What is blockchain technology? How is it relevant for the iGaming industry? Is there more to it than Bitcoin? Let us get you up to speed.
Blockchain is often hailed as one of the breakthrough technologies of our age, along VR and machine learning. But what is it exactly, and why should you care? Still in its infancy, blockchain-based solutions are quickly breaking ground when it comes to payment systems, regulatory compliance, and gaming itself. If you want to peek into the future of iGaming, keep reading this primer.
What is blockchain technology?
In simple terms, blockchain is a way of recording information that makes it virtually impossible to falsify records. Rather than relying on a unique, centralised ledger of transactions, blockchain technology uses a digital ledger duplicated and distributed across a network. Transactions are verified by comparing information (stored in sequential blocks, hence the name) on these ledgers, meaning that a bad actor would need to control a majority of the network’s computing power to successfully falsify records. While theoretically possible, this kind of action (known as a “51% attack”) is de facto unfeasible in larger networks like Bitcoin.
Blockchain and compliance
It’s important to understand that while blockchain is the protocol on which cryptocurrencies are based, its applications are much wider and still largely unexplored.
When it comes to iGaming, the focus has so far been on payment applications. We have seen the rapid rise of platforms providing players with cryptocurrency-fuelled online casino and sports betting entertainment. The downside is that a carefree approach to cryptocurrency transactions may result in serious know your customer (KYC) and anti-money laundering (AML) issues, particularly in tightly regulated jurisdictions.
For example, the United Kingdom Gambling Commission (UKGC), one of the world-leading and trend-setting gambling authorities, requires licensees to inform the Commission about the introduction of payment methods, and to review their AML process upon said introduction. While cryptocurrencies — defined in the UK as “crypto-assets” — are contemplated as a payment method, the UKGC stresses the unique challenges they present. Licensed operators must acquire sufficient information to satisfy their regulatory requirements, primarily to assess the source of the funds. Another complication is maintaining functional AML triggers while accounting for fluctuations in value compared to fiat currencies.
In short, the main regulatory issue with cryptocurrency is satisfactorily tracing the source of funds. Transactions via traditional banking infrastructures are much easier to trace, as bank accounts require proof of identity in the first place. On the other hand, crypto wallets are generally anonymous. This makes the origin of assets traceable but similarly anonymous, thus often unsatisfactory for AML checks.
Crypto-based operators unable (or unwilling) to enforce strict KYC and AML checks may then be cut off from both the mainstream payment gateways and the richest, most regulated jurisdictions, and relegated to grey (or black) markets.
But, as we said, cryptocurrencies are only part of the story. And rather than being a complication, blockchain technology could end up playing a very different, positive role in iGaming.
Parts of the industry have recently realised that the power of blockchain can be unleashed to enhance regulatory compliance and player protection.
Blockchain technology can be used to securely record everything that happens on a platform. Operators would be able to store activity reports and player data in a way that guarantees integrity, allowing them to easily provide any required proof to authorities. The built-in transparency of the protocol would make for a healthier ecosystem, at once ensuring operators’ respect of regulations and simplifying their compliance processes.
NFTs: blockchain-based entertainment
Blockchain technology can also be used to create entertainment products. While not strictly related to traditional iGaming platforms like online casinos and sportsbooks, some blockchain games have caught the attention of gambling regulatory authorities.
The two most notable examples of this new generation of games are NBA Top Shot and Sorare, both of which run on the Ethereum blockchain and are built around the concept of “non-fungible token” (NFT).
NFTs are proofs of ownership stored on a digital ledger, tied to specific digital assets. In common parlance, these digital assets are improperly referred to as the NFTs themselves.
NFTs can be distinguished from cryptocurrencies in that NFTs aren’t interchangeable: while a Bitcoin equals a Bitcoin, no two NFTs are the same.
Their only intrinsic value is hedonic — the pleasure of ownership in itself. By attaching proof of ownership to digital data, NFTs create “digital scarcity”; and, as scarcity tends to drive demand, NFTs tend to appreciate in monetary value.
We said that NFTs are tied to “specific digital assets”, but what sort of assets are they? Text. Pictures. Sounds. Videos. Anything, really. Some NFTs are tied to a single word, others to works of (pixel) art… and then there are digital trading cards.
NBA Top Shot
Born in 2019, NBA Top Shot boomed in early 2021. Think of it as basketball trading cards, except they are NFTs — short videoclips of shots, dribbles, dunks. Each card, called “moment”, exists in a limited number of copies, each individually numbered. Customers can buy and sell cards on the website’s marketplace, or acquire a handful by buying a pack.
Cards whose number matches that of the player depicted are considered extremely valuable. How much? Packs go from $9 to $999, payable in Ethereum or fiat currency. In April 2021, a card of LeBron James dunking changed hands for nearly $390,000.
It’s not by chance that NBA Top Shot became so popular when it did. Many consider it a form of sports betting — one that took off as real sports were on hold due to Covid-19. Buying a pack for a hundred dollars may give you a card worth tens of thousands — and you can call that a gamble.
Sorare is the European answer to NBA Top Shot. The main similarity is in the nature of the NFTs: customers acquire numbered “cards” representing players — in this case footballers — on the Ethereum blockchain. In Sorare, customers can then compete in fantasy tournaments using a team of owned cards.
The crucial difference is in the method of acquisition of the cards: Sorare doesn’t directly sell packs — only individual cards or predefined bundles, at fixed prices. Players, however, can then buy and sell their cards on the secondary marketplace.
NFTs and loot boxes
The closed-pack mechanic is what makes NBA Top Shot much more akin to gambling than Sorare.
In late 2021, the UKGC cautioned customers about the platform and announced that it would conduct an investigation to determine whether Sorare’s gameplay constitutes gambling. The company replied with a statement stressing that the card-purchasing process lacks any “randomised mechanism”, thus making it distinct to loot box-style products.
Loot boxes are a model of video game monetisation which involves the sale of closed-box items in exchange for fiat currency, or in-game currency acquirable with fiat currency. They rose to public attention in 2018, with various governments moving to regulate them as a form of gambling. Within Europe, they have already been banned in the Netherlands and Belgium, with many other jurisdictions expressing concern and looking at the possibility of strict regulations.
Some voices even called for a European Union-wide ban due to the targeting of vulnerable young players. British charity GambleAware found that 12 out of 13 studies on the subject established unambiguous connections between loot box gaming and problem gambling behaviour.
While widespread outright bans seem unlikely at present, it’s most likely that regulated jurisdictions will in time introduce strict guidelines for loot boxes. Blockchain-based games based on closed-pack mechanics — like NBA Top Shot — would surely be affected, whereas the jury is still out on more discrete products like Sorare.
How can Slotegrator help?
While blockchain gaming is still in its infancy, cryptocurrency payments are bound to quickly become an expected feature for leading online casinos and sportsbooks. Stay ahead of the curve by acquiring our dedicated Bitcoin casino software — for more information, get in touch with our sales team.