When Bitcoin Casinos Accounted for 50% of Bitcoin Production
At a time when dormant Bitcoin numbers are soaring, with almost 70% of circulating bitcoin being inactive for at least a year, it’s hard to envision an era when 80% of bitcoins were spent within a day, primarily on Bitcoin casinos!
One of these casinos even accounted for 60% of the overall activity in the Bitcoin network!
Reading through the groundbreaking 2013 research led by Sarah Meiklejohn that revealed Bitcoins were, in fact, traceable in ‘A Fistful of Bitcoins: Characterizing Payments Among Men with No Names,’ one crucial fact stood out: the structural significance of Bitcoin casinos in shaping the history of Bitcoin, both in terms of adoption and production.
These casinos may have even played a role in sparking the first case of censorship in blockchain history!
For our annual Christmas Crypto Story, we decided that this subject would make the perfect tale, thus bringing you along with us in our time machine!
Now, all we have to do is to turn the clock back to 2009.
The Beginning of Bitcoin
In “A Fistful of Bitcoins: Characterizing Payments Among Men with No Names”, Sarah Meiklejohn and her team, did an in-depth study of the size of transactions from the beginning of Bitcoin as a part of their investigation on tracking Bitcoins.
They found out that in 3 years, the number of bitcoins sent in a transaction went through a tremendous evolution.
In the first 15 months after the deployment of Bitcoin, until April 2010, almost all transactions involved exactly 50 bitcoins.
Which corresponds to the initial reward for mining a block on the Bitcoin blockchain, and represents the adoption stage of Bitcoin, wherein the majority of blocks included only the coin generation transaction and nothing else, according to Meiklejohn Team.
Reminder, the controlled issuance of new Bitcoins is achieved through “mining.”
Mining involves solving complex mathematical puzzles to validate and add new transactions to the blockchain. As a reward for their efforts and the computational power they contribute, miners receive newly minted Bitcoins along with transaction fees paid by users.
This reward is known as the “block reward.”
These “empty block” transactions did not constitute a minority of all transactions until January 2011.
Which match the year Bitcoin would experience its first “bull run!”
In early 2011, Bitcoin witnessed a notable surge in market capitalization, surpassing $1 million. Soon one Bitcoin equated one dollar and made headlines, worldwide. Widespread media attention continued with its instrumental role in supporting WikiLeaks, Mark Karpelès’ acquisition of Mt. Gox, and the emergence of initial establishments facilitating physical transactions with Bitcoin.
The Bitcoin price soared to $31.91, and then crashed back in the violent fashion we know expect of the crypto market.
Meiklejohn observed that concomitantly to the diversification of Bitcoin transactions, the way Bitcoin was used was deeply transfigured as well.
They spotted two clear turning points.
1 — Starting early 2011, following years of predominantly hoarding Bitcoin, there was a noteworthy shift as users commenced substantial spending of bitcoins. Which aligns with the exuberance of the ensuing bull run.
2 — In April 2012, the percentage of bitcoins spent immediately — in the same block of their reception — doubled!
We also see a second turning point in early 2012, in which the percentage of transactions carrying less than a single bitcoin in total value doubled abruptly (from 20% to 40%), while the percentage of transactions carrying less than 0.1 BTC tripled.
More broadly, half of all bitcoins were spent within an hour of receipt, and by the beginning of 2013, 80% of bitcoins were spent within a day.
As Meiklejohn team found out, this double trend of smaller transactions and faster spending could be largely attributed to a single service: the gambling site Satoshi Dice!
The Satoshi Dice Effect
Some would argue that Bitcoin Casino was actually the first widely adopted use case of Bitcoin.
Looking at Meiklejohn’s figures, one would find hard to argue otherwise.
Satoshi Dice, a betting game, was introduced in late April 2012, and is, as of today, still running!
Satoshi Dice gained widespread popularity within a matter of weeks after its introduction.
Satoshi Dice’s activity outpaced by very far that of the Deepbit mining pool, which had been the most active user prior to the introduction of dice games.
Satoshi Dice’s popularity could be explained quite easily.
First, it allows users to place very small bets.
In 2012, the minimum bet for each category was 0.01 BTC, and over 21% of all bets (896,864 out of 4,127,979) were exactly 0.01 BTC, reported Meiklejohn.
Secondly, users possess the flexibility to place bets with diverse addresses, each associated with a distinct probability of winning, spanning from a mere 0.0015% chance to a substantial 97% likelihood.
Satoshi Dice employs an algorithm that incorporates the bet transaction and a random number to deliver a multiplied amount of the user’s bet in case of a win.
For instance, the user received 1.004 times their bet when placing it on the address with 97% winning odds, and in the event of a loss, they received, then, 1 satoshi (0.00000001 BTC).
Last but not least, Satoshi Dice operates with remarkable swiftness.
