Gambling our future with blockchain

Malta has sets itself firmly on the map in the blockchain and cryptocurrencies industry by drawing up a comprehensive regulatory framework covering the legal, economic, and technical aspects of this novel industry, which regulatory framework is the first of its kind in the world due to its completeness. However, this is not the first time that Malta has led the charge; back in 2004, Malta was also the first jurisdiction to come up with a complete framework for the remote gambling ecosystem.

The history of gambling has been a truly long and arduous one, even predating history itself. Over the span of thousands of years, it has evolved beyond recognition since its conception, and today we are faced with a burgeoning online gambling industry worth over $47 billion. Although land-based casinos are still king in terms of market share, it is safe to say that online casinos are quickly chomping their way up the rankings as technology is leading to an increasingly immersive experience with benefits that cannot be mimicked by gameplay in brick-and-mortar casinos. However, online casinos have certain downsides which, to date, having been plaguing the gambling industry.

First and foremost, game fairness is a hotly debated aspect of online gaming, as centralized random number generation methods leave a lot to be desired in terms of auditable transparency, despite the advancements made in that sector. Indeed, the lack of transparency is one of the main complaints raised by players. Suppliers and operators also face more than their fair share of problems. Chargebacks may well be one of the bigger nibblers of a casino’s revenues, with white fraud increasing over the past few years. In the same basket, one can also throw the issue of player fund management, which carries with it a high degree of responsibility and headaches.

The costs required to run an online casino are nothing to be sneezed at either. Auditing and licensing costs have become a burden for all but the largest operators and suppliers, and those are just a portion of the costs involved. The costs of hosting, along with the security concerns involved, are huge and, notwithstanding the introduction of cloud-hosted solutions, still do not bring the downtime to zero, which can lead to further loss of profits and clientele. Server response time for remote areas is also an issue which can often ruin the players’ experience, especially in live casino games.

All these points have left many a head scratching in the quest of optimization of the online gambling experience, until now. Enter the blockchain: a distributed ledger hosted on a peer-to-peer network, which is updated in real-time by a group of members on the network known as miners. These miners confirm the transactions taking place in chunks known as blocks, with each block of transactions being linked to the previous block, forming a chain of blocks. The blockchain technology is just one example of distributed ledger technology, but so far, it has proven to be one of the most efficacious.

So how does blockchain technology lend itself to the online gambling industry? First and foremost, it allows for truly provably fair gaming with each transaction being capable of public audit and scrutiny. One of the ways this is achieved is through the use of smart contracts, ergo pieces of code which are deployed onto a blockchain. Smart contracts can be used for anything and everything, including transaction executions, storage of funds, and so on. A smart contract can be used for player transactions as demonstrated in the following example in order to generate as truly a random number as possible without the use of quantum computing. Since the transaction can be made publicly available without divulging the amounts and the parties involved, any interested party can check the workings of that particular transaction on the public ledger on which the smart contract has been released.

Other benefits of blockchain technology are just as important; since the blockchain is essentially a distributed ledger hosted by a network of nodes, this can lead to the elimination of hosting costs as the casino is hosted by the said network. The operating nodes can either be the operators or even the players themselves, unless the casino is hosted onto a public blockchain such as Bitcoin or Ethereum, in which case the blockchain’s nodes can also serve as the casino’s nodes. This also leads to a potentially higher level of security as the single point of access is eliminated, making external attacks much harder to execute against a distributed network. The larger and more powerful the network is, the more resistant it is to external attacks.

Smart contracts can also potentially eliminate the need for operators to hold the players’ funds themselves. These funds can be stored into smart contracts and accessed by the player at the time of the transaction. Speaking of funds, blockchains normally operate with native currencies known as cryptocurrencies. One of the benefits of cryptocurrencies is that transactions are non-reversible, hence bringing about the potential demise of chargebacks, which has long been a contentious issue for operators. Each casino can operate its own cryptocurrency, or conversely, game suppliers can create their own cryptocurrency and mandate its use by any operators wishing to make use of the supplier’s games.

One thing is certain: blockchain technology is here to stay, and the gaming industry is one which is ripe for disruption through such technology. This is not just about solving some of the longest-standing problems within the online gambling arena, but really and truly it is the harbinger of the next technological revolution, the greatest ever since the advent of the Internet. This will signal a mad scramble for a place in the post-blockchain era, especially for all businesses and companies within the online gambling industry. The online casino will reshape itself, and pioneers in this day and age have everything to gain and nothing to lose, as they can potentially ride the wave onto a new technological age.

This article was written by Jonathan Galea, Managing Director of Blockchain Advisory Limited