Fundamentals of bitcoin gambling open the door to debate

20 November, 2018

We would like to open this post by posing an interesting question relating to the human condition: is debate a healthy thing? We think so.

Debate is an opportunity for people with varying opinions to make those opinions known in a public forum. When conducted properly, debate can be a very productive thing for society. So we are not at all bothered by the ongoing debate about bitcoin gambling.

As you know, is a big proponent of bitcoin gambling. For that matter, we are in favor of using any cryptocurrency to gamble online. It is part of being free. Yet we understand that the fundamentals of bitcoin gambling do open the door to debate.

The very concepts that make bitcoin and other cryptocurrencies so attractive also create disagreement among proponents and detractors. And for every person on one side of the coin, there's another person on the opposite side.

We thought it might be helpful to look at some of the cryptocurrency fundamentals that are stirring the debate. Where you stand on each of these issues is fine with us. We only want to emphasize that, as the debate continues, those on every side should continue only with an attitude of respect and civility. Open debate is not an excuse to be rude, crass, or otherwise uncivil.

Getting around gambling restrictions

One of the most hotly contested fundamentals of bitcoin is the fact that it can be used to get around government restrictions. This is true not only for gambling, but also other enterprises that have been deemed illegal by various government bodies.

Remember that cryptocurrencies are decentralized. They are also encrypted and tokenized, making transactions extremely difficult to track. And even when trades are tracked, identities are intentionally anonymous. This makes crypto the perfect tool for doing things that would otherwise be risky using fiat currency.

In the gambling arena, there are those countries that have gone to great lengths to ban online gambling. People in those countries risk prosecution should they attempt to gamble online using a credit card, a bank transfer, etc. But they can buy bitcoin or another cryptocurrency legally, then use it at an online casino that accepts crypto.

Because cryptocurrencies are nearly impossible to track, those gamblers can freely participate with very few risks of being caught. Is this good or bad? That depends on your perspective. Thus, the debate over using crypto to bypass government restrictions.

No intervention from government or commercial banks

Next on our list of bitcoin fundamentals is the fact that cryptocurrency does not suffer from any intervention from government or commercial banking systems. This is the main component of the decentralization concept. By keeping banks out of the equation, cryptocurrency transactions are kept between traders themselves. There is no one on the outside attempting to control transactions or manipulate the value or supply of coin.

Online casino operators appreciate this concept because they can eliminate costly and time-consuming bank transactions by accepting bitcoin deposits. They also have fewer security concerns. What cryptocurrency lacks in some areas is made up for by keeping banks out of the equation.

Is this a good thing, though? It is if you firmly believe that government and private banks should not have the ability to manipulate money supply and value. And yes, they do manipulate. Government and private banks control both money supply and value in order to also control national economies.

It's not a good thing if you believe some measure of bank intervention is necessary to maintain stability. The fact is that very few government and private banks regularly deal in cryptocurrencies. As such, there are plenty of merchants who will not touch them either. It is quite possible we will never see worldwide adoption of cryptocurrency as the primary way of trading if banks do not get behind it.

Crypto's volatility is extreme

We talk about bitcoin gambling from the perspective of making a deposit with your favorite cryptocurrency in order to play your favorite slot and table games. But there is another form of gambling going on here. Cryptocurrencies like bitcoin are not considered legal tender anywhere in the world at this time. Most governments view them as investments. Unfortunately, they are very volatile investments.

The value of any cryptocurrency is determined ultimately by supply and demand. This is good in the sense that it levels the playing field between traders. Everyone's bitcoin is worth exactly the same regardless of individual socioeconomic status. Those who believe in cryptocurrency as a means to economic equality take great comfort in that.

Still, there is a very bad side to crypto volatility. Price swings in either direction can be extreme, and they can happen with very little warning. You could be a very wealthy crypto holder when you wake up in the morning and dead broke when you go to bed at night. Crypto is that volatile.

The pump and dump problem

This particular aspect of cryptocurrency is important enough for us to expand on it. In that expansion, we want to talk about the problem of pumping and dumping. It is a very real problem that is wreaking havoc in the cryptocurrency space.

In a previous post we discussed the possibility of developing a cryptocurrency specifically for online gambling. A dedicated gambling coin could be used by an unlimited number of participating casinos wishing to conduct business in a sandbox environment. It sounds like a good idea, but multiple attempts to develop a gambling coin have failed due to pumping and dumping.

A pump and dump scenario is one in which a cryptocurrency developer seeks out private investors in advance of an initial coin offering (ICO). The idea is to convince those investors to prop up the new crypto with as much fiat currency as possible. Once the developer feels his crypto has peaked, he cashes out his ownership and walks away with a ton of money. The ICO crashes and investors are left with nothing.

Pumping and dumping is such a big problem that it has managed to scare away most big-time crypto investors. It is all about volatility, and pumping and dumping takes advantage of that volatility to the benefit of a small handful.

Fiat currency has to be involved

This final cryptocurrency fundamental is one that most crypto evangelists do not like to talk about. Though it is uncomfortable, it is very real nonetheless. Here it is: crypto has to be backed up by fiat currency if it is to have any value. A crypto with nothing behind it is nothing more than a digit in a blockchain ledger.

Let us illustrate the point with online gambling. Let's say you run a very profitable casino that accepts bitcoin deposits but only allows withdrawals via bank transfer or paper check. Both of your withdrawal options are limited to fiat currency. You have to have enough fiat in reserve to make good on withdrawals. How much you keep in reserve is up to you, but it has to be enough to cover a moderate amount of withdrawals at any point in time.

Let us also say that you limit withdrawals to the same cryptocurrency used to make deposits. Now you do not need to have fiat currency reserve, but all your crypto holdings are worthless to you if you cannot spend them outside of the gambling environment.

What if you want to withdraw some of your crypto to pay your licensing fees? You would have to sell that crypto at an exchange. The fiat cash you raise would go toward paying your fees. In such a scenario, the exchange is in the position of having to maintain enough fiat currency to cover its actions.

The debate on this point is really not whether fiat currency has to be involved at some point in the system. We already know it has to be. People use fiat currency to purchase crypto, so fiat is in play one way or the other.

No, the debate is over whether there is a viable alternative to fiat as a backing instrument. Take Venezuela, for example. The Venezuelan government recently announced a new national cryptocurrency backed by the country's oil production. The jury is still out over whether the new crypto will succeed or not, but let's just assume it does. Owning some of it means owning a share in Venezuela's oil industry.

Could those oil shares be converted to fiat? And if so, would the fiat have any real value? Nobody knows. You are dealing with a government-backed cryptocurrency that only has value because the government says it does.

Keep the debate going

Hopefully this post has provided a bit of food for thought. Most of us can probably agree that crypto is a good thing for the most part. But there are some legitimate questions that need to be answered if we are to expect it to become the primary form of buying and selling. That is going to mean ongoing debate until satisfactory answers come.

We say keep the debate going. Just keep it respectful and dignified. If we can manage to have a reasonable discussion about the future of cryptocurrency, we just might arrive at some workable solutions. That would certainly be good for bitcoin gambling.