Blockchain and Cryptocurrencies in Online Gaming
News    ·   05-11-2017
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AUTHOR: General

The online gaming industry thrives on innovation and thus it is only natural that this industry is most receptive towards the novelties of Blockchain technology and cryptocurrencies.  The Malta Gaming Authority (MGA) is leading by example in establishing Malta as a frontrunner in this regard, and, in the White Paper published in July 2017 setting out a first draft for a new gaming regulatory framework (Framework), paved the way for acceptance of cryptocurrencies for the placement of bets.

The Framework attributes a very broad scope to the definition of “money and money’s worth”, which includes virtual currencies, units of value and any form of property which may be traded, sold, converted into, or otherwise exchanged for money, goods or services. Effectively this means that under the Framework, online gaming operators that are licensed by the MGA will be capable of allowing players to use cryptocurrencies for the placements of bets.

However, outside of the world of cryptocurrencies, there is a wide spectrum of other Blockchain uses for the online gaming industry.

Transparency

Blockchain technology may be used to increase the transparency and fairness of an online gaming operation. This may be achieved via the Blockchain since it may enable the players to verify themselves the fairness of the random number generator (RNG) that powers the games.

The RNG is the software application which randomly determines winning combinations and is used in games that require repetitive random selection, such as lotteries and casino games. In turn, the RNG also determines the average return to player ratio (RTP), namely the average which is paid out to players out of all moneys wagered. Under current Maltese law, this is set at an average of 92% or more (article 46A of the Remote Gaming Regulations, SL438.04 of the Laws of Malta). Furthermore, in order to ensure that the RNG truly pays out the required RTP, under current practices the MGA requires that the RNG is certified for true randomness by third parties.

In view of the Blockchain’s peer-to-peer accessibility, a player with sufficient technical skill is able verify himself the fairness of an RNG rolled-out on the Blockchain by going through its variables (even the actual hashes) and thereby confirming whether the RNG actually pays out the stated RTP. In turn, this level of transparency enables players to scout the operators that offer the most favourable RTPs and likewise, operators may advertise favourable (and verifiable) RTPs in order to acquire and retain players.

Furthermore, the Blockchain may also be embedded with a “consensus methodology”, which means that a change would be rejected unless accepted by all peers. As a result, this might effectively mean that the current third party RNG certification practice is no longer required. Parties may verify the fairness of the RNG themselves and at the same time, a change to the RNG would be rejected by peers, thereby rendering the RNG tamper-proof.

Reduced Costs

The Blockchain renders possible the novel concept of “smart contracts”, namely programs that may be pre-programmed into the Blockchain to self-execute at pre-determined instances and to self-monitor the terms and performance of agreements. As a result, costs may be decreased in virtue of smart contracts as they enable operators to achieve a higher level of automation, by for example, automating transactions to and from players.

Furthermore, involvement of banks and payment providers for player transactions may no longer be necessary as through the Blockchain, payments may be sent directly from the players to the operators and vice-versa. Possibly, this would also provide alternative solutions to banking-related challenges currently faced by online gaming operators given that banks are becoming increasingly more cautious towards online gaming.

Next Steps

The MGA clearly indicated that it is receptive to this new technology and will be amenable towards its uptake by licensed operators.  What remains to be seen, however, is how the MGA will reconcile certain practices with the novelties of the Blockchain. For example, under current practices, an MGA licensed operator must have his servers in Malta, or in another EU/EEA country (provided that the servers are mirrored in real-time to a server located in Malta). This is imposed by the MGA in order to have oversight over the servers and gaming data therein. The decentralized ecosystem implicit in the Blockchain is clearly in tension with said practice.

Furthermore, it remains to be seen whether the MGA will interpret “gaming revenue” to include cryptocurrencies. This point is crucial given that under the Framework gaming revenue serves as the basis for calculation of the monthly gaming tax and annual license fees due. Accordingly, if the MGA interprets gaming revenue to include cryptocurrencies, it will be most interesting and challenging for the MGA to reconcile a basis for calculation with the cryptocurrencies’ inherent price fluctuation.

That said, it appears that cryptocurrencies are not being considered by the MGA as part of “gaming revenue” under the proposed Framework. Anticipation of next steps in this area is rife, and position papers on Blockchain and cryptocurrencies due to be published by the MGA in the coming year are eagerly awaited.

This article forms part of a weekly series called “Unravelling Blockchain”.  The previous article can be found here: http://camilleripreziosi.com/en/news-resources/1/2471/reconciling-blockchain-and-data-protection

For further information, please contact blockchain@camilleripreziosi.com.

 

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