Marketplaces on the dark web frequently processed more bitcoin transactions than BitPay last year, new research has found.
In a paper released this week[1], Kyle Soska and Nicolas Christin from Carnegie Mellon University revealed that, even by conservative estimates, the daily sales volume of six large-scale dark markets reached up to $650,000 in 2014.
The bitcoin merchant processor’s self-reported annual total, $158.8m[2], would produce a daily average of around $435,000.
The report reads:
“In the short four years since the development of the original Silk Road, total volumes have reached up to $650,000 daily (averaged over 30-day windows) and are generally stable around $300,000–$500,000 a day, far exceeding what had been previously reported.”
Previous studies have relied on the total number of listings on each site, however Christin and Soska estimated sales volume using sellers’ feedback scores, with each review counting as one product sold.
This was important, they say, as popular items could have numerous feedback scores that could even build up to over $1m in volume.
The chosen few
The researchers, who spent over two years scraping and analysing data from more than 35 different sites, also found a large discrepancy between their sellers.
A very small fraction – the elite – generated a significant profit. By contrast, the majority of sellers (70%) would never sell more than $1,000-worth of items.
“In fact, 35 sellers were observed selling over $1,000,000 worth of product and the top 1% most successful vendors were responsible for 51.5% of all the volume transacted.”
This has parallels with BitPay’s data, too. Rather than many smaller merchants receiving bitcoin payments, researcher Tim Swanson[3] suspects there are a select few retailers that account for the majority of its transaction volume, in line with the 80/20[4] rule.
In the firm’s most recent report, broken up by industry, gift card retailers accounted for 9% of its transaction volume[5]. As there are so few gift-card-for-bitcoin services around, Swanson said, the lion’s share of activity in this sector was likely to come from just one or two of its 60,000 retailers, most likely Gyft and e-Gifter – the biggest on the market.
If this logic follows for the rest of the sections on BitPay’s chart, then it paints a view not of industries, but companies each taking up a share of its volume.
This appears to be supported by the number of small merchants, listed here[6], that have chosen to drop bitcoin as a payment option following poor sales.
Mixers, gamblers, thieves
Swanson came out with his best guess[7] at the flow of money through the bitcoin ecosystem in April. What it showed was merchants sales – illicit or otherwise – make up only a slice of transactions.
In actuality, bitcoin transaction volume that takes place ‘on-chain’ is dominated by a whole host of other services. The network is a test bed for many things – stress tests included – and it costs very little to spam the network with tiny ‘dust’ transactions, for example.
The popularity of gambling sites such as Satoshi Dice, which at one point accounted for 50% of transactions[8] on the network, continue.
“In terms of on-chain transactions we know gambling transactions as a whole are likely the largest component of transaction volume,” Swanson said.
The same goes for bitcoin mixing services – of which there are at least seven in popular use. A study[9] from Kristov Atlas released last September found that 2.6% of the 20,000 bitcoin transactions in his sample fitted the profile of SharedCoin transactions.
Bryan Micon, operator of now-defunct bitcoin poker site Seals with Clubs, has agreed to plead guilty to a charge of operating an unlicensed gaming website in Nevada.
Micon traveled from his home in Antigua to Nevada earlier this week[1] to face the gaming charge after a warrant was issued for his arrest in April by the Nevada Attorney General’s Office.
Defense attorney Richard Schonfeld told the Las Vegas Review-Journal[2] that Micon will serve an as-yet-unspecified probation term and pay a fine of $25,000. He will also forfeit assets seized when Nevada Gaming Commission agents raided his home in February, property that includes $900 in cash, computer equipment and just over 3 BTC[3].
The felony charge would be reduced to a gross misdemeanor, according to the Review-Journal.
The agreement to plead guilty comes months after Seals with Clubs abruptly closed in February[4], an act closely followed by the raid by the Nevada Gaming Commission.
A business in Southern California was the target of a police crackdown last month in connection with alleged gambling tied to an alternative cryptocurrency.
