknown third parties for distribution on the dark web.
Regulations surrounding online gambling are vague at best. They differ from state to state, province to province, and country to country, resulting in an interesting terrain to navigate when entering the space. These laws are also applied unpredictably, sometimes holding harsh penalties, while other times not being enforced at all. The most recent regulations written to govern online gambling where drafted in 2006, with minimal alternations since then. Now, as blockchain technology and cryptocurrencies enter the space, regulators are aware of their shortcomings when addressing legislative concerns and plan on improving upon them in the future.
An Industry Ripe for Disruption
Analyzing the state of the industry reveals that the market is ready for disruption from a decentralization standpoint. Globally, the market size and revenue would stand to double if the peer-to-peer, global system of blockchain technology was implemented. Digital gambling would be able to cross borders and even seas without directly feeling the effects of various regulations. Blockchain provides a unique opportunity in the case of seizing assets or shutting down operations since decentralized models muddy the waters when it comes to targeting a single entity.
Socially, people are less trustworthy and more aware than ever when it comes to their data. Blockchain puts the power back into the user’s hands, allowing them to own their own account via digital wallets and interact on a peer-to-peer basis. Personal data would not need to be submitted to a centralized entity, creating custodial risk and potential breaches of information.
The system itself would be inherently more transparent on the blockchain. Users could choose to interact with readable smart contracts able to provide automatic pay outs, reducing fraud. Interacting on a peer-to-peer basis or with smart contracts also removes the house odds and copious amounts of fees present in traditional platforms.
Blockchain as a Solution
We've provided a few examples of how companies can apply the technological capabilities offered above in order to create a decentralized, peer-to-peer gambling platform. It's also important to note that we are only listing current blockchain projects as examples, they are not meant as a statement of endorsement.
Results Wagering & Prediction Markets
Essentially, this involves betting on the outcome of some kind of event or the occurrence of a particular result.
How Blockchain Makes it Better: Interact with autonomous smart contracts that provide automatic payouts, transparent executable functions, and no house odds while minimizing fees and providing a peer-to-peer, trustless system.
Choosing players or teams from national sporting leagues or gaming tournaments in order to accumulate points over a stated period of time. This timeline could encompass a league's playoffs, a weekend gaming tournament, or even an entire season. Also, users could code their own smart contracts in order to bet on personal games or tournaments outside of a professional setting.
How Blockchain Makes it Better: No need to sign up and provide personal information to an online platform, you would be able to interact on a global scale and engage in trustless sports betting across seas, taking advantage of larger markets.
These peer-to-peer exchanges would be utilized for trading the custom content present in the digital gaming world. However, in the future it could expand to trading collectable items that have been verified and written to the blockchain.
How Blockchain Makes it Better: ERC 721, Ethereum’s unique item token, is exploring the idea of adding one of a kind items to the blockchain. Exchanges would allow for betters and takers to interact without intermediaries, lessening fees and custodial risk when trading goods.
- Our Report on Decentralized Gambling: https://github.com/coinaccord/coinaccord-io/blob/master/blog/assets/decentralized-gambling/decentralized-esports-betting.pdf
- Decentralized Exchanges: https://medium.com/@theblocknetchannel/understanding-a-decentralized-exchange-eee9e1043f45
- Gambling on the Blockchain: http://www.bmmagazine.co.uk/in-business/how-the-blockchain-is-transforming-online-gambling-as-we-know-it/
Coinaccord is a Canadian Blockchain Venture Studio that strives to create entirely new and decentralized models on a global scale. As a company run by humans, we want to know if we’ve made a mistake. Do we need to make a correction or do you have a different point of view on the topic? Let us know in our Medium comments.