The original version of the article was published by Cloudbet and is part of the Cloudbet Blog’s series on big-picture blockchain stories. For more in-depth discussions on all things crypto, tune into our In the Cloud section and follow us on Twitter.
The growth of bitcoin gambling has added new dimensions to betting. Speculation extends beyond the risk inherent within placing bets, to the changing value of the means itself, and the dividends of currency forks like Bitcoin Cash.
- Why sportsbooks adopted bitcoin
- The benefits of bitcoin gambling
- The consequence of bitcoin forks
- Betting twice & winning
The gambling industry is renowned for pioneering new technology. The internet, the subsequent revolution in mobile usage, apps and data delivery (via API) were quickly embraced by bookmakers who instinctively recognized how those advancements could change the way betting was consumed. Betting moved from the preserve of middle-aged men in back-street betting shops to mass-entertainment for millennials eager for excitement on the sofa or in the pub, at the tap of a smartphone.
Of course, technology doesn’t stand still if you believe Moore’s Law it accelerates. The internet concentrated power and value in the protocol layer – TCP/IP, HTTPS, SMTP – with less value embedded in the website applications built on top. In 2009 a radical shift in that paradigm started within the inception of bitcoin and the associated blockchain technology.
If you aren’t familiar with the blockchain, take 5 minutes to read our article what is blockchain first, to understand the revolutionary power that it unleashed. It ushered in a new era where greater value resides in the protocols rather than the network. And that value extends to bitcoin gambling.
Bitcoin solves gambling’s biggest problem
Though the internet opened a new world of opportunities for bookmakers, the transition hasn’t been without its problems, with payment processing one of the biggest.
The development of API technology – Application Programming Interfaces – allowed a bookmaker’s basic product – odds – to be portable and accessible anywhere with an internet connection, the same with results information, that determines a winning bet slip from a losing one.
The true measure of any disruptive technology is whether it solves a real-world problem.
But the entire betting process is redundant unless bettors have funds in their virtual wallets, and until Satoshi Nakomato introduced his peer-to-peer cash system, that process required complex, centralized arrangements between bookies and banks or payment providers, fraught with delays, charges, fraud and frustration for customers.
Bitcoin’s rapid adoption by innovative gambling operators such as Cloudbet was in recognition of its ability to solve that payment headache, removing the intermediaries and the onerous requirements for personal details, simplifying the relationship between bookmakers and bettor. The main benefits of bitcoin gambling can be summarised as follows:
Bitcoin is entirely independent of the established financial system which functions by charging for services such as transfer of your money. Unless you want to directly connect your bank account to a betting account you are going to be hit with charges which will vary depending on the approach taken. One of the key advantages of bitcoin (or bitcoin cash – also supported by Cloudbet) is that transferring it is very inexpensive by comparison. You pay fees that incentivize the miners to maintain the blockchain, but they compare favorably with the payment methods offered by traditional sportsbooks.
Fast & Transparent
Not only is it cheap to transfer bitcoin, but it is also relatively fast compared to many of the standard payment methods offered by traditional bookmakers. In general, a transaction will take around twenty minutes, depending on how busy the Bitcoin network is, but the beauty of the system is that your transaction is entirely transparent – simply explore the Bitcoin blockchain to see its status. Imagining asking a regular bookmaker to allow you to have open access to their payment system to view the status of your withdrawal?
By opening an account with any sportsbook you are starting a relationship that requires trust because you are sharing detailed personal information; this understandably makes many people uncomfortable about what that information will be used for and how secure it is. Perhaps, one of the main reasons why bitcoin is so perfect for gambling is that it cuts down on the amount of personal information that needs to be shared. Cloudbet requires your name, email address and date of birth to create an account, while to fund a bitcoin betting account you just need a bitcoin wallet address which is a string of code that is untraceable to you.
One of the most elegant characteristics of Bitcoin is that its units cannot be spent twice, nor can they be counterfeited – a major drawback with physical money. The only way you can lose your bitcoin is if you no longer have access to your bitcoin wallet or its private key. Cloudbet is fully focused on security, which is why we offer two-factor authentication as standard for all customers as an added layer of security.
