Patrick O’Brien: the role of bitcoin in online gaming
Gambling is a lucrative business, and online gaming represents a major and rising segment of that business – about 10% presently. H2 Gambling Capital, a firm that monitors the online gaming industry, estimated its global market value to be about $30 billion in 2012. In addition, the company projects the industry to realize a 9.13% compound annual growth rate all the way to 2015.
Therefore, the growing popularity of online gaming has necessitated the industry to reach further for more convenient and better payment systems. One such scheme that makes it easier for individuals to make more bets is the introduction of various crypto-currencies, of which Bitcoin has emerged as the favorite. Although this type of payment is faced with some hurdles, it has shown no signs of backing down from its revolutionary mission to enhance how things are done in the online casinos and gambling rooms.
Every country worldwide can be reached via the Bitcoin payment network and no other payment system can confidently boast of that. Coinometrics and others have approximated that about 40 per cent of Bitcoin network transaction volume is associated to payments for web-based gambling. Currently, more than 150 online casinos and gambling sites accept only Bitcoin as their preferred method of payment. Some of the leading Bitcoin gaming sites include Satoshi Dice, bitZino, and Seals with Clubs. And, the use of Bitcoin for online gambling is continuing to grow rapidly.
Placing bets on Bitcoin
There is increased interest in the use of Bitcoin in the iGaming industry because of its many advantages. Even though Bitcoin gambling currently represents a small percentage of the revenues from the iGaming industry, the stakeholders are burning their fingers to see that its use becomes more prevalent because of its many benefits.
The online gambling industry faces the following key challenges.
- Inability to effect real-time payments in both directions
- How to establish a payment system that is borderless
- How to incur minimal fees for transactions
- Difficulty in keeping client privacy beyond the gambling environment
Bitcoin, created in 2009, is a decentralized digital payment method employing peer-to-peer networking to allow irreversible transactions without involving any middle men. Bitcoin was developed as a reaction to centralized monetary authority, dwindling financial privacy, as well as paramount legacy infrastructure. So, could it be the best bet for the iGaming industry?
Here are some key benefits that Bitcoin brings to the online gaming world.
- Very low fees
Bitcoin is regarded as a co-efficient type of crypto-currency. The major benefit arises from the cheap cost of effecting a Bitcoin transaction. Because it is relatively inexpensive to carry out a single transaction, an increased number of sports betting companies, online casinos, online poker rooms, online bingo sites, and others are placing their bets on Bitcoin as the preferred payment option. Bitcoin’s reasonable transaction prices also enable the industry players to offer low commissions and therefore attract more gamblers.
- Freedom in payment
Bitcoin is a revolutionary payment system that allows gamblers to make transactions without worrying about geographical constraints. With Bitcoin, online poker gamers can play anywhere in the world, at any time. Online casinos and gambling rooms do not need to worry about rescheduling for bank holidays or other limitations that may hamper convenient transactions.
Bitcoin enables people in countries not reached by the common payment methods such as Visa, MasterCard, and PayPal to engage in online gaming freely and safely. So, it is able to provide payment solutions to some places in the globe without banks or controlled by the traditional payment networks. Consequently, Bitcoin is proving to have the ability to open up the world’s extensive unregulated gambling markets.
- Quick payment
Contrary to the traditional payment methods that normally take hours or days for a transaction to be effected, Bitcoin transactions, however, are normally far faster. With Bitcoin, payments can be instantaneous making it possible for real-time gambling transactions to be made in both directions.
- Irreversible transactions
When customers make payments using credit cards or even bank payments, the sender normally can reverse or “chargeback” the payment. Therefore, this increases chances of fraud that can deteriorate the developments of the iGaming industry. Bitcoin is the only means of payment that the sender cannot be able to reverse the payments made.
One of the reasons why Bitcoin is increasingly getting the attention of the online gambling world is because its purchases are discrete. If a user does not want his or her personal information to be known, it will never be disclosed. More so, the purchases cannot be traced back to him or her. Furthermore, no third-party is able to interrupt Bitcoin transactions or enact freezes on Bitcoin accounts.
As much as the personal information is kept anonymous, all finalized transactions are available for everyone to see. Thus, this encourages information transparency. The public address of the sender will be visible without revealing his or her personal details. Additionally, anyone can verify transactions in the Bitcoin block chain to ascertain their authenticity. Since Bitcoin is built on a network that is cryptographically secure, any individual, entity, or government cannot manipulate its protocol.
