6 ways bitcoin makes gambling operations more profitable

27 November, 2018

A typical Coinbet.com post discussing bitcoin gambling addresses the topic from the gambler's perspective. We normally take this view because our website caters to gamblers looking for places that they can play at.

However, this post takes a different approach: we look at bitcoin gambling from the operator's perspective.

Bitcoin and other cryptocurrencies are becoming increasingly more accepted within the online gambling space. Gambling operators are slowly but surely warming up to Bitcoin, Bitcoin Cash, Litecoin, XRP, Dash, Ethereum, and others.

There was a great piece in late October (2018) discussing some of the nuances of cryptocurrency that, when applied to operating a gambling site, makes doing so more profitable. This post takes a look at some of the reasons cited in that article.

So, without further ado, here are six ways bitcoin and other cryptocurrencies make gambling operations more profitable:

1. Free transactions (most of the time)

It would be foolish for us to guarantee that gambling operators would never pay a penny in transaction fees to accept bitcoin, but we can say with confidence that cryptocurrency transactions are absolutely free most of the time. In fact, we are not aware of any scenario in which it would cost an operator anything extra to accept bitcoin.

Such is not the case with more traditional payment systems. For example, take your typical credit card. The average charge assessed to the merchant is about 3 percent. In addition, banks and credit card companies charge extra fees based on the value of each transaction.

We can imagine a fictional gambling operator paying 3 percent on all credit card transactions. We can also imagine a USD $0.10 charge on each deposit. If an operator accepts 1,000 deposits in a given day, the company will incur $100 in charges to start with. If those 1,000 deposits are worth a total of $100 apiece, the operators 3 percent fee would amount to $3,000. That is a lot of money to lose in a single day.

By contrast, bitcoin and other cryptocurrencies can be passed freely from gambler to casino without any transaction fees whatsoever. All the money saved by not having to pay credit card fees and charges can go back into the operator's business.

2. No expensive chargebacks

Chargebacks are another big problem with credit card deposits. A chargeback is a situation in which a customer charges something to his or her credit card only to ask that the charges be reversed later on. Sometimes customers claim they changed their minds, other times they claim they did not make the initial charges.

This is problematic for credit card issuers because they guarantee to refund customer money under almost any circumstance - at least until a problem can be investigated. It is an even bigger problem for merchants. Why? Because they are the ones left holding the proverbial bag.

It is not unusual for banks to withhold up to 10 percent of the funds associated with a given credit card transaction in order to cover chargeback costs. So right off the bat, the gambling operator never receives the full payment to which he or she is entitled. When chargebacks do occur, the merchant is left to deal with the entire loss of the transaction. Even worse, the merchant doesn't get back the initial amount paid in fees and charges.

Once again, there are no such worries with cryptocurrency. Once a bitcoin transaction has cleared all the nodes on the bitcoin network, it is permanently entered into the blockchain and no longer reversible. If an operator is dealing with a customer who disputes a certain transaction, it is up to those two parties to work things out. There is no third-party intermediary who takes the liberty of refunding the customer's money and leaving the operator having to absorb the loss.

3. More consistent cash flow

Online gambling is a business that relies heavily on uninterrupted cash flow. Operators must have the funds to run their businesses as well as make good on the bets won by customers. Having poor cash flow could end up killing an online gambling operation.

One of the biggest problems in this regard is that most electronic payments, like credit cards or systems like PayPal or Neteller, do not give operators instant access to cash upon deposit. Credit card companies can hold funds for up to two days before making them available. Electronic payment systems take at least a day to process funds. On weekends, it could be two or three days.

Cryptocurrency transactions are remarkably different. They are nearly instantaneous. And even when they are not, waiting more than 5 or 10 minutes is completely unheard of these days. Gambling operators willing to accept bitcoin have more consistent cash flow as a result.

4. Lower potential for fraud

Next on our list is the lower potential for fraud among casino operators that accept cryptocurrency. We all know how easy fraud is perpetrated with traditional banking systems, especially credit cards. People are so free with their information that they are easily targeted by hackers with very creative means of getting said information from customers.

Why is this a problem for operators? Because consumers are typically not held liable for fraud that occurs using their identities and information. But if hackers have spent what they have stolen - and that is almost always the case - somebody still has to pay for it. That somebody is usually the merchant.

Yes, credit card issuers and payment processing firms will tell merchants that they will not be left holding the bag in cases of fraud. But ultimately, they are. Even if a credit card company or payment processor absorbs the cost of fraud when it actually occurs, they ultimately pass those costs on to merchants by way of service fees and charges.

Fraud is much less of a problem when you are talking cryptocurrency. Not only is bitcoin and its crypto cousins inherently more secure than more traditional electronic payments, the decentralized nature of crypto prevents merchants from having to ultimately absorb the cost of fraud. Though we may sound terrible for saying this, decentralization spreads the pain of fraud around.

The good news is that cases of cryptocurrency fraud are indeed very rare. That makes accepting bitcoin etc, a lot more attractive to gambling operators looking for less risky ways of doing business.

5. Less costly banking

Online gambling is considered a gray area of business in a lot of countries. And due to government restrictions and ethical and moral norms, online gambling is a business that banks are reluctant to get into. This creates expensive problems for operators.

First, it is difficult to find a bank willing to provide financial services. And even when one does step up, their fees and charges are often significantly higher for certain kinds of businesses - like online gambling. Operators are left to pay more for banking services or seek out offshore banks.

There are no banks involved in cryptocurrency. So imagine an online casino that accepted nothing but bitcoin and its primary competitors. That casino operator would end up having no interaction with banks whatsoever. That is one way to avoid the expensive banking that the gambling industry is known for.

6. Improved cross-border commerce

Finally, gambling operators unwilling to accept cryptocurrency are losing a ton of money that could otherwise be made in cross-border commerce. Their argument makes a lot of sense.

There is no shortage of online gamblers who cannot gamble using sites located in their own countries. Even if they could, government restrictions make it very difficult to gamble online using fiat currency. A gambling site unwilling to accept crypto does not have access to those customers.

On the other hand, bitcoin casinos can welcome those players with open arms. Government and banking restrictions are simply not in play when you're talking about cryptocurrency. More access means more players, and more players generally means more profit. It is really pretty simple.

Bitcoin a boon for online gambling

Cryptocurrency is arguably the best thing to ever happen to online gambling since its inception. As such, it's a wonder that there are still so many operators out there not in on it.

There are certainly some downsides to dealing with bitcoin. Volatility is one of them. Casino operators already involved with cryptocurrency must constantly keep an eye on market capitalization and bottom-line price in order to make sure they don't lose their own shirts. But by and large, volatility is a risk that can be reasonably managed.

Other than that, there aren't a whole lot of downsides to accept the cryptocurrency as a gambling operator. There may be licensing issues to worry about, but even that is not a big deal. There are plenty of game developers more than willing to make cryptocurrency available on their platforms. Gambling operators just have to be willing to embrace the concept with an open mind.