Upon placing a bet, the outcome is instantly determined, and the payout is returned within seconds, as demonstrated by the Meiklejohn team in the figure below.
They further reveal that a large fraction of the explosive rise in micro-valued transactions starting 2012 could be attributed solely to Satoshi Dice.
Constituting approximately 30% to 40% of micro-valued Bitcoin transactions:
As with micro-valued transactions, Satoshi Dice also accounted for much of the rise of immediate spending!
Meiklejohn found out that nearly 50% of immediate transactions were due to Satoshi Dice.
Its thriving gambling activity not only led in Satoshi Dice dominating micro-value transaction and immediate transactions, they ended up being engaged in about 60% of the overall activity in the Bitcoin network.
60%.
Satoshi Dice’s success sparked a lot of mimic websites — BTC Dice, BTCLucky, Clone Dice, and DiceOnCrack. Although less popular, they still succeeded in claiming a share of the Bitcoin pie, as seen in the figure above.
Now, by markedly inflating the size of the Bitcoin blockchain with an extra 30,000 daily transactions, equating to 14MB added to the overall blockchain — according to Meiklejohn — and leading to the mining of numerous Bitcoins, Satoshi Dice not only made friends.
It also acquired foes.
The Resistance
Satoshi Dice and the strain he put the Bitcoin blockchain under was met with two types of reaction.
Some members of the community considered it to be pefect to stress-test the Bitcoin network, and ultimately making it more secure and stronger.
On the other hand, others thought that it was downright a “DDoS attacks against the Bitcoin network!”
Traditionnally, a DDoS (Distributed Denial of Service) attack is a malicious attempt to disrupt the regular functioning of a network, service, or website by overwhelming it with a flood of internet traffic.
In a DDoS attack, multiple compromised computers or devices are used to generate a massive volume of requests or data, aiming to exhaust the target’s resources and make it unavailable to users.
Framing the Satoshi Dice strain as a DDOS attack, basically categorizing the service as a cybercrime in disguise, opened the door to the very thing anathema to everything the cyberphunk ideals of Bitcoin stands for: censorship.
In 2014, a Coindesk article titled: “The Blacklist Debate: When is it OK to Meddle with Bitcoin’s Code?”
It refered to possibly one of the first censorship attempt in the Blockchain history.
Luke Dashjr, a developer who was then knows for running his own mining pool, and contributing to the bitcoin core development team, maintained in 2014 software packages for Gentoo, a free operating system based on Linux that “can be automatically optimized and customized for just about any application or need.”
Accusing gambling websites of “a spam attack on the network,” he decided to blacklist them with custom bitcoin code on Gentoo, which, unsurprisingly, sparked outrage.
Banned websites included SatoshiDice, BitcoinDice, Satoshibones, and Luckybit.
Dashjr felt justified in its choice as he considered that those type of websites put the network under strain and “make it more expensive to run a bitcoin node by creating transactions as inefficiently as possible.”
DDOS attack on the network or not, nobody can deny the extensive effect Satoshi Dice had on bitcoin.
11 years after, people are still rolling the dice at Satoshi Dice.
The only difference is that it does not held now the same power it once did on Bitcoin history and trajectory.
Like it or not Satoshi Dice, and Bitcoin gambling was the gateway to crypto for a whole generation.
More, by accelerating at full speed the rate at which Bitcoins were created, they shaped its history.
Satoshi Dice appeared before the first Bitcoin Halving, that would occur on November 28, 2012, when the block reward was reduced from 50 to 25 Bitcoins per block, which occurs every 210,000 blocks.
For many, sparkling the next bull run.
Exactly one day and one year later Bitcoin attained its then ATH of $1,242.
And this time around, Bitcoin was more than a whisper on the lips of a few; it fully stepped into the worldwide phenomenon that it would become today.
Without Satoshi Dice, the Bitcoin and crypto history could have been different, the timeline all blurred.
Maybe for the better, maybe for the worst.
One thing is for sure though, if it was still the grand old days of Bitcoin gambling, and 80% of bitcoins were spent within a day, rather than cosplaying sleeping beauty in wallets, nobody would raise concerns about the security risks on the network posed by dormant Bitcoins and the looming Bitcoin ETFs, promising even more non-existant Bitcoin activity.
It’s transactions generate fees for bitcoin, supporting hashpower and the security of the chain Bitcoin itself could be threatened.
Without enough transactions to generate adequate fees to support hashpower and the security of the chain, its Bitcoin itself that could be threatened.
About us
Nefture is a Web3 real-time security and risk prevention platform that detects on-chain vulnerabilities and protects digital assets, protocols and asset managers from significant losses or threats.
Nefture core services includes Real-Time Transaction Security and a Threat Monitoring Platform that provides accurate exploits detections and fully customized alerts covering hundreds of risk types with a clear expertise in DeFi.
Today, Nefture proudly collaborates with leading projects and asset managers, providing them with unparalleled security solutions.