The raid appears to be tied to a broader crackdown of so-called sweepstakes cafes, which critics assert enable new – and unregulated – forms of gambling, but supporters say should be considered a legal form of gaming. The California Supreme Court is currently weighing[3] a statewide ban on sweepstakes cafes.
What may be unique about Shamrock is that the company utilizes its own altcoin, shamrockcoin, which according to an official website[4] is billed as a social-powered digital currency.
An explanatory video states that users can visit special locations like the one in Bakersfield to take part in the shamrockcoin mining process. According to the video, users can earn extra payouts by purchasing shamrockcoins, which then multiply the reward from processed blocks.
Bakersfield Police Department Sergeant Joe Grubbs said at the time of the raid that investigators believe “money changed hands” during business hours. A police spokesperson told the news service that computer hardware was seized during the raid but that no one was arrested.
Shamrock Social Games and Mining denied that gambling had taken place at the Bakersfield store. Lawyer Peter Beckman said in an interview with KBAK/KBFX that “there’s no element of chance” to Shamrock’s games.
Nonetheless, Shamrock sparked controversy[5] among Bakersfield residents when it opened in March, with some critics concerned that the store would contribute to local crime.
Neither Shamrock Social Games and Mining nor local law enforcement officials responded to requests for comment.
Bitcoin gambling site Primedice will shift its focus to Russia and China following its decision to block US and Australia-based customers.
The company, which announced[1] Thursday it had stopped serving US and Australia-based customers due to regulatory uncertainty in both countries, is now seeking to grow its second and third largest client bases.
When asked about the implications of the restrictions, a spokesperson for Primedice[2] told CoinDesk:
“We’ve had to give up nearly 50% of our client base but with such an uncertain legal landscape surrounding bitcoin gambling [in the US] we feel this is better off in the long run.”
They added: “Australia only accounted for a little under 5% of our client base so blocking it was an easy decision in terms of mitigating unnecessary risk.”
Primedice is not the first online gambling service to block US-based users.
In October last year, SatoshiBet announced[3] it would restrict US customers from accessing its gambling platform, also citing the uncertain future of online gambling regulation in the US and legal problems that could result from servicing American customers.
Transactional volume
According to Primedice’s spokesperson, the company has surpassed 5 billion individual bets since its inception in May 2013.
The site’s activity accounts for a significant portion of daily bitcoin transactions too. Analyst Tim Swanson recently found[4] that Primedice’s activity from 1st January to 18th April roughly equalled BitPay[5]‘s daily transactional volume in 2014.
According to an infographic[6] released by BitPay, it processed a total $158.8m last year, resulting in a daily average of $435,068.
Disclaimer: CoinDesk founder Shakil Khan is an investor in BitPay.
It has often been said that bitcoin is the ideal digital casino chip. But what does that really mean?
For starters, it means that online gaming, more than anything else, is all about the customer experience.
Whether it’s a land-based casino or an online casino, gamblers want a seamless experience with immediacy and privacy, and operators want an irreversible payment method. Bitcoin provides[1] all three.
I recently made the prediction[2] that within five years, half of the top 10 iGaming operators will be bitcoin-only.
Of course, the mainstream online casino operators don’t see it that way and I wouldn’t expect them to. They have a profitable and expanding business model with national fiat currencies. Why would they want to disrupt that revenue stream?
Funny thing about disruption though is that it rarely comes from within. Disruption comes from your blind spot.
While major iGaming and industry gambling conferences in the west have paid lip service to bitcoin and cryptocurrencies as alternative payment methods, they have simultaneously relegated it to a niche solution where presentations are neatly tucked away in a side corner. Kodak[3] did the same thing after surprisingly inventing the first digital camera in 1975.
Reshaping the iGaming market
The grand opportunity with bitcoin is not with the major operators, which is exactly why I predict that half of the top 10 iGaming operators will soon be bitcoin-only.
New bitcoin gambling operations will evolve in that way organically – they will not be the major operators of today shedding their national fiat currency businesses. It will occur more along the lines of how Sony and Canon exploited Kodak’s weak spot.
