The case for crypto making gambling safer

30 September, 2020

Perceived security is one of the things that draws people to cryptocurrency. It is what convinces some online gamblers to make deposits only with BTC, LTC, etc. The thing about security and cryptocurrency is that it goes beyond just payments. You could make the case that the crypto concept makes gambling safer across the board.

In order to make such a case, you have to get beyond cryptocurrency being nothing more than an alternative payment system. That may be what Bitcoin founder Satoshi Nakamoto intended for his project when he first started, but crypto has long since surpassed Nakamoto's original vision.

Many of today's crypto platforms are blockchain platforms more than anything else. The blockchain is the core of the project, with a cryptocurrency being but one use of that platform. A well-developed blockchain can be the software foundation of the entire gambling operation. It can touch every aspect of operations from accounting to game development and proving fairness.

Fixing regulatory failings

Both online and traditional gambling are highly regulated in most parts of the world. Governments have been regulating gaming operations for as long as most of us have been alive. But why? Because some unscrupulous operators are not content earning their profits fairly and legitimately. They have to game the gamers, so to speak, gradually increasing their edge until they make it impossible for players to ever win.

Regulations are designed to curb such activities. They are intended to keep things fair so that gamblers are not ripped off by operators. How do regulations do that? By forcing accountability and transparency. But as Calvin Ayre's website puts it, "blockchain offers both, without the need of a third party to regulate the activity".

Simply put, the case for crypto making gambling safer rests in the fact that blockchain does what regulations cannot do. It fixes generations of regulatory failings by forcing everything out into the open. Blockchain forces accountability and transparency.

It is all in the ledger

If you found yourself with the power of a regulator to force a particular industry to treat its customers well, how would you go about instituting accountability? For starters, you would want a full accounting of everything businesses in that industry did. You would want records. And of course, you would want some assurance that the records you received were actually truthful.

You would also want ongoing records to be forthcoming. You would want businesses to be completely transparent in everything they do. Only when they are accountable and transparent can you rest reasonably assured that they are being fair. That is exactly what blockchain can do.

The benefits of blockchain are found in its ledger. In fact, it is all in the ledger. Without it, blockchain doesn't do a thing for gambling.

If you are not familiar with blockchain ledgers, their most important characteristic is what we are interested in. Blockchain ledgers are irrevocable - which is to say that the data they contain cannot be modified in any way once it is added to a new block. It cannot be changed; it cannot be deleted. The data in every single block is part of a permanent record that will remain unaltered in perpetuity.

A second characteristic also helps: ledgers are kept secure through the concept of distribution. In other words, multiple copies of a blockchain's ledger are distributed across so many computer nodes. Every copy must agree before new data can be added. Through this distribution process, you force transparency simply by making the ledger available to large groups of people.

Blockchain accountability

Imagine you are an online operator required by regulators to prove that your games are fair. As things currently stand, you need to have games evaluated by a third-party. That third-party runs extensive tests designed to prove that results are random. If your games pass their tests, you have demonstrated fairness.

That is all well and good. But regulators always have to be concerned that operators and testing labs could work together to generate incomplete or incorrect data. There is also the possibility of unscrupulous operators manufacturing their own test results. Blockchain changes the game.

By developing new casino games on top of a blockchain platform, you use the blockchain ledger to track and create a record of every single play. That means every spin of the reels and every card turn at the blackjack table is entered into the ledger as a permanent record. You create accountability without the need for third-party testing labs. The ledger tells the story.

At any point, that ledger can be inspected and analyzed. It will prove, beyond a shadow of a doubt, whether or not games are fair. It achieves exactly what regulators have been trying to achieve for generations without the need for third parties.

Blockchain transparency

The transparency issue relates to everything from fairness to taxation and revenue. Again, let us go back to the concept of distributed ledgers. Bitcoin's ledger is distributed on hundreds of computer nodes scattered around the world. It is a public ledger, meaning anyone can download a copy and look at it.

It would not be realistic to make gambling operator ledgers public in the sense that unlimited copies are floating around in cyberspace, like Bitcoin's ledger. Nonetheless, what would essentially be a private ledger would still have to be distributed across multiple computer nodes in order to maintain security and integrity.

It is distribution that forces transparency. If 12 individuals or small groups have access to the ledger, it becomes nearly impossible for an operator to hide something. Too many people have access to the records. More importantly, requiring operators to make ledgers readily available to regulators makes it even more difficult to get away with something. Thus, transparency is achieved.

Blockchain and accounting

The accountability and transparency characteristics of blockchain make the case on their own. Blockchain makes gambling safer by preventing operators from ripping off their customers. But let us go one step further and talk about accounting.

Regulators have known that gambling is incredibly attractive to bad actors who would use it to launder their ill-gotten profits. In fact, money laundering through casino operations has been going on since the 1950s. It predated online gambling and cryptocurrency by decades.

Money laundering is made easier by the fact that traditional books can be 'cooked' with a few simple practices. Multiple books can be kept, for example, with slightly different records depending on who those records are intended for. Transactions can be hidden within the books by using coded entries. And of course, records can be changed at a whim.

The fact that blockchain platforms create irrevocable ledgers makes it more difficult to launder money through the system. Laundering is still not impossible, but it's a lot harder with a blockchain ledger. Laundering money through a blockchain system requires masking payments before they are made. Once a transaction is concluded and added to the ledger, it cannot be changed.

Would blockchain completely eliminate laundering through online casinos and cryptocurrency platforms? It is not beyond the realm of possibility. There are other ways to launder money that are a lot easier. It wouldn't make sense for bad actors to try to circumvent blockchain's built-in security unless they could do so easier than using some other laundering method.

Also consider taxation and revenue. This is yet another component of accounting. Gambling operators must report their revenue for tax purposes. If all transactions are run through a blockchain system and added to the operator's ledger, the likelihood of that operator hiding revenues goes way down.

Imagine every gambler playing at a particular site depositing cryptocurrency. Those deposits create entries in multiple ledgers: the crypto platform's ledger and the casino's accounting ledger. Now you have two records of money coming in. Every time a player withdraws in cryptocurrency, two more records are created. Just by comparing those two records, authorities could tell whether or not an operator is honestly reporting income.

Few reasons to not go blockchain

Stepping back and looking at blockchain technology and how it can make gambling safer, there do not appear to be many reasons to not embrace it. Sure, blockchain is not perfect. And most platforms have plenty of room for improvement. But imagine designing a brand-new platform specifically tailored to the needs of gambling operators and their customers.

The people behind Bitcoin SV say their platform is the best one for gambling operators. Whether or not that's true ultimately rests with the operators who try it. But let us say Bitcoin SV is everything it is advertised to be. You wouldn't need to create a whole new platform from the ground up. Bitcoin SV already does everything you need it to do.

It seems inevitable that the online gambling industry will move more toward blockchain as time goes on. It may eventually be 100% blockchain powered. That may not be the case for land-based operators, but online gambling going blockchain could be the impetus for the land-based industry doing the same thing.

Blockchain can make gambling safer across the board. By creating an irrevocable ledger, blockchain forces both accountability and transparency. Nail those two things and you eliminate much of the regulation put in place to ensure safety.