They’ve been in the news quite a bit recently and for both good and bad reasons. Good, because a lot of people have made a lot of money from the meteoric growth in the value of the Bitcoin cryptocurrency over the past few years, and not so good because of the negative press surrounding the potential for money laundering activities enabled by the anonymity of these new-fangled investment types. Where does this leave the online gambling companies?
Whatever suspicions exist, it is worth noting that these new forms of ‘crypto’ currencies (and there are lots of them), which offer security as well as anonymity for investors, have huge potential for the future. So much so that their progress is being monitored closely by banks and other institutions; the Isle of Man government, for instance, has recently suggested that it be open to entrepreneurs who are looking to launch ICO’s (Initial Coin Offerings). Likewise, the technology that underpins the currencies is being evaluated for other sectors as a super-safe way to store private data.
Bitcoin was first registered in 2008 and used a new technology known as blockchain. The technology, which allows for a continuous list of records or transactions (called blocks) to be linked and yet offered out with a high level of security, is being considered for other applications outside of currency including medical records, cloud storage, public records, music rights and even CV’s. With blockchain, every transaction or record is inherently resistant to modification and is therefore permanent.
Firstly, how does blockchain technology work? Bitcoin was born on the premise that the transactor didn’t have to rely on trust – the one thing that banking, as we have always known it, is founded upon. It was revolutionary, as it required no single entity to control it. Instead, it is supervised by a global network of volunteers who are paid to manage the software. This de-centralizing, it is believed, means that economies can’t ‘print’ more money and that people who live in unstable economies can have somewhere safe to put their cash. It is also cheap and easy to transfer funds.
The trouble with cryptocurrency
However, cryptocurrency often runs into trouble. Ethereum has been beset by problems. After suffering the DAO hacking in 2016 which caused the ‘Ether’ price to fall from $21.50 to $8.00, Ethereum ‘forked’ to re-appropriate the stolen funds. The same thing happened twice more in 2016. The fork meant that Ethereum is now available as Ethereum or Ethereum Classic – a hotly debated choice which comes down to ethical and ideological considerations when choosing which to purchase. Did you agree with the new ‘code’ or did you believe that the original code should be immutable….the founders went with the ‘new’ and have been rewarded with the bigger gains.
Cryptocurrency in the gambling industry
It is for this reason (and, of course, the anonymity issue of the holder), that gambling companies have been wary of accepting cryptocurrencies as a form of payment. Gambling’s history has always been mired with its attraction to the criminal fraternity and, in the regulated industries that exist in many countries today, there is no room for accepting payments for which the origin is unknown.
If you look at any properly regulated online gambling company, you’ll see how, like financial services companies, they show their membership and adherence to the regulatory organisations in the jurisdictions in which they operate. You’ll also see how, while they are willing to accept payment from a variety of payments vehicles from PayPal, Neteller, VISA, entropay and MasterCard, there is no scope for cryptocurrency payments.
Regular gambling has a number of ‘knowns’ that make it the secure service it is. There is a list of well-known companies that operate online gambling sites who have gained a good reputation and who provide cleverly designed and operated games that give pleasure to hundreds of thousands of people. However, there are now some new gambling companies looking to disrupt the status quo by using blockchain technology.
Bearing in mind the regulatory position, it would seem that the regulated gambling companies are playing a waiting game. If cryptocurrencies become an accepted and regulated form of payment, then they will, of course, accept them.
It is also worth mentioning that blockchain technology for the existing players in the online gambling sector could be seen as both an opportunity and a threat. The opportunity being that they will be able to trade the currencies they accept, and a threat because the house ‘edge’ that they are used to earning will not be possible. The new competitor gambling companies that are now appearing are willing to offer a 0% house edge in return for the trade on the currency.
However, the opportunity to offer such technology to an existing set of online players by proving the honesty of the house will give the established companies a big advantage over the new entrants in the market were they to take it up. Would slot players believe in their luck more if they knew that the house wasn’t able to work against them? Would it make them play more?
Likewise, if the largest gambling companies were to begin to accept cryptocurrencies for payment and then use blockchain for all their wager transactions, what would the effect be on the value of the cryptocurrencies? For investors in the cryptocurrencies, demand is everything. Investors rely on demand for the currency for its value to increase. If all the big gambling companies were to enter the market, then some people would likely be set to make a lot of money.
For the gambler, the rising acceptance of cryptocurrencies has created a system where he or she doesn’t have to prove who they are and their anonymity is guaranteed. Fiat-based systems, which rely on trust in the faith and credit of the economy, are what all the current gambling regulations are based on (for the time being, anyway). Gamblers (and criminals!) will have seen that blockchain-based currencies area way of circumventing the regulations.
The big question is whether cryptocurrencies will be allowed to continue to operate the way they do by the gambling regulators. At some point, there will be rules brought into place to ensure that the proceeds of crime etc. are not being used for placing bets. At this point, the bigger companies will be unlikely to want to enter the fray as it is not worth their while making the mistake of getting it wrong.