The major differences between bitcoin-only operators and the majors are a stark reminder of how complacency for something unusual and new can threaten an entire business model. The differences are revolutionizing the playing field.
For instance, bitcoin operators do not need to maintain a bank account anywhere in the world. If structured carefully, operating expenses can be covered entirely in bitcoin, including salaries and even real-time payouts to the all-important affiliates.
Provably fair cryptographic techniques for casinos, like those deployed at SatoshiDice[4], eliminate the need for eCOGRA[5]-type bodies to provide legitimacy and credibility.
And probably most important, solving the payment dilemma in parts of the world under-served by banks or restricted by traditional payment networks opens up the world’s vast unregulated gambling markets.
While some licensed and national currency gambling sites attempt to push funding compliance to bitcoin wallet providers, other gambling sites are moving forward now by accepting bitcoin directly from customers. Indeed, bitcoin’s strengths[6] and speed-to-market play very well in this fertile and untapped ground.
These startling innovations will likely reshape the market for iGaming around the world, creating a new set of skills required for the industry, but that is not yet realized by today’s mainstream market leaders.
The management team decisions that bitcoin operators need to be focused on include:
In-house vs outsourced payment processing
Hot wallet/cold wallet ratios to balance customer service and ultimate security
Providing direct or indirect methods for customers to acquire bitcoin
The percentage of operational assets held in bitcoin vs national currency
Hedging and float yield strategies for bitcoin company assets
Blockchain tech is the cutting edge
With the bitcoin network just a little over six years old, the current statistics related specifically to bitcoin and gaming are impressive.
One hundred percent of the world’s countries can be reached via the bitcoin payment option and no other payment method can make that claim. It has been estimated by Coinometrics and others that approximately 40% of bitcoin network transaction volume is related to payments for online gaming. Bitcoin-only casino operators lead the field for the bitcoin-related web advertising market. And, there are over 150 bitcoin-only casinos and gambling sites operating today.
AnoniBet[7] claims to be the “first bitcoin sportsbook and casino” operating since 2011 and the original SatoshiDice[8] pioneered the field of blockchain betting.
Since the field is moving so rapidly, bitcoin gambling directories and lists have sprung up, with sites like my favorite Bitcoin Gambling Sites[9] and the more objective Bitcoin Gambling Wiki[10]. Some bitcoin gambling sites are simply too new to be listed, such as BurnTurn[11] poker and the promising Augur[12] project for a decentralized prediction market.
If you want to see where the innovation in gaming occurs today, the bitcoin and blockchain sector is the place to look.
Taking the lead
My advice to bitcoin gaming businesses? Ignore the regulators.
By that I mean the gaming commission regulators at least while the industry is in a grey area. They don’t know what they are doing with respect to bitcoin and, out of apathy, they frequently push the opportunity to the financial regulators who end up delaying implementation.
Bitcoin suffers from an outright usage ban or threatened ban in only three countries: Bolivia[13], Ecuador[14] and Russia[15], which is still considering the final ban legislation, but blocks access to bitcoin-related websites in the meantime.
Regulators are not leaders, they are followers[16]. Don’t count on them to be insightful and innovative. Their primary job is to slow you down.
Do what you do best and build lasting and profitable businesses. Maybe even launch a skunkworks business within your organization. Failing that, perhaps acquire one of many bitcoin-only gambling operators from the industry lists above. Ultimately, it may assist in the upcoming drive to remain relevant.
Disclaimer: The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, CoinDesk.
Disclaimer: The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, CoinDesk.
A Las Vegas casino owner’s decision to start accepting payment in bitcoin has paid off, with business at his venues improving following the move.
Derek Stevens, CEO of the D Las Vegas Casino Hotel and the Golden Gate Hotel & Casino started accepting bitcoin at the sites in January 2014[1]. Of the two casinos, the D Las Vegas Casino Hotel, is processing the highest number of bitcoin transactions, Stevens revealed, though he declined to disclose exact figures.
