Cryptocurrency, blockchain, and online gaming

March 24, 2017 - Blockchain, Cryptocurrency
Cryptocurrency, blockchain, and online gaming


Alongside the Statue of Liberty the iconic yellow cabs of New York City are recognized worldwide as an emblem of the great metropolis. Today these hallmark fixtures of the city are facing an existential crisis and for the city’s residents and visitors alike, it’s a big win.

The threat faced by the long complacent, opaque and monopolistic taxi industry is part of a universal trend towards increased competition, driven primarily by the ubiquity of computational power. There is evidence to suggest that the gradual buildup of pressure that has finally been brought to bear on the taxi industry is manifesting again, though this time with a different cast of characters.

One of the most popular use cases for Bitcoin is online gambling, as evidenced by the popularity of platforms such as SatoshiDice. Cryptocurrency casinos may take advantage of blockchain technology in at least two ways. The first is by accepting payment in, or making remittances with a cryptocurrency such as Bitcoin. The next is by providing an attractive user experience in the form of provably fair games that use the blockchain as a mechanism to provide the open source functions necessary to operate provably fair algorithms, i.e. random seed generation, hashing, and random number generation.

The legality of online gambling with cryptocurrencies is a controversial subject in many parts of the world. However cryptocurrency casinos have clearly demonstrated that an online gambling experience can be seamless, reliable, and provably trustworthy. In the same way that Uber demonstrated an improved way to interact with the taxi industry, cryptocurrency casinos show the world that there is a better way to interact with the gaming industry. Regulators and business leaders alike are now in the position of having to take a more determinant stance on how best to proceed.

The burgeoning start-up scene taking aim at the gambling industry represents a cause for concern among the rigid gaming establishment and a possible boon for players. Popular cryptocurrency casinos such as Edgeless that utilize digital money, i.e. Bitcoin or Ethereum, are innovating away many of the perceived problems that have emerged as the gambling industry continues along the inevitable path of digital transformation. There is a clear historical analogy here to the disruptive developments that have shaken the industry of vehicles for hire.

The canary yellow taxis of New York City are operated by private companies, though they are licensed by a government agency. Each individual license, which confers the right to pick up passengers anywhere in the five boroughs, typically garners a price tag of over $1,000,000. On the one hand this system engenders a situation whereby cabs are officially sanctioned with an endorsement of reliability from a trusted authority. On the other hand it imposes an artificial ceiling on the supply of cars available to transport people to and fro, driving up the price of rides and diminishing the chances that one will be available when and where you need it.

For a rational actor, having secured a precious taxi medallion, the incentive is to then make it as difficult as possible for others to “join the club” and erode your market position. Regulation is a sword that cuts both ways, but monopolistic powers typically tend towards cutting away services for customers while simultaneously cutting into their pockets.

Innovation rarely emerges as the introduction of something never before seen, there are few things new under the sun. So it was with ad-hoc ridesharing services like Uber and Lyft which took advantage of the convergence of GPS navigation devices, that assist drivers in route planning,  high penetration of smartphones, to facilitate ride requests from wherever a passenger happens to be, and social networks, which establish a degree of trust between all parties involved. These ingredients provided the preconditions to disintermediate the taxi industry and improve quality for users.

This push has served to improve the experience of cars for hire across the board by spurring entrenched taxi companies to provide a more attractive product offer. Organizations that challenge established business models by providing innovative goods and services that people are willing to pay for act as a catalyst.

The so-called Fourth Industrial Revolution is characterized by the ever broadening scope of digitization, it affects all sectors of society from government to industry, academia, and the arts. In the context of the gambling industry this transformation has been felt most acutely in the rush of established gaming houses to enter the online wagering marketplace, popular games such as poker, or slots can now be played directly on one’s smartphone or laptop.

Corresponding government regulation of this space has at times struggled to keep abreast of the changing landscape. In the United States some jurisdictions have implemented legislation that circumscribes these services while some have outlawed the practice altogether. The opacity of the gambling industry cries out for a rigorous solution to inherent problems such as the propensity of game providers to “cheat” or manipulate the house edge in their favour.

The scale at which large gaming houses operate means that even a slight manipulation, one that would go virtually unnoticed by players, for instance an increase in the probability that the house wins from 51% to 52% means a large increase in profit at the expense of the public. One way to prevent this type of manipulation is by tight regulatory controls on the gaming industry, licensing casinos much in the same way the taxis are licensed, an alternative approach is through technological innovation.

We are living at a time where the emergence of cryptocurrencies such as Bitcoin has begun to reconfigure the way online gambling operations are conceived of and implemented at all stages of an organization. One basic application is the substitution of cryptocurrency for national currencies, i.e. you send the casino some units of cryptocurrency rather than dollars. There are however more imaginative use cases for cryptocurrencies that stand to revolutionize the online gaming industry as a whole.

Edgeless is a new gaming company that uses the transparency characteristics of a blockchain, the novel database and system design protocol that facilitates Bitcoin, to create systems which are “provably fair”, i.e. any person with proficient technical understanding could validate that the odds were consistent with what is being advertised.

This new ability of anyone from an avid player to a disinterested observer to verify the integrity of each game stands in stark relief to the opacity that describes traditional games of chance conducted over the internet. It’s conceivable that as established gaming companies lose marketshare to these tech-savy upstarts that this new paradigm could usher in a new wave of accountability in the international gaming community.

Although casinos were one of the first highly trafficked applications for cryptocurrencies there is some backlash at the moment. One of the most popular online wallet services, similar to a bank where users can purchase and store units of cryptocurrency, has been known to freeze the accounts of users that are even suspected of sending cryptocurrency to websites that host online games of chance.

Nevertheless this newly possible increase in transparency is not a foregone conclusion. We’ve seen examples of reactionary governments enacting legislation to impede the growth of new products and services, think of Germany’s decision to outlaw ride-sharing companies. However it’s clear that new models of online gambling are now being actively explored. The gaming industry makes just one of the domains in which the steady rise of blockchain technologies are serving as the catalyst for radical change.