Blockchain in online casinos: innovation and the future of iGaming

Is there a better business idea than a crypto casino? Online gambling is one of the many industries being propelled forward by blockchain technology. Let the experts at Slotegrator outline how blockchain works in online casinos, and how embracing the next generation of iGaming tech can boost your business.

Crypto casinos are booming. In 2024, casino platforms that focus on bitcoin and other cryptocurrencies generated over $81 billion in revenue, despite the fact that regulators in some countries are moving to restrict or even ban the platforms.

It’s becoming increasingly clear that cryptocurrencies — and other blockchain technologies — are taking over the gambling space. And no wonder; they’re as popular with players as they are effective.

Let’s look at what’s happening with blockchain in iGaming.

What is blockchain technology and how does it work?

Blockchain technology has gone from a niche interest for the tech-obsessed to a headline mainstay.

For many, the terms blockchain and cryptocurrency seem to be nearly synonymous. That’s a misconception, though; cryptocurrencies are built on blockchain tech, but there are many more applications.

Blockchain is a type of distributed ledger technology (DLT). DLT is the “infrastructure and protocols that allow simultaneous access, validation, and record updating across a networked database,” according to Investopedia. DLT lets users access who made any changes to the record and what the changes were.

Each block in the chain contains a list of transactions or data, a timestamp, and a cryptographic hash of the previous block. The hash links all the blocks together in a chain, making it nearly impossible to change a single block without affecting the whole chain.

How does it work?

1. The user initiates a transaction, such as sending cryptocurrency.
2. The transaction is validated by a network of nodes using a consensus mechanism.
3. The data is grouped in a block. The block includes a hash of the previous block.
4. The nodes in the chain validate the new block. The new block is added to the chain.
5. The new block is now visible to all users. It becomes immutable, meaning, it cannot be changed without changing all the other blocks in the chain.

Where is it used?

Obviously, blockchain is already in wide use in the world of cryptocurrencies and digital payments. But there are plenty of applications beyond the world of finance. In fact, there might be no limit to the potential of blockchain. It can be used — and in some cases already is being used — in smart contracts, NFTs and digital ownership, identity and data verification, and gaming.

Key principles: decentralization, transparency, immutability

Blockchain has proven to be wildly popular, due in large part to how effectively it can be applied to a variety of use cases. The top three principles of gambling on blockchain that players value are decentralization, transparency, and immutability.

Decentralization

There is no single authority regulating blockchain systems. Data is stored across every node in the network instead of housed in a central database, and every node in the network has a copy of the entire transaction history.

Transparency

Every user in the network can see and verify all records. This makes blockchain operations better than taking things on faith or blind trust. You can see for yourself that the transaction is legitimate, as systems use cryptographic proofs and consensus algorithms like proof of work or proof of stake.

Immutability

Blocks can’t be changed without affecting the entire chain. Whenever a new transaction occurs, the transaction is broadcast to the entire network, validated, and added to the chain, making fraud essentially impossible.

Provably fair gaming, smart contracts, cryptocurrency payments

“Are online casino games rigged?” is probably one of the most-googled questions related to iGaming.

Blockchain tech provides a simple answer for transparent online gambling: smart contracts.

Smart contracts are self-executing pieces of code that automatically set and enforce the rules of bets, games, and payouts. In a smart contract, an action is automatically performed once a certain condition is met, without the need for intermediaries or human verification. This ensures that online game rounds take place transparently.

What are smart contracts and how do they work?

Smart contracts are a set of code with predefined rules. When certain actions are performed, they automatically trigger certain responses.

In iGaming, smart contracts work like this:

1. The player places the bet.
2. The bet is held in escrow.
3. The outcome of the game round is determined, based on random numbers.
4. The player witnesses the game round.
5. The funds are released to either the player or the casino, depending on the outcome.

It might seem odd at first that the game round is determined ahead of time. But this acts as a guarantee that the casino cannot tamper with the game round in response to the size of the player’s bet.

Provably fair gaming

Provably fair gaming is one of the greatest advantages of blockchain gambling. This is where the outcome of every game is guaranteed to be verifiably random, totally transparent, and completely tamper-proof.

Players love provably fair games because they transcend the need for trust. Games that feature provable fairness see instant popularity, and as time goes on the trend is set to grow; in the age of Web3, there might be no other option.

Provable fairness relies on a cryptographic algorithm which ensures that the outcome of the round is not influenced by the player’s bet, and that neither the player nor the platform can know the outcome before the game round begins.

Before the game starts, the outcome is calculated; this is called the Result. Then the casino generates a random seed and shares the hash with the player before the game starts. The player can then enter their own client seed or use a default one generated by their browser or device.

The final result is calculated using a nonce (number used only once) and the previously generated hash, which is then converted to the relevant result (dice roll, roulette number, card value). This process ensures neither the player nor the casino can predict or alter the outcome once the hash has been generated.

Advantages of smart contracts and provably fair gaming

Players don’t need to trust the casino when the funds are held by the smart contract instead of the house; instead, the action is totally transparent. And when studios use provable fairness in their games, players can plainly see that the results of the game round are totally random and can’t possibly be tampered with.

Using this tech, there can be fully decentralized gambling platforms such as DAOs (Decentralized Autonomous Organizations) or community-owned casinos.

Cryptocurrency payments

Analysts who bet bitcoin would go bust have had plenty of time by now to come to their senses; early adopters are over the moon while naysayers are kicking themselves.

