How Will Blockchain Disrupt Online Gambling?
The online gambling industry continues to grow at breakneck speed, with a forecast CAGR of 11.5% over the next five years. Part of this growth will be driven by the greater adoption of cashless payments, which presents a real opportunity for blockchain platforms like nahmii. In this article we’re taking a look at how nahmii can help both new and established gambling companies, based on software which is available today. Interested in how blockchain will impact the gambling industry? Read on to find out more.
Trust is key
Perhaps the biggest issue facing online gambling today is trust. In order to gamble online, players must first deposit funds into the relevant site. For crypto users, this is similar to depositing tokens into a centralised exchange — the user must give up custody of their funds in both cases.
Trust plays a key role in this transaction. Players give up custody of their funds to the gambling site in expectation that their wagers will be honoured and funds paid out on request. Just like with centralised exchanges, this expectation is not always met.
In response, players might choose to limit their potential exposure by placing single bets or maintaining a low balance at the gambling site in case things go wrong. This is sub-optimal for both the player and site operator; many players want to place multiple wagers at the same time without having to redeposit, while gambling sites like players to maintain a balance on their account.
A better solution is to use nahmii as a payment gateway. With nahmii, players can ‘pay as you go’ for any bets they wish to place. Any winnings are returned to the player’s nahmii balance immediately, leaving no funds at risk. How might that work?
Working with a partner, we have built a simple dice gambling prototype as a proof of concept. Users hold a balance in nahmii, which is under their control and non-custodial, which can be used to place wagers at the dice site. Each bet is paid for individually, with funds moving from the player’s balance to the dice site. If the player wins, their original payment plus the winnings are transferred back to them immediately as a second nahmii payment.
In our example, the risk to the player is minimised as only the funds from their bet are held by the dice site. If the dice site does not pay the player their winnings immediately, the player will simply stop using the site. This is minimally risky from the player’s perspective, with the significant benefit of immediate payouts.
Our dice gambling proof-of-concept shows this working today on Ropsten.
Provably Fair
Trust plays another important role in online gambling, this time in terms of fairness. Players must trust that their wager is being settled fairly, particularly when dealing with games of chance. If a player presses a button to spin a virtual roulette wheel, how can we ensure that the site operator is not cheating?
Today, most gambling operators are subject to strict auditing requirements. These audits check things like payout rates, with the goal of protecting players. Audits are expensive and slow, but until now they have been the best solution to a difficult problem.
With nahmii, we can use the metadata from each transaction to provide trustless provably-fair random number generation. In other words, using cryptography we can ensure that neither party is cheating. All that is required is for each party to specify some hidden value, which is then converted by a hashing algorithm and broadcast publicly. Once the bet has been placed and the result declared, the player can use their original hidden value to check whether the game was run fairly.
All transactions within nahmii are public, with the Operator of the system required to publish all receipts. Not only does this make it much easier to audit gambling systems, as all the data is available, such audits are not necessary as the players can easily check their results.
We have the ability to add metadata to nahmii’s payments today, with plans to make the system even more robust in future.
Widening Access
Blockchain-based gambling has one major advantage over traditional fiat-based payments: no bank account is required to gamble online. This highlights one of blockchain’s key features, it is permissionless. In other words, anyone can create their own blockchain wallet — no third-party gatekeeper is involved.
This permissionless feature can be both a strength and a potential weakness for blockchain. As a strength, permissionless accounts widen access and increase participation for gambling sites. As a potential weakness, the ability for anyone to create their own account raises difficult questions around Know Your Customer (KYC) and Anti-Money Laundering (AML).
With nahmii, the game operator has the ability to control which accounts can interact with their site. For gambling sites, the gaming company can therefore limit access to only the accounts which have completed the appropriate KYC checks. While some people may complain that nahmii allows for this kind of ‘censorship’, we would argue that it is an essential feature of any commercially-viable platform. Without the ability to meet compliance requirements of this kind, blockchain will never achieve mainstream adoption.
The ability to control how accounts interact with each other within nahmii is an important part of the protocol’s architecture. It is live and ready to use today. Importantly, any restrictions that the Operator of nahmii may apply will never put users’ funds at risk. Our platform is fully non-custodial — you retain ownership of your funds at all times when they are on deposit in nahmii.
The Future
Each of the three use cases set out in this article are possible using nahmii today. While this is impressive, the future of nahmii includes fully trustless transactions — an even bigger game changer for the online gambling world.
Fully trustless transactions will require a different transaction type (or ‘driip’ as we call them). We currently have two such transactions types within nahmii, one for payments and the other for trades. A fully trustless gambling transaction would be a third.
For fully trustless gambling to work, we will build on the first two use cases discussed above. Players will submit their wager as normal, this time including all the information required to make the bet provably fair. Unlike today, where the player can lose funds if the gambling site does not execute the transaction according to the rules, the trustless future bet will be protected by smart contract-backed fraud checks. If the gambling site does not hold up their end of the bargain, the transaction receipt can be used as proof and the player will be compensated accordingly.
We think that the gambling industry is ideally positioned to benefit from nahmii. Unlike so many other blockchain projects which have promised to disrupt this market, nahmii is a real product which is live and ready for the industry right now.
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