I recently had a meeting with a large licensed online sportsbook about the advantages bitcoin brings. I told them they will need to move to a 1% house edge to stay competitive. One of managers nearly spat out his drink amidst nervous laughter from others who exchanged glances across the table to check if I was serious.
Then they spoke with defensive indignation of the added value they give their customers justifying their current 4% edge. “The 1% edge is just temporary” I told them “the gambling industry will not stay at a 1% house edge”, they breathed a sigh of relief, “soon it will be 0%”. This time the reaction was stunned silence.
I went on to explain that
- Bitcoin would eliminate almost all of their banking and finance costs.
- Data feeds, bots, decentralised autonomous organisations, multi signature transactions and provably fair gambling would disintermediate their risk management, market operations, grading, public relations and other functions.
- Censorship resistant decentralised platforms such as Tor, MaidSafe and Namecoin DNS would remove the need for compliance and the huge cost burdens that come with it such as licence fees, taxes, know your customer procedures and all the fraud that comes with it.
- There are developers and entrepreneurs interested in working on this almost for free, to innovate and stick it to the man or as a venture capital backed land grab. They do not demand a meeting room with a solid mahogany table, leather chairs and a panoramic view of the bay as was the case in that meeting room.
The beginning of these technological and social changes has already brought about 1% house edges at places like Fairlay betting exchange and most bitcoin dice games and we have only just gotten started.
Edgeless is the first notable attempt at 0% house edge gambling with cryptocurrency, it uses Ethereum smart contracts.
Examples of the 0% house edge offerings will include roulette with no 0, poker with no rake, slot machines that payout 100% of the amounts wagered and 100% payout sports betting totalizers. Products like these mean that on average players will break even.
“If you are getting something for free on the internet you are the product being sold.”
~ Thomas Jefferson
Eventually came the obvious question, how will operators make money? To which I gave the best answer I know; a lot won’t, some will use a combination of
- Display advertising.
- Monthly subscriptions.
- Paid accounts for premium features.
- Leveraging their users to cross sell other products.
- Data selling.
- Interest on player deposits.
- Things we have not even thought of yet.
Social gaming providers such as Zynga that offer play money gambling have found ways to make a very nice return without making anything off the games themselves.
Think of how many users would be attracted to a gambling service that offers all the same sports betting, poker and casino products people use now but where the players break even on average and it is available to everyone in the world. There are many ways to monetise an audience of that scale.
Provably fair and trustless
We have a full page about provably fair gambling so I won’t go into detail about it here. While it can make the games provably fair that alone does not make the process end to end trustless as an operator could still run off with your bitcoins or sell your data to hackers.
Fortunately cryptography has answers for this too with innovations like multi signature transactions, proof of reserve and decentralised dispute resolutions so we will have end to end trustless gambling.
Is this legal?
For individual customers doing the betting, yes. For operators, not at the moment in places like the USA and India that outlaw online gambling. Nor in places like Australia and the UK that only sell licences to a few operators who are made to identify their users and perform anti-money laundering compliance.
However an operator could get a licence to offer a product like this globally from a more lax jurisdiction like the Montenegro or Curacao, or operate without a licence.
Governments will ban gambling services whose users break even in the long run while profiting from state owned or state licenced operators where the users almost always lose. And they will pretend this is to help the user!
Governments will claim that banning the 0% house edge operators is for the user’s own good, because even if those operators are licensed, regulated and pay tax in their home jurisdiction – they do not insist on identifying their customers.
Governments want operators to identify their customers so they can get at this information and use it to tax and control the population better. Or as they would put it; anti money laundering and anti terrorist financing.
This kind of unenforceable, selective and harmful prohibition of banning the least harmful operators while profiting from more harmful ones will eventually breakdown.
We have a full post about bitcoin gambling laws and jurisdictions for more details.
Gambling will never be the same
At least 2 trillion dollars is gambled every year in the current paradigm where the players almost always lose. Imagine how much will be gambled when the players get just as much entertainment but usually break even!
So many people will enjoy 0% house edge gambling and not lose any money that it will change how society views gambling and change the role gambling has in society. Changing gambling from something that is often looked down on, hidden and not mentioned to just another form of free entertainment like TV, sports, chess, board games or computer games.
And of course the bitcoin price will go to the moon 🙂