Bitcoin was developed with gaming in mind. Buying bitcoin, ether or any cryptocurrency is a gamble in itself. Couple this with a platform to gamble bitcoin and the speculation doubles. A match made in heaven, maybe. But the uptake of cryptocurrency in traditional gambling is somewhat slow.
At present, bitcoin and gambling have two separate tracts. Bitcoin processing of deposits or withdrawals for traditional operators or crypto startups expanding a new self-sustaining future for online gaming, built completely on blockchain.
For regulators, there has been some initial reticence regarding regulated operators to integrate bitcoin as a payment method. This was the case in Malta. That said, the Isle of Man have recently been ironing out a detail in their gambling law to ensure that references to ‘money’ includes money’s worth, therefore widening the definition to include cryptocurrency deposits.
Some of the regulatory concerns stemming from the use of bitcoin as a payment method, can be associated with the difficult question of bitcoin origination. For example, illegal gambling agents can provide their deposit address with an operator to their customers, and the gaming site will struggle to identify that the source of funds is actually from a third party. In addition, virtual currency can act as a circumvention tool designed to defeat domestic gaming prohibitions. Therefore, a gaming site embedding bitcoin should consider how to identify and manage these risks appropriately.
That said, blockchain gaming offers potential unrivalled transparency over the full gaming lifecycle: from the supply chain, customer acquisition –payment to affiliates – to service delivery, and mitigates, or potentially eliminates, counterparty risk with a gambling house or in peer-to-peer (P2P) wagering.
Bitcoin gaming is more receptive to what are known as ‘provably fair’ mechanisms, levelling the playfield – to a certain extent – between heavily, lightly, or even unregulated markets.
This notion of provably fair systems involves taking three variables; the gaming server encrypted hash, your browser hash and the ‘nonce’, the combination of which produces the random number used in, say, a dice game. The point being that the player him/herself can go through a process after the dice roll to see if the number produced was fair.
This signals a change from trust based gaming, where users differentiate between sites based on reputation – and how diligently each may be regulated – to a level playing field where the interactive site can be tested to objectively assess their fairness level.
Of course, fairness may not always be a pre-requisite to playing with a particular site, as marketing has an influence over decisions. However, bitcoin gaming seems to have embraced the notion of provably fair with a number of sites offering this feature (see directory here).
The Evolution of the Random Number Generator (RNG)
Regarding random number generators (RNGs), regulators traditionally require operators to have their random numbers tested. This involves statistically assessing the approved testing house to ensure the fairness of the RNG. Once the RNG is certified, the regulator would have an assurance that, subject to the constituent RNG being used by the operator, the gaming services are fair.
For blockchain gamers, the future of the RNG in gaming is the use of blockchain itself as a source of verifiable randomness, meaning that a public ledger – rather than a client side server – produces and records the random numbers for the gaming service provided.
This is a turn towards a fully self-sustaining blockchain gaming ecosystem, where every vertical in the gaming supply chain is inevitably recorded, monitored and is dependent on the same chain.
To take this concept further; the role of smart contracts can stand to remove the counterparty risk that may occur in playing with the house or in P2P gaming. A smart contract, is a piece of code that two parties subscribe to which self-executes. If the smart contract sets out the rules of the game references an external random number on the blockchain then, in principle, the counterparty risk is removed from the wager – as it is the code that intermediates the transaction.
I think it is important to observe that although some may find it hard to ascribe a social function to gambling in general, smart contracts experimentation in this area could benefit the build of transparent financial instruments on a blockchain. In the same way that a wager contract is a simpler depiction of a derivative contract.
In summary, looking at gaming and cryptocurrency is about understanding a new way of levelling the playing field online with the use of provably fair, as a mechanism to empower users. Thereafter, we are likely to see self-sustaining blockchain gaming ecosystems emerge so that everything from the RNG, to the games, to the punters and bookies are all on the same blockchain, embedding transparency and audit trails into every aspect of this new gaming industry.
This will be a radical departure from a somewhat disjointed technology and service ecosystem that exists in online gaming today. In the meantime, bitcoin, as an inherently speculative asset, suits a chance-based industry, so alignment between cryptocurrency and gaming will inevitably start to develop but subject to operators and regulators understanding and managing adequately the associated risks.