Challenges facing Bitcoin
Although Bitcoin has been singled out as the innovation that will spread the wings of online gambling, a number of challenges still stand in the way of its complete adoption by the industry, and one would understand why. Here is a description of the key ones.
As the digital currency has started to penetrate into the mainstream and get exposure, several gaming companies have come under increased scrutiny from the cautious regulators. Regulation is good because it assists in taming some unfair practices in the market. Therefore, there needs to be a resolution of the issues that the regulators deem as risky for Bitcoin.
The regulatory framework in most countries imposes some expectations on the online gaming companies. Notably, a significant portion of the regulation raises issues with one of the most attractive benefits that Bitcoin offers to the online gaming world: anonymity.
Nonetheless, to find a solution to this issue, regulators can work hand in hand with firms that require individuals to disclose their identity before engaging in Bitcoin transactions. An example of such a firm is GoCoin, which mandates individuals to give out their identity when registering an account with them. Therefore, the risk of anonymity will be resolved if the iGaming industry accept crypto-currency payments only from players that have been identified using such platforms as provided by GoCoin.
Bitcoin regulation in the world varies substantially from country to country. Further, it is still undefined or changing in most of the countries. Whereas some countries have clearly authorized its use, others have completely outlawed or strictly forbidden it. In a majority of the developed countries, crypto-currencies are regulated under the money laundering/terrorist financing laws. Presently, Bitcoin has been publicly banned or severely restricted in only three nations: Bolivia, Ecuador, and Russia.
In spite of the regulatory policies, online gaming companies are doing their best to conform to the gambling laws and
make Bitcoin a preferred method of payment. A notable example is Vera&John, an online casino firm based in Malta, which caused a stir in the gaming industry by becoming the first licensed casino to accept Bitcoin in early 2014. However, things took a drastic turn after some few months when the firm announced that it will no longer be accepting Bitcoin payments. Vera&John were asked to suspend accepting the digital currency by its regulator, the Malta Gaming Authority, or risk having their license being revoked.
For the growth of Bitcoin in the gambling industry to continue, the stern watchful eyes of the several jurisdictions should not be a stumbling block. Therefore, for online gaming firms to thrive, they must be ready to endure and even compromise in some instances so that they establish lasting and profitable businesses. For example, they should be ready to adopt such platforms as provided by GoCoin to reduce the risk of anonymity in the industry.
The increasing popularity of Bitcoin as a preferred payment system seems, to date, unstoppable. Bitcoin and other crypto-currencies are likely here to stay. Just like electricity, this innovation cannot be un-invented. This calls for the online gaming world to rise above the occasion and sail the growth of the industry while soberly seeking for solutions for the issues raised by the regulators.
- Price volatility
The price of Bitcoin constantly fluctuates because there is a limited number of coins in circulation and the demand for them increases every day. As of March 20th 2015, one Bitcoin was valued at $263.20. It was valued at $312.44 on January 1st 2015. This constant fluctuation of the value of this novice “digital dollar” makes sense since people are still experimenting with it to understand how best it works. It is because of the volatility of Bitcoin that the regulators in the industry perceive it to be risky for investments. However, as more people and businesses start appreciating the benefits of Bitcoin, its price will eventually settle down.
- Security issues
Another issue that thwarts the growth of Bitcoin in the iGaming industry is due to fears of security. However, it is very difficult for Bitcoin theft to take place, particularly if the digital coins are kept in a secured online wallet. In early 2012, Betco.in, an online poker site, was hacked leading to the loss of 2,900 Bitcoins from player balances. Since then, no hacker has been successful in stealing such a large number of Bitcoins from gaming platforms. Therefore, this shows that the iGaming industry has improved in terms of making its architecture secure for the participants.
The future with Bitcoin
Bitcoin will likely play a bigger role in the future of the online gambling industry. Bitcoin and other crypto-currencies continue to exert a firm foothold and will continue to shape its future. As more and more people begin to understand the concept of crypto-currencies, they will want to own their own digital coins that allow them to make fast and convenient payments while ensuring their purchases are secure.
As the popularity of Bitcoin increases around the world, individuals will get ways of making use of it just like fiat currencies. And, iGaming could just be another aspect this virtual currency is employing to legalize itself as a real unit of value. However, this amazing growth of Bitcoin is being incapacitated by some hurdles, which can be amicably solved so that people can continue to benefit from this innovation. Particularly, the issues raised by the regulators ought to be scrutinized carefully and major solutions developed. So, more dialogue between the various stakeholders, operators, suppliers, regulators, and the gamblers themselves is needed so that the bright future of the iGaming industry could be realized faster – with Bitcoin, of course.
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