Bitcoin Payments Could Quickly Become Competitive Wedge In Online Gaming

By Jon Matonis
Forbes
Thursday, June 27, 2013

http://www.forbes.com/sites/jonmatonis/2013/06/27/bitcoin-payments-could-quickly-become-competitive-wedge-in-online-gaming/

Have you ever wondered why new technology tends to be exploited in the adult entertainment and online gambling industries first? An ultra-competitive market environment and a willingness to try anything in the quest for traffic and profits has made these two industries technology’s early adopters. Typically, innovations that start in these fields go on to become core features in more mainstream commercial applications.

From brave use of multimedia, new scripting languages, and yes even payment technologies, adult entertainment and gaming have led the way. Now, a new digital currency threatens to disrupt the old payments paradigm and it’s no surprise that it is gaining traction in the online gaming world. Bitcoin payments could quickly become the preferred competitive wedge in online gaming.

After attending the Gaming in Holland conference and iGaming Super Show in Amsterdam this month, it became clear that bitcoin is indeed picking up momentum in online gaming. However, the early adopters probably won’t be the larger established brands. In sidebar conversations with the leading mega-brands, they confessed to me that, although they appreciate Bitcoin technology, the two primary reasons for holding back on adoption are the additional unwanted scrutiny from gaming regulators and the fact that players aren’t demanding it.

The young industry upstarts do not feel plagued by those concerns. In the regulated gaming jurisdictions, player identity is already a requirement so the money laundering concerns are the same across payment types. Bitcoin enhances the privacy on the customer-facing side only. Regarding player demand, the new and smaller gaming outfits view bitcoin as a way to radically differentiate themselves while also tapping into the growing universe of bitcoin users.

Covering sites that allow play in bitcoin, mem’s Bitcoin Gambling List is the definitive directory for bitcoin-based online gaming. Bet with Bitcoin provides another bitcoin gaming directory.

Online gambling news site CalvinAyre.com is an official media partner of this year’s Bitcoin London conference in Canary Wharf. Becky Liggero of CalvinAyre.com reported that Jez San, founder of online 3D poker site PKR, will be attending the conference and has attended previous Bitcoin-related events and local meetups. Also, in February, a guest author published an article on “Why Bitcoin Can No Longer Be Ignored.”

Bitcoin is the ideal digital casino chip — immediate, irreversible, and private. Here’s a sample of its extraordinary benefits to gaming companies worldwide:

1. Extend acceptance to 60+ countries not reached by Visa, MasterCard, and PayPal and to markets with weak banking penetration, because bitcoin is accessible with only an Internet connection;

2. No disallowed or blocked merchant category codes (MCCs) typically seen with centralized payment networks;

3. No possibility of a politically-motivated payments embargo or confiscation of holdings by a third-party intermediary, because bitcoin’s public ledger is decentralized;

4. Eliminate costly merchant chargebacks and fraudulent transfer reversals due to bitcoin’s payment finality;

5. Realize dramatic savings on processing fees that approach zero, because bitcoin fees are user-determined and substantially less than conventional payment methods;

6. Achieve near immediacy of payment settlement in both directions when compared to wire transfers, because bitcoin confirmations occur in about 60 minutes, more closely resembling a live casino environment.

To the extent that these features enhance the customer gaming experience and drive new traffic, net operating profitability will be impacted in a positive way. Then, the decision for management becomes: “Do we allow direct play and payouts in bitcoin or do we convert to national currency units along the way?” The related financial and gaming regulations will vary across legal jurisdictions.

If the player uses bitcoin for deposit, betting, and withdrawal, then the exchange rate risk stays with the player. If the operator converts bitcoin in to and out of national currencies, then the player essentially deploys bitcoin as a transfer mechanism only and the operator acts as a exchange. Either way, the operator maintains bitcoin gaming profits or player inventory in bitcoin with a need to determine a settlement currency. That exchange rate risk requires treasury management and hedging similar to any other multi-currency business.

Since the above decisions undoubtedly have risk management implications for both players and operators, management should consult with professional experts prior to launching their bitcoin-enabled gaming platform.

In the meantime, Becky Liggero suggests watching Bitcoin events for gambling industry attendees in order to answer the current online gambling grapevine question: “Who will be the first big operator to accept Bitcoin as a payment method?”