Bitcoin is now accepted at the front desks of the Golden Gate[2] and the D[3] and as well as the gift shop and three restaurants at the D, giving the latter destination the edge in terms of the number of bitcoin-accepting locations.
Recalling the past year, Stevens told CoinDesk:
“We’re located in the growing tech sector of downtown Las Vegas, so it seemed like the right fit and we’ve definitely seen more business as a result.”
The D also recently replaced its Robocoin bitcoin ATM with a Genmega G6000 bitcoin ATM, though Stevens declined to provide a reason for the decision.
Low-cost items see boost
While tight-lipped about the finer details, Stevens did reveal the casinos currently see the highest number of bitcoin purchases at American Coney Island[4], an on-site eatery that specializes in classic American fare.
Stevens believes it is American Coney Island’s relatively low pricing that is making bitcoin purchases more common there than at the other restaurants.
Community-driven business
Another factor in the performance of the program has been the local bitcoin community, which Stevens said frequents the properties to support the payment method.
Other factors influencing the performance include the price of bitcoin, and whether any tech events are being held locally.
“You say prediction market and people are like ‘What’s that?’ – it doesn’t sound that important or lucrative or interesting.”
That’s Jeremy Gardner, best known as the director of the College Cryptocurrency Network[1], talking about the first reactions some may have to his latest project, Augur[2], the decentralized, blockchain-based prediction market founded by Jack Peterson and set to launch a token crowdsale this spring[3].
Common perceptions aside, Gardner and core developer Joey Krug are out to prove that a platform that allows participants to bet on the outcome of real-world events can be a vehicle for social good, rather than simply another outlet for digital gambling.
In conversation with CoinDesk, Gardner and Krug sought to portray Augur as a project that plans to use decentralized public ledgers to create a way for anyone in any field, from finance, healthcare and governance, to tap into the collective forecasting power of a global user base.
Gardner said:
“With bitcoin, it’s a better money than what we have, but it’s a version of what we have today. We’ve never really had a wildly popular prediction market. We’ve never had these open-source tools to be able to bet on the Internet and turn that into a social good.”
Both Gardner and Krug have left college to launch the six-person project, one that boasts financial support from Ethereum[4] creator Vitalik Buterin and the guidance of Ron Bernstein, founder of Intrade[5], what was until the time of its shutdown in 2013[6] one of the more well-known prediction markets.
Speaking to CoinDesk, Bernstein said he expressed an early interest in the project as he views it through the lens of his own struggles trying to launch a similar, though centralized, platform.
The Intrade and Tradesports CEO compared the challenges the project faces to tech giants like Uber, which have tested regulatory boundaries in order to ensure they are first to market with a potentially powerful idea.
“The potential for Augur is really about the distributed participation from the exchange operators as well as from the exchange users and the ability to distribute that in the way that they propose has never been done,” Bernstein said.
A tumultuous history
At present, there are more immediate hurdles for Augur. One of which is ensuring that the public can get behind a prediction market, especially when their rocky history has clouded public perception about what they are and what they aim to achieve.
Prediction markets allow their users to buy and sell shares in the outcome of an event. The current market price of a share is then an estimate of the probability that event will occur. Already, many academic researchers attest that such platforms, while incorporating aspects of gambling, do have practical value.
“Prediction market prices have informational value because they aggregate the beliefs of market participants and reveal what the market overall forecasts are the odds of the event at hand occurring,” a 2014 report by Mercatus Research[7] explains.
Though it goes on to note that primary reason the market exists is speculation, the report does speak to the positive benefits such a platform can have by noting its use in US presidential elections dating back to the 1800s.
Gardner attests to being an Intrade user, placing bets during the 2008 and 2012 elections. He explained the appeal of the service, adding:
“It wasn’t gambling, there was no risk if you thought you were well-informed and that to me was a really powerful notion.”
Finding a gray area
Just as powerful a roadblock may be historical issues prediction markets have faced on a regulatory front, particularly from the Commodity Futures Trading Commission (CFTC[8]), the body that oversees the US futures market.
