Blockchain technology is emerging as a game-changer in a wide variety of markets. As we explained in our prior post, Understanding the Intellectual Property Value of NFTs, blockchain technology is the basis for creating non-fungible tokens, or NFTs, which have experienced astounding growth in areas ranging from art to music to video games. This article discusses how cryptocurrency and blockchain technology are potentially disruptive technologies for the online gambling industry.
What is Blockchain - a Brief Overview
In its simplest terms, blockchain is a decentralized, digital record of all the transactions that take place using digital assets. It is a database that stores encrypted blocks of data chained together to form a single chronological ledger of transactions. In many cases, the data is distributed to create an immutable record of the asset's history that is accessible to the public. The overall purpose of blockchain is to "let people-in particular, people who don't trust one another-share valuable data in a secure, tamperproof way."1
Application to Cryptocurrency and Gambling
Blockchain set the table for the emergence of cryptocurrencies, which are decentralized digital assets that leverage blockchain technology to ensure security and prohibit double-spending. While cryptocurrency first emerged years ago, the recent wide-spread public adoption has driven its growth. Many industries have benefitted from the convenience and access that cryptocurrencies provide through user-to-user payment systems. The $60 billion online gambling industry is particularly well-suited to capitalize on the trend.2
Benefits to the Industry
The gambling industry has already embraced digital payment methods.3 Blockchain and cryptocurrencies can greatly expand this trend. As we explain, this technology can advance mission-critical objectives of the online gambling industry, including the security, validity, anonymity, and cost-efficiency of the industry's core transactions.
I. Security and Validity
Blockchain technology in online gambling provides an added layer of protection for users because the databases record all transactions and store the information in a decentralized ledger. This technology prevents the prevents the illegal trading of digital assets and reduces the risk of both hacking and payment duplication.
II. Anonymity and Privacy
Data privacy is a concern for many online gambling users because websites commonly require them to disclose personal information, which creates hesitation among individuals who worry about how and where their data will be stored. Cryptocurrencies provide an opportunity for websites to eschew requests for detailed information because transfers of cryptocurrency are immediately validated by the public blockchain. This protection of user information further reduces the risk that personal data will be compromised.4
III. Efficiency and Access
Relatedly, crypto-accepting gambling websites can provide users with a streamlined registration process because of their ability to operate without unnecessary personal information.5 As a result, these crypto-friendly websites may be better positioned than their non-crypto-accepting competitors to attract potential users, who can begin playing immediately upon providing only an email address and a username.
IV. Instantaneous and Cost-Effective Transactions
Blockchain technology and cryptocurrency in the gambling industry also provides efficiency through instantaneous transfers. When online gamblers deposit cryptocurrency into a gambling platform, they do not need to wait for a bank or third-party company to verify the decentralized transactions, which are not currently controlled by a central authority. Instead, the blockchain immediately verifies the transaction and the platform learns instantly whether it is valid.6
The decentralized nature of cryptocurrencies also makes them more cost-effective than other sources of payment like credit cards or bank transfers. Many cryptocurrencies-including Bitcoin-have no hidden transaction fees. Utilizing this form of payment benefits both the user and the platform, who avoid incurring costs accompanied by traditional payment methods.
Takeaway
Overall, while blockchain technology and cryptocurrencies are not new, the gambling industry is in its infancy in terms of market adoption and implementation. Market participants will continue to drive the wide-spread adoption of the crypto asset class, which in turn will result in a broader use of blockchain technology and different methods of utilization that can advance the gambling industry considerably. Of course, these benefits do not come without challenges, both technical and regulatory. Stay tuned for our follow-up article regarding the regulatory challenges the online gambling industry will face as it inevitably moves towards blockchain and cryptocurrencies.
Footnotes
1 Mike Orcutt, How Secure is Blockchain Really?, MIT Technology Review (Apr. 25, 2018), available at https://www.technologyreview.com/2018/04/25/143246/how-secure-is-blockchain-really/.
2 Online Gambling Market Size, Grand View Research (Apr. 2020), available at https://www.grandviewresearch.com/industry-analysis/online-gambling-market.
3 Emerging companies like Cash2Go, for example, structured their business product behind the thesis that digital payment solutions would be a driver in the industry. Further information on Cash2Go is available at https://cash2gocard.com/.
4 The Future of Blockchain Technology in the Gambling Industry, Chipin, available at https://www.chipin.com/future-blockchain-technology-gambling-industry/.
5 Anonymous Gambling in Bitcoin Casinos, CoinGambling, available at https://coingambling.info/news/anonymous-gambling-in-bitcoin-casinos/
6 The Future of Cryptocurrency in Online Gambling, BlockchainNews (June 11, 2021), available at https://www.the-blockchain.com/2021/06/11/the-future-of-cryptocurrency-in-online-gambling/.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
