At least half of all Bitcoin transactions are for online gambling
Recently we noted that illegal drug purchases are around half a percent of Bitcoin transactions, which is far from the existential threat that it has been made out to be. Instead, the most common usecase for Bitcoin is online gambling.
Satoshi Dice is the most popular Bitcoin denominated online gambling site. Today it checks IP addresses to screen out residents of the US and other jurisdiction where online gambling is illegal, but that has not always been the case. The interesting thing about Satoshi Dice is that it was publicly traded on MPEX, a Bitcoin denominated stock exchange, until it was bought last month for $11M. As such, until being acquired Satoshi Dice reported its financials.
The way that Satoshi Dice works is that there are a number of publicly-known static addresses to which a bettor sends her Bitcoins as a bet. Each address has known odds and a predetermined winning payout. For a win, Satoshi Dice sends back the bet amount multiplied by the payout multiplier. For a loss, Satoshi Dice sends back 0.05% of the original wager as confirmation that the system worked properly. This means that each Satoshi Dice bet generates 2 transactions on the Bitcoin network. In June 2013, there were 12.4k daily bets, implying 24.8k transactions on the Bitcoin network. According to Blockchain.info, there were about 48.4k Bitcoin transactions per day in June. So in June 2013, Satoshi Dice represented 51% of network volume in terms of number of transactions.
That being said, most Satoshi Dice transactions are small. Also according to their financial reports, the average daily volume of BTC bets on Satoshi Dice in June was 10.5k (including initial bet and payout). Again, according to Blockchain.info, the average daily BTC transaction volume in June was 213.8k. So in June 2103, Satoshi Dice represented about 5% of transaction volume denominated in Bitcoin.
There are other online gambling sites, notably Just-Dice, which was launched on June 20th. It has rapidly grown to an average daily volume of 7.8k BTC per day so far in August. Since Satoshi Dice no longer reports transaction volume since being bought, it is hard to tell if Just-Dice is additive to the Satoshi Dice volume or if it has taken share, but in the most aggressive case, it would represent another 4% of all Bitcoin transaction volume. In the last two months, Just Dice had raised over $5M USD worth of investment, suggesting that there are many who believe that online gambling with Bitcoin will continue to have a bright future.
In any event, online gambling represents at least 10x the transaction volume of Silk Road and the other Bitcoin drug marketplaces.