In 2005, for example, the CFTC granted Intrade an exemption to operate, providing it limited participants to those with assets between $5m and $10m. By 2013, dogged by lawsuits in the US and issues abroad, Intrade shut down[9]. Notably, its website currently promises “announcements coming soon”.
Further laws were enacted as part of the Dodd-Frank financial reform law, which sought to limit betting that was not deemed to be in the public interest. However, some prediction markets have been able to prosper, most, like the Iowa Electronic Market[10], under academic exemptions.
Yet these problems, Augur contends, are solved by the decentralized nature of blockchains and the overall lack of regulatory guidance.
“There’s no law that prevents us from doing what we’re doing. We’re just writing code. There’s also no law that allows us to do what we’re doing. We recognize that it’s a gray area, but it’s a gray area we’re very much comfortable with,” Gardner said, adding:
“Very clearly we write this code, we put it into the cloud and like Satoshi [Nakamoto] we could disappear.”
Gardner discussed conducting the company’s in-house legal research prior to the launch of the venture, asserting that the project should not fall under securities laws as “people aren’t partaking in a common enterprise and they’re not expecting profits from the work of others”.
Still, he admits the CFTC is “a huge concern”, though one that will be alleviated by the fact that no one involved with the project will operate a prediction market.
“It’s about narrowing down who we might piss off and reducing the likelihood of that happening,” Gardner said.
Harnessing blockchain tech
Questions of market viability aside, Augur is already at work on its technology, though even its construction remains in flux. Augur intends to use two types of tokens to facilitate its market.
First, it will plan to use the as-yet-unlaunched sidechains technology to transfer bitcoin to addresses that can be held while a user is actively holding shares as part of a wager. Second will be the token of focus during its upcoming crowdsale, Reputation, which is set to be sold over 45 days in May.
Reputation tokens will be sold during the crowdsale in part to raise money for the completion and continued development of the platform, but be used by Augur in practice to incentivize users to reliably report on the outcome of events, say that Hillary Clinton is elected president in 2016.
“After the election happens, because there’s not a centralized source that confirms that it’s happened, there has to be a decentralized reporting system. That’s where reputation comes in. Reputation holders are asked to report on the outcome of events and that ensures the integrity of the system,” Gardner said.
Those who are dishonest, in turn, have a percentage of their tokens redistributed among the trustworthy users in the network. How much will be distributed is determined by an equation, and will vary depending on factors such as how many people report on the event and how accurately.
Lastly, there will be a ‘seigniorage modeled coin’ that will help ensure that long-term bets can be made without being subject to the volatility of bitcoin. For example, if a user wanted to bet on the 2020 election, he or she would need to know the funds would retain value at this time.
“What we’ll probably do,” Krug continued, “is there is a thing called the subcurrency API on Ethereum, and we’ll probably support the best seigniorage out there, so we’ll probably use the best of them.”
Already in place, according to Krug, is the equation that would allow for the exchange of shares in event outcomes, and the consensus mechanisms that determine binary outcomes.
“You can even have up to 75% liars and get the correct outcome reporting,” Krug said, though he noted the project is still working on how to deal with multidimensional outcomes.
Educational marketing
Connecting with potential users will be another challenge, as evidenced by the somewhat lackluster reception of the group at The North American Bitcoin Conference’s Startup Stage.
Recalling the event, Gardner remarked: “I think there is a huge gap that keeps people from understanding the project.”
Focusing on this question will be the job of director of marketing Tony Sakich, a former marketing manager at payment processor BitPay.
Describing the project’s members as a “dream team”, Sakich indicated that he intends to focus his efforts on keeping Augur’s ad campaigns “old-school”, while appealing to a broad base beyond those in the bitcoin community.
“We’re hoping to go to a lot of a schools, academia has wanted something like this for a while. I think the people who are into prediction markets are not the crypto types, and we’re trying to make that crossover,” Sakich said.
Calling the project a “real challenge” when compared to BitPay, Sakich said he’s in the midst of lining up conferences and events that will allow Augur to reach audiences outside of the bitcoin community.
