Thursday, March 19, 2015

Bitcoin and iGaming: Disruption Comes From Your Blind Spot

By Jon Matonis
CoinDesk
Saturday, March 14, 2015

http://www.coindesk.com/bitcoin-and-igaming-disruption-comes-from-your-blind-spot/

It has often been said that bitcoin is the ideal digital casino chip. But what does that really mean?

For starters, it means that online gaming, more than anything else, is all about the customer experience.

Whether it's a land-based casino or an online casino, gamblers want a seamless experience with immediacy and privacy, and operators want an irreversible payment method. Bitcoin provides all three.

I recently made the prediction that within five years, half of the top 10 iGaming operators will be bitcoin-only.

Of course, the mainstream online casino operators don't see it that way and I wouldn't expect them to. They have a profitable and expanding business model with national fiat currencies. Why would they want to disrupt that revenue stream?

Funny thing about disruption though is that it rarely comes from within. Disruption comes from your blind spot.

While major iGaming and industry gambling conferences in the west have paid lip service to bitcoin and cryptocurrencies as alternative payment methods, they have simultaneously relegated it to a niche solution where presentations are neatly tucked away in a side corner. Kodak did the same thing after surprisingly inventing the first digital camera in 1975.

Reshaping the iGaming market

The grand opportunity with bitcoin is not with the major operators, which is exactly why I predict that half of the top 10 iGaming operators will soon be bitcoin-only.

New bitcoin gambling operations will evolve in that way organically – they will not be the major operators of today shedding their national fiat currency businesses. It will occur more along the lines of how Sony and Canon exploited Kodak's weak spot.

The major differences between bitcoin-only operators and the majors are a stark reminder of how complacency for something unusual and new can threaten an entire business model. The differences are revolutionizing the playing field.

For instance, bitcoin operators do not need to maintain a bank account anywhere in the world. If structured carefully, operating expenses can be covered entirely in bitcoin, including salaries and even real-time payouts to the all-important affiliates.

Provably fair cryptographic techniques for casinos, like those deployed at SatoshiDice, eliminate the need for eCOGRA-type bodies to provide legitimacy and credibility.

And probably most important, solving the payment dilemma in parts of the world under-served by banks or restricted by traditional payment networks opens up the world's vast unregulated gambling markets.

While some licensed and national currency gambling sites attempt to push funding compliance to bitcoin wallet providers, other gambling sites are moving forward now by accepting bitcoin directly from customers. Indeed, bitcoin's strengths and speed-to-market play very well in this fertile and untapped ground.

These startling innovations will likely reshape the market for iGaming around the world, creating a new set of skills required for the industry, but that is not yet realized by today's mainstream market leaders.

The management team decisions that bitcoin operators need to be focused on include:
  • In-house vs outsourced payment processing
  • Hot wallet/cold wallet ratios to balance customer service and ultimate security
  • Providing direct or indirect methods for customers to acquire bitcoin
  • The percentage of operational assets held in bitcoin vs national currency
  • Hedging and float yield strategies for bitcoin company assets

Blockchain tech is the cutting edge

With the bitcoin network just a little over six years old, the current statistics related specifically to bitcoin and gaming are impressive.

One hundred percent of the world's countries can be reached via the bitcoin payment option and no other payment method can make that claim. It has been estimated by Coinometrics and others that approximately 40% of bitcoin network transaction volume is related to payments for online gaming. Bitcoin-only casino operators lead the field for the bitcoin-related web advertising market. And, there are over 150 bitcoin-only casinos and gambling sites operating today.

AnoniBet claims to be the "first bitcoin sportsbook and casino" operating since 2011 and the original SatoshiDice pioneered the field of blockchain betting.

Since the field is moving so rapidly, bitcoin gambling directories and lists have sprung up, with sites like my favorite Bitcoin Gambling Sites and the more objective Bitcoin Gambling Wiki. Some bitcoin gambling sites are simply too new to be listed, such as BurnTurn poker and the promising Augur project for a decentralized prediction market.

If you want to see where the innovation in gaming occurs today, the bitcoin and blockchain sector is the place to look.

Taking the lead

My advice to bitcoin gaming businesses? Ignore the regulators.

By that I mean the gaming commission regulators at least while the industry is in a grey area. They don't know what they are doing with respect to bitcoin and, out of apathy, they frequently push the opportunity to the financial regulators who end up delaying implementation.

Bitcoin suffers from an outright usage ban or threatened ban in only three countries: Bolivia, Ecuador and Russia, which is still considering the final ban legislation, but blocks access to bitcoin-related websites in the meantime.

Regulators are not leaders, they are followers. Don't count on them to be insightful and innovative. Their primary job is to slow you down.

Do what you do best and build lasting and profitable businesses. Maybe even launch a skunkworks business within your organization. Failing that, perhaps acquire one of many bitcoin-only gambling operators from the industry lists above. Ultimately, it may assist in the upcoming drive to remain relevant.

Jon Matonis recently presented at a bitcoin seminar and a cryptocurrency regulatory compliance panel both for ICE. He is scheduled to make a presentation called "State of the Market for Bitcoin in Gambling" at his first iGaming conference in Asia on 19th March 2015.

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