Bitcoin gambling and the public blockchain conundrum

3 February, 2019

There was an interesting article written on Coin Telegraph on January 21 (2019); an article that made the case for Bitcoin being the only public blockchain guaranteed to survive for the next century. The argument was indeed compelling.

But from the standpoint of online gambling and its potential to adopt cryptocurrency, the article offered a more important takeaway: how private blockchains might affect something as simple as gambling with bitcoins.

If the Bitcoin blockchain is indeed the only public blockchain to survive decades from now, either all other cryptocurrencies will fade away or they will be absorbed by Bitcoin. Neither seems plausible. So the only other possibility would be those other cryptocurrencies transitioning to private blockchains rather than remaining public. Is that any more plausible?

The answer may lie in the difference between public and private blockchains. Another thing to consider is that if all cryptocurrencies other than Bitcoin transitioned to private blockchains, that could actually facilitate the development of at least one gambling coin, if not several.

Public Blockchain: Permissionless

The most commonly used definitions of public and private blockchains explain the two paradigms as being open and closed. In other words, it is said that a public blockchain is completely open and accessible to anyone who wants access while a private blockchain is not. Such an explanation is an oversimplification given the fact that it is entirely possible to create a public blockchain that is closed and a private blockchain that is open.

A better way to describe a public blockchain is one that is governed by no permissions. It is 'permissionless'. Bitcoin's blockchain is built on a decentralized ledger distributed across thousands of nodes found in different locations around the world. Anyone can get a copy of the blockchain for whatever purpose. Anyone can add to the blockchain simply by conducting some sort of transaction with bitcoins.

Bitcoin relies on a combination of unlimited nodes and rewarding miners to keep everything on the up and up. But there is an inherent risk to the way this works. That risk is majority control. It is possible for a certain individual or organization to control 51% or more of the mining power on the Bitcoin network and then use that control to double spend. This actually happens more frequently than most cryptocurrency owners know.

Examples of Public Blockchains

Every cryptocurrency user is familiar with the public blockchain concept. Indeed, crypto is the most commonly understood example of a public and open blockchain. Other examples of public blockchains include Bitcoin gambling and playing online video games using any form of real or imagined currency to conduct transactions between players. Even some government voting systems use public blockchain, though such uses are considered closed.

Private Blockchain: Permissioned

A private blockchain is private in the sense that it is controlled by permissions. Much like a Linux-based computer network, a private blockchain is not easily accessed by anyone who wants to give it a try. Access is controlled by giving permissions to administrators, users, subscribers, etc.

The administrator of a private blockchain network would have complete and total access. Users would have access only to the extent that they could create certain transactions. An individual or group with no permissions at all could not access the blockchain for any reason whatsoever.

Examples of Private Blockchains

Private blockchains are not as well-known but no less prolific than their public counterparts. Examples of private blockchains include supply chain management systems, government records, corporate earnings, and law enforcement databases. Some private blockchains are open, many more are closed.

Why the need for Private Blockchains?

A few years after Bitcoin went public, it became apparent that its blockchain and underlying principles limited its usefulness to financial transactions only. An enterprising developer looking to take the blockchain concept further developed Ethereum, a new kind of blockchain that could be used as an application development platform. That one decision would lead to the development of private blockchains.

Public blockchains like Bitcoin are indeed useful for cryptocurrency and financial transactions. Their decentralized nature makes them ideal for maintaining a digital economy outside the scope and reach of government and central banks. In that regard, public blockchains have no rival.

Unfortunately, the only way to control behavior within the public blockchain environment is through the previously discussed multiple nodes and mining incentives. But this creates an additional problem with scalability.

Every time a new Bitcoin transaction is completed, the data is added to the current block in the chain. Every time a new block is verified and finalized, it adds to the total length of the chain. The longer the chain grows, the more computing power necessary to complete transactions. It has gotten so bad with Bitcoin these days that only larger organizations with the financial resources to utilize hundreds of servers can really make a financial go of it by mining.

Scalability is the real driving force behind private blockchains. A private blockchain is a lot easier to maintain and doesn't require the same raw computing power. Rather than relying on nodes and mining to control behavior, private blockchains are controlled through permissions and knowing the identities of everyone involved in the process. It is a lot more difficult to get away with something because everyone on the network is identifiable.

Faster and more efficient

A private blockchain also brings greater speed to the equation. For better understanding, consider the reality that Ethereum now utilizes some 12,000 nodes to process each and every transaction. Not only does that take a considerable amount of time, there is also the latency issue to be concerned about. Transactions that have been verified on some of the nodes cannot be finalized until all the nodes complete their work. Slower nodes slow down the entire network.

Compare that against a private blockchain that utilizes fewer than 100 nodes to verify its transactions. Latency would be reduced just by volume alone, and that would speed up processing time. A private blockchain is capable of getting a lot more work done in a shorter amount of time.

Local distribution is another big plus. Again, Ethereum's nodes are distributed across the world. That doesn't have to be the case with a private blockchain. In fact, it rarely is. Private blockchains are hosted on local networks, as are all the nodes. This speeds up transaction times considerably.

Of course, we cannot forget scalability as it is the main driving force behind private blockchains. Because a private blockchain is permissioned, it is possible to add both nodes and services on demand without disrupting the network or the blockchain itself. As needs grow, the system is expanded. This isn't so easily done with a public blockchain.

Online gambling with Private Blockchain

It is finally time to apply everything discussed thus far to the concept of online gambling. Right now, let's say you visit the website in order to find an online casino where you can play the world's most popular jackpot slot Mega Moolah using bitcoin.

The financial transaction that constitutes your bitcoin deposit is conducted within a public blockchain environment. If that casino utilizes blockchain technology for anything other than accepting bitcoin deposits, it's quite likely that the blockchain is also public. Could any of it be made private?

The cryptocurrency portion would have to remain public for the time being. If cryptocurrencies ever transitioned to private blockchains, that could change. But for now, your bitcoin deposits would remain in the public environment. Everything else is up for grabs.

Casino ownership could develop their own private blockchain for internal bookkeeping. Larger operators and game developers could create their own private blockchains for keeping track of business done with affiliates. The games themselves could be built using private blockchains as the foundation.

A dedicated gambling coin

We can extend this idea all the way to a dedicated gambling coin developed by a consortium of online operators and game developers. If the coin were such that it could only be used to gamble online, the blockchain behind this coin would not have to be public. The consortium could use a private set up with permissions granted to keep people entrusted to make the network work.

Such a private blockchain would require some sort of bridge between itself and public blockchain deposits. But that isn't hard to do. Just like it is possible to use fiat currency - which is not a part of a blockchain system at all - to purchase bitcoins, it should be possible to use cryptocurrency on a public blockchain to purchase gambling coins on a private blockchain.

It is intriguing to consider the possibility of Bitcoin being the only public blockchain to survive the next hundred years. Although that is unlikely to be the case, the demise of every other public blockchain on the planet would inevitably give rise to private blockchains. In the end, such a demise could be Bitcoin's undoing.

A private blockchain environment could give us a whole new way of managing a digital economy without any government or central bank control. It could make gambling online even better than it now is. If correct we are in for an interesting ride.