Although he said he won’t be using the betting platform, he added he expects Augur to “become one of the definitive prediction markets”, provided it can be maintained by its decentralized community.
Sparking change
Despite these challenges, the Augur team is confident their product can solve real problems.
For example, Krug mentions that Augur could be used by farmers in Argentina to hedge against weather cycles or by Chinese traders who are unable to access the US stock market.
“Take the problem of asking your own employees for information,” Krug continued. “Say you’re a fashion company and you want to see what will be the best-selling product of that year. You can ask your employees. What you could do is ask the general public and get a much more accurate result.”
On an even more abstract level, Krug went so far as to suggest that prediction markets could be used by doctors to more accurately diagnose patients.
Perhaps most notably, Krug and Gardner aren’t interested in turning Augur into a long-term endeavor or even a business, or at the very least, that matter is still up for debate.
“A lot of team members are pretty young, this is really an intellectual experiment. Let’s say that Augur is successful, there’s all sorts of consumer applications, there will be consulting opportunities,” Gardner said, comparing the career path to those blazed by bitcoin developers like Peter Todd.
Gardner added:
“If Augur is successful, there’s a huge opportunity to make money, but we believe that if this succeeds, we’ll have created this world-changing forecasting tool.”
The full white paper for the project can be found here[11].
Play, a Chinese startup that plans to disrupt the incumbent online game industry using blockchain tech to remove trust, has recently ‘gone public’ as a decentralized autonomous company (DAC) on crowdfunding platform DACX.com.
In its prospectus, Play claims it offers a third-party verifiable mechanism to ensure true randomness and fairness for gamers by placing the games’ logic on a blockchain. This would remove the need for trust in centralized institutions, it says.
The startup will also offer a platform to aggregate all games using its proprietary technology, and an in-game assets-trading platform to make tokens, props acquired from different games and Play’s crypto-shares exchangeable.
The DACX platform[1] is operated by Zafed, a Shanghai-based financial service provider established in September last year, which itself has raised seven-figure dollar investment via Lightspeed Partners[2] in China.
Distributed company model
The ambitious-sounding project will not take the form of a company, in the formal sense, meaning it will not be subject to regular company laws, but will instead be governed purely through the alignment of incentives.
Play’s own description of itself as a DAC reflects its aim to disrupt the existing company model.
The project seeks to raise 3,000 bitcoin by selling 20% of its total two billion total shares to global investors who, regardless of the jurisdictions they operate in, can invest in this project by sending bitcoins to the designated address.
As of 15th January, 2015, Play’s website indicates it has raised 1,777 BTC – 59.27% of its target.
Speaking to CoinDesk, Zafed CEO James Gong explained Play’s key value propositions.
One problem that hinders the success of small-chance game developers (games such as dice and online poker), he said, is the “trust issue”.
While larger developers have stronger incentives to ensure fairness when their reputation is at stake, for smaller game developers such incentive can be easily overwhelmed by the prospect of short-term gain. Users, aware of the risk, tend to shun the latter as a result.
The proposed solution is what Gong calls ‘on-chain games’. These are “games that run their entire logic on the blockchain and that are independent from any external centralized intuitions”, he said, and will lead to reduction of trust-related risks.
The project’s white paper, which can be downloaded on its website here[4], elaborates more on the topic:
“Chance games have come to rely almost exclusively on trusted third parties to provide random feeds. While this system works well enough, it is based on a centralized trust model, and suffers from the possibility of cheating by players. Even thought some crypto based games on the Internet have probably random feeds, which can be verified by the public, hidden players can cheat by submitting selective favorable transactions because they know the random secret in advance.”
Real-life predictions
Play has also described new types of games that will utilize the technology that it develops, although the company claims the games will be developed by third-party developers.
“The goal of Play is to afford the players with access to a rich variety of games on the Play platform, all to be provided by third-party developers. The platform will not only offer probability games, but also include more advanced games like betting on real events, chess games and board games.”