Bitcoin as a store of value
Though the utility value inherent within bitcoin gambling is tangible, the unique characteristics of bitcoin have been reflected in its success as a store of value. Speculative demand has seen its price increase by over 50,000% in the last seven years.
|Period||Dollar Change||Percentage Change|
|Last 6 months||-$8,174.96||-55.46%|
The dividend paid by forks
And the open-source nature of bitcoin means that its potential development is only limited by imagination. Despite being almost 10 years old Bitcoin is still in beta and anyone can use Bitcoin Core as the basis of a new derivative currency seeking to address perceived weaknesses in the creation of a new sibling.
This is what happened on August 1st, 2017 with the creation of Bitcoin Cash, and though the politics of why this occurred and which side is right are fascinating and complex, the implications for those gambling with bitcoin and holding coins in an exchange or bitcoin sportsbook account were straight-forward. For every bitcoin you held, you, in theory, held one bitcoin cash.
The investment in bitcoin essentially paid a dividend.
The emphasis above is critical because when you hold cryptocurrency in an exchange account or sportsbook you aren’t in control of your private keys – the ultimate proof of ownership – your funds are being held in trust. The obligation therefore to honor this dividend is not enshrined in any law, this is part and parcel of the entirely new ground that cryptocurrency has broken.
Cloudbet credits BCH fork funds
In April 2018, Cloudbet took the decision to award thousands of customers who held bitcoin in their accounts at the time of the fork, with an equivalent amount of bitcoin cash. That was a unilateral decision taken without obligation because we felt it was the right thing to do, though it doesn’t set a precedent for honoring all forks; just like the wider bitcoin economy we are still testing and learning.
Honoring the fork wasn’t a simple switch to flick, it came with technical overhead. To ensure only qualifying customers received the funds in their accounts, we had to take the timestamp of the last common BTC block (block 478558; 1 August 2017, 13:16:14 UTC) to determine qualifying customers’ BCH balances. We also had to ensure therefore that customers had a BCH address – to withdraw their funds – and because Cloudbet was up to that point a bitcoin-only sportsbook, the project included the launch of BCH as a sportsbook and casino currency alongside bitcoin, with all the associated functional and frontend website changes.
Compare the store of value potential and fork premium benefits to traditional forms of betting. Do casino chips or the funds held on account with an online fiat bookmaker increase in value over time? By betting with a publicly listed bookmaker do you share in their success? The answer is of course, no. In fact, the reverse is true, they charge inactive customers monthly fees for holding unused funds on account and that comes on top of the inevitable erosion of the value of those funds through currency inflation.
It is common practice for fiat bookmakers to limit successful players
The use of e-wallets such as skrill or Neteller has been driven by the unwillingness of banks in some countries to allow customers to interact with sportsbooks, as much as customers being uncomfortable with that connection. Credit cards may seem like a convenient alternative but they a double-edged sword with exorbitant cash advance charges for customers on the side and the risk of fraudulent charge-backs for bookies on the other.
Given the circumstances, it is perhaps surprising that more bettors haven’t switched to crypto, but old habits die hard. It is not enough for a new technology to be better than existing services, the general rule is that has to be 10 times better to uproot users from the status quo, and though being your own bank – which is what sending and spending bitcoin means – is incredibly liberating, it can also feel intimidating and comes with responsibility.
The elegant way that bitcoin and blockchain achieve decentralized consensus cuts out the middleman, but with great power comes great responsibility; this means there is no Bitcoin Core live chat or handy ‘forgot private key’ link and of course there is no guarantee that the price will continue to rise. There is a hugely supportive community on places like bitcointalk and Reddit where questions will get answered and help provided but it does require a new shift in mindset to move to bitcoin gambling.
But for those customers who logged into their Cloudbet accounts in April, and found a new BCH wallet with credited funds from the Bitcoin fork, it was a return on that decision. Not only had they already benefited from the utility of betting with crypto, but by choosing to use Cloudbet bitcoin sportsbook they were gambling twice and their bet on crypto had paid off handsomely.