Blockchain, also known as distributed ledger technology, is famous primarily for being the foundation for cryptocurrencies such as bitcoin, but it is already transforming many industries as developers find imaginative uses for it. Could 2019 be the year that blockchain revolutionizes the gambling space?

It certainly appears so, as gambling companies are already testing the technology’s applications.

What is blockchain?

Blockchain works by providing a decentralized network of participants who must agree on a transaction before the transfer of data occurs. With bitcoin, that means if one person transfers 100 bitcoin to another person, the distributed ledger records the transaction centrally, and it cannot ever be changed. It removes the lack of trust between parties, who with blockchain don’t need to offer receipts that could later be lost and make it hard to prove a transaction took place.

As a digital transaction system that allows for secure data storage and execution of smart contracts in peer-to-peer networks, blockchain can entirely eliminate third parties in transactions. Instead, they are performed peer-to-peer in more or less real time, because the blockchain guarantees integrity and security.

Because of the way blockchain is evolving, the finance and payments industry has enjoyed the most attention and most investment. Now ten years old, it’s not hard to see why the gambling industry is looking to blockchain for the next step in its evolution.

Gambling with bitcoin

Most people currently gamble online by attaching their credit card or PayPal details to their account, but increasing numbers of players are wagering with bitcoin, ethereum, or other cryptocurrencies. For an online casino, using blockchain-based virtual currencies cuts the cost of transacting a bet.

The transparency of the distributed ledger also makes it harder for an unscrupulous gambling operator to try to defraud a customer by refusing to pay out on a win because they claim the customer broke their rules, or by applying hidden charges.

For gamblers who want to play anonymously, blockchain shields wagers from prying eyes because they don’t show up on a regular bank statement. In countries where online gambling is illegal, anonymity means only players can access their activities, not governments. The downside is that anonymized wagers can make it harder for families to spot that a loved one has become a problem gambler.

Blockchain’s preservation of transaction data also makes it easier for gamblers to predict better odds. Extensive sharing of historical data from a broad variety of sources among groups of gamblers, for example in online forums, means players can better calculate chances of a win.

However, cryptocurrencies’ volatility means that a potential big win could have become starkly reduced in value by the time a player is ready to cash out into actual currency. Such volatility, though, is what attracts some gamblers to bet on cryptocurrencies’ fiat values.

Smart casinos

In December 2018, EOSBet – a gaming platform that is based on the EOS cryptocurrency – acquired an official license from Cura?ao to run the world’s first online blockchain-based casino. EOSBet offers baccarat and other games and has a volume worth some $5m (￡3.9m) in EOS-based betting tokens. It paid out around ￡1m (￡.78m) to winners in its first two months of operation in beta mode.

Also in December, blockchain-based lottery operator Quanta signed a contract with the Nigerian company International Lottery and Gaming Ltd that will help it transform Nigeria’s official lottery. The lottery is worth around $1bn (￡780m) in stakes every month.

Quanta, which has been operating since 2015 and was licensed by the Isle of Man’s regulator in 2017, says blockchain will improve fairness and transparency in Nigeria’s gaming sector. As lottery corruption is reportedly rife across the continent of Africa, players will surely welcome the arrival of blockchain technology.

DappRadar is a platform that tracks blockchain gambling apps by value, cryptocurrency and turnover, among other things. On the Ethereum blockchain network, which runs on its own Ether cryptocurrency, gambling apps are outperforming all other apps.

Between July and August 2018, players traded around $40m (￡31.3m) on the Fomo3D app on Ethereum, in which players use a fictional coin and try to take it away from each other.

Fomo3D attracts more daily players than non-blockchain online sites such as Poker Stars. However, it has been described as a Ponzi scheme. And because most blockchain gambling apps aren’t licensed or regulated, players are taking a risk with their investments, even though the technology provides full transparency.

Regulatory issues

Some blockchain gambling apps are connected to criminal activity, such as the DragonCoin cryptocurrency being linked to a network of Macau-based gangsters, so there is clearly a need for regulation. But how?

Cryptocurrencies that want to issue an initial coin offering (ICO), similar to when regular companies trade shares for the first time, create a headache for market regulators, who have to verify a vast amount of data before passing approval.

Regulators are also likely to pursue blockchain gambling operators behaving illegally only if they can be sure of getting a result, due to the cost of conducting an investigation.

Then there are problems such as verifying players’ ages so that minors can’t gamble under the radar. So far, apparently no instances of blockchain gambling platforms offering self-exclusion for problem gamblers have been recorded.

The transparency of blockchain means that further expansion into the gambling space is inevitable and cannot be ignored, but regulators will need to come up with ways to confront all such issues.