It goes on to describe some games. One is a real-event betting game, otherwise known as a ‘prediction market[5]‘.
Participants will bet on whether an event will happen, or how something will happen, in the future. For example, if a particular celebrity will get married or divorced in a specific amount of time.
Play explains:
“This data needs to be inserted into the blockchain, a job that can be done by ‘delegates’. Because delegates are elected by shareholders, we assume the results of vote are reliable. If not, the consequence is shared by Play shareholders who elected the delegates, which means that it will fall on the whole community, in which case, it is still fair.”
Building an economic system
Aside from the enhanced fairness and innovation in the games, Play also proposes to build an exchange platform to form a wider economic system surrounding them.
According to its white paper, “Play allows users to issue customized assets, which will be tradable on the platform of Play and can be sold for the crypto shares that Play issued.”
Gamers will be able to buy and sell their game tokens and props on the exchange, which results in what the paper calls an “inter-server and inter-game P2P economic system”.
Correction (21st January 2015, 14:06 GMT): Removed reference to bitcoin’s blockchain.
Gambling is big business, and online gambling represents a significant and growing proportion of that business – about 8% currently.
Research company H2 Gambling Capital, which values the online gambling market in terms of gross winnings, put the global market value at €21.73bn ($28.54bn) in 2012. Furthermore, the firm expects a 9.13% compound annual growth rate through 2015.
Right now bitcoin gambling only accounts for a tiny percentage of the total of online gambling revenues. However, it is clear that the opportunity exists to make significant income within the industry and, with bitcoin’s advantages in terms of low-cost, speedy payments, cryptocurrency-based gambling firms are doing their best to do just that.
CoinDesk spoke to some of the bitcoin gambling community’s experts to see what challenges they’re encountering along the way.
Wide-open market
The bitcoin world loves to gamble, in one form or another. In his book[1], The Anatomy of a Money-like Informational Commodity, Tim Swanson points out that half the transactions on the bitcoin network were being used to transmit bets to SatoshiDice[2], one of the earliest bitcoin betting sites, created by Eric Voorhees.
Further, an analysis[3] in August 2013 showed that roughly 5% of the value of all bitcoin transactions in June that year were flowing through SatoshiDice. That means lots of very small transactions, which is, after all, one thing that cryptocurrencies are very good at.
Ivan Montik, CEO at SoftSwiss, provides online casino software for entrepreneurs, and its solutions support fiat and bitcoin gambling. “We’ve got about 400 requests for the launch of a bitcoin casino in the last six months,” he said. “We constantly have three to five casinos in the set-up phase, and could have had more if we had more resources.”
Not all bitcoin bets are low in value. Montik said that there are some high rollers in crypto-land:
“On one client website[4], launched just about a year ago, there are single wagers reaching 200–400 BTC. The total amount of bitcoins wagered on all of the sites operating with the SoftSwiss platform is equal to $10m per month.”
The regulation challenge
Cryptocurrency’s success in this market depends on several factors. One of the most important is regulation and, notably, SatoshiDice doesn’t operate in the US market, because of the strict gambling laws encountered there.
In 2006, the US Justice Department introduced the Unlawful Internet Gaming Enforcement Act[5] (UIGEA), designed to quell the rising tide of Internet gambling sites. It made it illegal for US players to process payments using US banks.
In April 2011, the US government raided[6] the three most popular online poker sites operating there, in an event known as ‘Black Friday’. This had a chilling effect on online poker sites in the country.
Bitcoin, however, has emboldened some entrepreneurs, who are openly allowing US players to gamble using the cryptocurrency. One of these is Seals with Clubs[7], managed by seasoned poker player Byron Micon.
“It would be trivial to circumvent some ban. Seals is open to the world. There’s no banking at all done on the site. It’s a pure bitcoin poker site, so this is a totally brand new thing,” said Micon. ”It’s only been a few years for the legal world and there’s nothing at all that says anything about this protocol.”
