I recently had a meeting with a large licensed online sportsbook about the advantages crypto brings. I told them they will need to move to a 1% house edge to stay competitive. The managers laughed nervously and 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. I told them “The 1% house edge is just temporary, soon it will be 0%”. This time the reaction was stunned silence.
I went on to explain that
- Crypto would eliminate most of their banking and finance costs.
- Data feeds, bots, decentralized autonomous organizations, multi-signature transactions and provably fair gambling would disintermediate their risk management, market operations, grading, public relations and other functions.
- Censorship-resistant decentralized 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 license 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. They will do this 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 mahogany table and a panoramic view, as was the case there.
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.
The beginning of these technological and social changes has already brought about 1% house edges at most crypto dice games, a 0.25% edge at betting exchange Fairlay 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.
“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, and some will use a combination of
- Sub-optimal play on games where the player makes decisions such as blackjack. The 0% house edge assumes optimal play, the operator will profit if the player plays sub-optimally. For example in a blackjack scenario where optimal play is to stand, if the player hits he is giving up some value to the operator.
- 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 profit without making anything off the games themselves.
Think of how many users would be attracted to a gambling service that offers all the same 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 monetize an audience of that scale.
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; an operator could still run off with your crypto or sell your data to hackers.
Fortunately, cryptography has answers for this too; innovations like multi-signature transactions, proof of reserve and decentralized dispute resolutions will provide end-to-end trustless gambling soon.
For individual customers doing the betting, yes. For operators, not at the moment in places like China and India that outlaw online gambling. Nor in places like Australia and the UK that only sell licenses to a few operators and make them identify their users and perform anti-money laundering compliance.
However, an operator could get a license to offer a product like this globally from a more lax jurisdiction like Montenegro or Curacao. Or operate without a license.
Governments will ban gambling services whose users break even while governments profit from state-owned or state-licensed operators where the users almost always lose. And governments 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 governments can use this information to tax and control the population. 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 break down. We have a full post about crypto gambling laws and jurisdictions for more details.
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 and hidden 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 🙂