Cryptocurrency payments are by far the most common and most famous application of blockchain technology. They’re faster and cheaper than fiat payments, and don’t need to go through third-party institutions like banks, helping users keep their data private.

There’s a massive audience overlap between the crypto and iGaming worlds, big enough that more and more major platforms are accepting cryptocurrency payments and there’s a skyrocketing number of crypto casinos — not to mention blockchain casinos, where every aspect of the platform is based on blockchain tech.

Players love the decentralized, transparent nature of cryptocurrency payments. It’s often their preferred method of payment, and sometimes it’s their only option.

Benefits of blockchain for online casinos

Blockchain use cases like smart contracts and provable fairness are great for players, as they create the kind of environment they can put their trust in. This works both ways; when players are happy, so are casinos. Let’s look at some of the other benefits of blockchain in casino gaming.

Faster and cheaper transactions

Compared to fiat transactions, it’s easy to see why so many players prefer bitcoin.

For comparison: a deposit with bitcoin or ethereum can take anywhere from 1 to 60 minutes, while withdrawals can take from 5 minutes to several hours. A deposit via bank transfer, on the other hand, can take 1-5 business days, while withdrawals can take 2-7 business days.

This is perfect for the modern online casino player, who’s less interested in practicing their patience than they are in getting their money sooner rather than later.

Cryptocurrency transactions also require lower fees than fiat transactions. Some fees are inevitable, due to the cost of, for example, mining bitcoin, but overall, other transaction fees are simply lower than they would be if going through a bank.

Transparency and provable fairness

Trust is the highest virtue in iGaming.

Blockchain elevates trust to its highest form: total transparency. By using smart contracts and provably fair gaming, there’s no need for players to put their trust in a casino. Instead, all transactions are verifiably random. Players can see for themselves that no funny business has taken place.

Enhanced player trust and anonymity

Crypto wallets themselves are often proof enough of a player’s identity

Cryptocurrency transactions are pseudonymous, meaning they’re tied to wallet addresses, not names. This means that while all of the activity is recorded and visible on-chain, that activity is linked to a wallet, not a name. This helps protect player anonymity.

Blockchain transactions avoid banks, government agencies, and data aggregators, reducing the number of parties who have access to the player’s personal and financial information. Given how tech-savvy the online gambling audience is, it’s no wonder that blockchain in gambling is spreading like wildfire.

Regulatory compliance and legal considerations

As with all things related to iGaming, compliance is a major concern. Operators always have to keep an eye out for new regulations they have to follow, but in this case, blockchain might actually help them fulfill their obligations.

How blockchain improves KYC and AML procedures

Blockchain allows for decentralized identity systems, which give users control over their identity information.

In a traditional system with government-issued IDs, identities are housed in an official database. Your identity depends on an authority’s say-so. In a decentralized system, identities are spread throughout every node in a network; your identity is verified by a network of peers.

This level of decentralization, cryptographic security, user empowerment, and data sovereignty is a big part of Web3.

Casinos can use blockchain to join KYC consortiums. These allow a player’s verified identity to be used across multiple platforms without the player having to constantly re-upload documents.

Smart contracts can also be employed to fulfill AML obligations. Funds can be frozen automatically in the case of suspicious activity, for example, and withdrawal limits can be enforced without manual review. Overall, smart contracts eliminate human error and make for more consistent AML enforcement, partially because all transactions are immutably recorded in the chain, making audits easy.

NFTs in online casinos: applications, trends, and considerations

True, the idea that NFTs could become the art market of the future largely fizzled out. Many high-ticket NFTs saw their value plummet as interest dissipated. However, that in no way indicates that NFTs are over; in fact, the opposite is true. They’ve found their niche as the perfect iGaming retention tool.

Real ownership of digital assets (including collectibles)

While a bitcoin is a unit of currency, an NFT is an asset.

Investopedia defines non-fungible tokens (NFTs) as “assets that have been tokenized via a blockchain. They are assigned unique identification codes and metadata that distinguish them from other tokens.”

Essentially, NFTs are unique digital assets that are stored on the blockchain. When a player receives an NFT as a reward, they now possess a digital item that truly belongs to them, and can be connected to special status or other perks.

NFTs for loyalty, VIP programs, and in-game assets

Points in a database are empty, meaningless. Their value seems purely economical, transactional.

NFTs are closer to owning memorabilia. An object that you hold on to, that gains in value over time, that players can become attached to.

If a casino launches a limited line of NFTs that are reserved only for players at a certain tier in their loyalty program, it’s possible to verify that there are only as many NFTs in the range as the company claims. This makes them verifiably exclusive.

Limited-edition NFTs could even become valuable on an open market.

Case studies: NBA Top Shot, Sorare, and iGaming implementations

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

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 in gambling-like mechanics (e.g., loot boxes)

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 Slotegrator supports blockchain integration

At Slotegrator, we’re very enthusiastic about the capacity of blockchain gaming technology to change the course of iGaming history.

Consultations and custom development

Our crypto casino platform is fully equipped with everything you need to give crypto players a good time. With support for over 100 cryptocurrencies, Slotegrator’s bitcoin iGaming software promises high transaction speeds and secure payments. We also offer API integration of an expansive range of cryptocurrency payment solutions for established casinos.

Get in touch for a free consultation to find out the next steps for starting a bitcoin casino with Slotegrator’s help.

Conclusion: What’s next for blockchain in iGaming?

Will all online casinos one day be blockchain casinos? Maybe. The technology comes with incredible benefits, and it’s very hard to find a downside.