There are also signs that individual states are softening their approaches to online gambling, in any case. Delaware has allowed online gambling[8], as have New Jersey[9] and Nevada.[10] The latter state has also passed a law enabling it to form partnerships with other states to let their residents gamble in its online casinos.
Slowly, then, things seem to be opening up in the US, which is creating a more positive environment for cryptocurrency gambling sites that are already operating there, anyway.
The importance of innovation
Another thing working in cryptocurrency’s favour is the innovative nature of its community. The cryptocurrency concept[11] is itself entirely new, built on the cryptography–based decentralised autonomous networking principles introduced by Satoshi. In such an innovative environment, is not surprising that new technologies and gaming models have sprung up.
Adrian Scholz, founder of SatoshiBet.com, argued that the ‘dice’ gaming model on which sites like SatoshiDice were built is an example of such an innovation.
He said
“This game did not exist in online casinos before bitcoin, yet it turns out to be more popular then games like roulette and blackjack.”
There are other breakthroughs that came from the crypto gambling community. “Take Provably Fair, which created a trustless shuffling system,” he said. “Take HTML5. Most of the classic online casinos run games still require Flash or Java plugins.”
“Take investing! Just-dice[12] introduced the concept of allowing players to be part of the bank, which turned out to be pretty much the ultimate marketing vehicle,” he concluded.
There are other areas of innovation, too. In particular, mobile gaming is becoming increasingly important.
Cloudbet[13], formed in 2013, is a sportsbook and casino environment where players can deposit instantly, bet, and withdraw again as soon as bets are graded. The firm recently launched a mobile casino, and is preparing a mobile sportsbook.
“We’re now seeing that a lot of gaming industry experts are coming in with a wealth of gaming industry knowledge and experience,” said Cloudbet spokesperson Leandro Rossi, in an indication that the industry is maturing.
Challenges to overcome
There are still challenges for those wishing to start bitcoin casinos, however, and different experts see different threats.
Scholz singled out legislation as the biggest issue. “We saw major operators that were willing to introduce bitcoin (for example Vera&John held out because of the unclear state bitcoin is in,” he said. Although now, that casino has taken the taken the plunge[14].
Mitonik pointed to marketing as another significant problem. Effectively, as the space begins to fill out, it could become difficult for new entrants to make themselves heard above the noise.
He said:
“If you’ve never dealt with marketing before, you’d better prepare the budget and let professionals work on it.”
Mike Hadjuk, founder of Infiniti Poker[15], argued that security is the biggest problem. “Nobody is impermeable. Even the Pentagon can get hacked. To me that’s our number one concern,” he said.
Hadjuk is another example of an innovator in the cryptocurrency gambling space, having created a service that would allow players to view each other using live web cams.
The soft launch of his service was compromised by players creating multiple accounts and using them in combination to steal no-deposit credits. He is now preparing for a Q4 full launch.
Micon also highlighted security as an issue:
“It’s about keeping the bitcoin safe. That’s not just about securing cold storage – it goes beyond that. It’s about looking after issues such as automated cash-outs, to help sites scale without allowing criminals to take advantage of poorly configured scripts.
Seals with Clubs was hacked[16] last December, and lost 42,000 passwords in the process. Micon explained that the team behind the site learned a lot from a security perspective. “No one lost their coins. We were able to drastically improve up to and beyond industry standards for our password table,” he said.
Educating users
Perhaps the biggest challenge for cryptocurrency gambling sites, though, is the uptake of bitcoin itself.
Cloudbet’s Rossi said:
“There is still a high educational barrier to entry. People can transact with Visa and MasterCard without understanding how the payment network works, but to transact with bitcoin there is still a requirement of technical knowledge.”
The company has launched mainstream campaigns to educate potential players about bitcoin, but this is something that the bitcoin community has to broach collectively, he indicated.
The good news for bitcoin gambling sites is that they are still early in the process, meaning that there is lots of room for disruption, said Micon:
“Some kid is going to come up with some bitcoin gambling game. They will be 12 years old and they’ll make $480,000. That’s just what’s possible.”
Possible, for sure. But with a few challenges along the way.
