Bitcoin and the Betting Industry
By Norman Fleming
On the date of today’s article, 5th December 2017, Bitcoin’s price has just surged past $11,000 to it’s all-time high. That’s a huge price to pay for an asset with no clear intrinsic value. The increase in attention on Bitcoin in society and the media has led to many different industries adopting this technology to suit their own needs. One industry this article will focus on is the Betting Industry. It’s impossible to cover every angle of this in such a short piece, but this will give you an insight into the technology and some existing solutions that have already been developed.
Let’s kick the article off with answering some fundamental questions.
What is Bitcoin?
Bitcoin is a form of digital currency, created and held electronically. No-one controls its supply, Bitcoins aren’t printed like pounds or euros – they are produced by computers all around the world solving complex mathematical problems. Bitcoin was created by a software developer called Satoshi Nakamoto – no-one really knows for certain who the real Satoshi is (I will let you guess), but we do know he owns 1 million Bitcoin, roughly $11 billion in the current market. Satoshis idea was to create a decentralized currency independent of any central authority, which means a bank had no control over your money. The original Bitcoin whitepaper can be read here.
Figure 1 – Bitcoin illustration
How is Bitcoin created?
Bitcoin is created by ‘miners’. Miners are computers running software problems to solve mathematical formulas. When these problems are solved, the Miners are awarded Bitcoins. The secondary task of the Miners is to support the Bitcoin network – the awards give the Miners an incentive to exist. There is a cap on how many Bitcoins can be produced – only 21 million to be exact.
What is ‘The Blockchain’?
Bitcoin is completely decentralized, which means a ledger of transactions needs to be held and distributed across all members of the network. This is called a Blockchain. It is a continuously growing list of records, stored in Blocks. Each new Block of records is created with data from the previous block, which means once a new block is created – it’s very difficult for someone to modify what has happened in the past. In order to alter the Blockchain retroactively, you would need a collusion of the majority of the network – something which is very difficult with a network of Bitcoins size. Blockchain technology is vastly popular, with a large number of financial institutions now investigating how this can be incorporated within their current systems.
Figure 2 – Simple illustration of a blockchain
What can I do with it?
Bitcoin made its name with illegitimate use. When the Silk Road black market on the darknet got shutdown in 2013, the Bitcoin brand had been tarnished because a very large proportion of goods on Silk Road were purchased using Bitcoin. That is still a problem today, but it has become more steadily adopted across legitimate industries. Microsoft added Bitcoin as a global payment option in 2014, Dell started accepting Bitcoin in July 2015, and my personal favourite, Honest Brew – a UK-based online beer platform also accepts Bitcoin.
What are the other types of Bitcoin?
Bitcoin is not unique, there are many similar alternative coins, often branded ‘Altcoins’. They are also commonly referred to as ‘Cryptocurrencies’. I will not go into too much detail in this article, but you can see a breakdown of Altcoins by Market Capitalisation on the coinmarketcap website. The second highest Cryptocurrency in terms of market cap is named Ethereum, and it will be mentioned a few more times in this article.
What is an ICO?
An Initial Coin Offering, also commonly referred to as an ICO, is a fundraising mechanism in which new projects sell their underlying crypto tokens in exchange for fiat currencies or bitcoin and ether. It’s somewhat similar to an Initial Public Offering (IPO) in which investors purchase shares of a company. Ethereum raised a little over $18 million in early 2014 – the largest ICO ever completed at that time. ICOs are a fairly new phenomenon in this space, but have dominated the media recently.. Many view ICOs as unregulated securities that allow founders to raise an unjustified amount of capital, which has led to China declaring them as illegal in September this year.
What are the Implications in Betting?
Bitcoin has been used to gamble since about 2012. In 2012, a gambling website called SatoshiDice was the leading Bitcoin gambling website in terms of amounts wagered. The platform has encountered a lot of issues since then, but it laid the foundations for people thinking about gambling with Cryptocurrency. BetKing opened in April 2013, and by 2015 had the most wagered of all crowdfunded gambling sites. There are many others available, but people have now started this idea even further.
Bitcoin and Traditional Sportsbooks
There is no legal reason why Bitcoin cannot be used to fund a UK-based sportsbook account. I can only assume that the reasons why this has not been widely adopted is for technological reasons, the fear of no regulation, and the volatility in the Bitcoin market price. As Bitcoin gains attention in the media, and becomes more widely adopted, this landscape may change. That being said, a few online bookmakers do accept Bitcoin – such as CloudBet. Another example is NitrogenSports – they allow you to create an anonymous account, something unheard of in mainstream Sportsbooks.
PeerPlays is the world’s first peer-to-peer betting platform built entirely on a live blockchain. It is a platform in its early stages, but it could have a huge impact on the industry. The platform allows other applications to develop on the PeerPlays Blockchain. An example of one of these applications is Bookie. Bookie is a global, decentralized sports betting exchange, which means it is freely available to all sports bettors, with no geographical restrictions. The exchange offers low commission rates, and it does not penalize bettors who are able to earn long-term profits. I think the jury is out on whether or not this will be widely used, due to the high barriers of entry to the industry.
Over the past decade, fantasy sports have massively risen in popularity with key players like DraftKings monetising the space. NoLimitCoin is the world’s first fantasy sports cryptocurrency. You can read their whitepaper here. The concept is an interesting one – the No Limit Fantasy Sports produces boasts a much lower rake than the US-based competitors, but again the high barriers to entry make mass adoption questionable.
Another rapidly growing area in the betting industry at the moment is eSports. Unikoin Gold is a decentralised eSports betting token, based upon the Ethereum blockchain. You can read the whitepaper here. The currency was developed by Unikrn, an eSports betting platform founded in 2014 which claims to be the most technologically advanced eSports betting platform. They created the Unikoin token in 2015, and have now released its own cryptocurrency Unikoin Gold. The company wants to make Unikoin Gold the be all and end all cryptocurrency in eSports betting. The currency has some high profile backers, most notably Mark Cuban, owner of NBA team the Dallas Mavericks. One piece of news that is great for Unikrn is that it has just been awarded a gambling license in Malta, which means it can now target 80% of the European continent.
This is a rapidly evolving technology, and as more industries begin to adopt it en masse, the betting industry will follow suit. It’s unclear which area will make the most headway first.
Most traditional bookmakers pride themselves on how many deposit methods they make available to their customers, so I think it’s only a matter of time before they begin to accept cryptocurrency as a deposit method. Moreover, if Unikrn can become the market leader in eSports betting, the fact they are built on a blockchain proves there is a huge use-case for this technology.
Thanks for reading.