We have a general post about crypto bringing 0% house edge, provably fair and trustless gambling and why that is a big deal.
The operator programs an app to gather data from APIs and feeds to create bet selections for an event. Users tell the app their selection and an optional return address then the app creates a new crypto address for them to send their stake to.
The app then gathers the data of who won the event and pays out 100% of all bets to those who bet on the winning selection proportionate to their bet size. This betting model is called pari-mutuel betting or the totalizer.
The app populates a website with all betting options and calculates the projected odds at all times. Anyone can bet and receive payouts so there is no need for accounts.
I say trustless because all the above can be performed automatically by an open source app, so users can be sure payouts will happen as they should. The app’s code will decide who gets paid out based on data feeds and no human would have access to the betting address private keys.
This disintermediates the majority of the functions of government currency sportsbooks, such as
- Creating betting markets.
- Settling betting markets, that is resulting bets and paying out winners.
- Customer account management.
- Banking and transactions.
- Customer service.
- Marketing (optional).
- Compliance (optional).
Australia’s biggest totalizer, the TAB, takes about 16% of the pool. The best odds sportsbooks in the world have a 2.5 % edge. Customers of this service would get
- The best odds in the world with 0% house edge.
- Friction free betting.
- Bet anonymously with no ID verification or personal details.
- No deposit limits, withdrawal limits or bet limits.
- No limits for winning too much.
- No banking fees.
- No transaction delays.
- No legal restrictions.
- No tax reporting.
In fact 100% payout means if a customer bets randomly on average he will break even! All betting data would be open and publicly available for customers to see and verify in real time or after the event on the blockchain.
The concept is easily copyable. The operator will need to stay at the cutting edge in marketing and product development.
If hackers caused a loss of customer’s crypto or the unavailability of the service the operator will suffer reputational damage. However operators would not be legally liable for any crypto lost if all reasonable precautions were taken, as per the terms of service.
At the moment this would be non compliant in places like the USA and India that outlaw gambling. It would also be non compliant in places like Australia and the UK that only sell gambling licenses to a few operators. Those licensed operators have to perform know your customer and anti-money laundering compliance.
With this model it is impossible for the operator to verify user’s identity or restrict users from certain jurisdictions. No one should want to do that anyway but it is legally required for most licenses. The solution is to operate without a license as blockchain technology can give far greater consumer protection than any license can.
Alternatively the operator could get one of the less strict, crypto friendly licenses to offer their product globally from a jurisdiction like Costa Rica, Curacao or Montenegro. For more info see Crypto gambling laws and jurisdictions.
See this post for how this model can make revenue. It can be profitable but not as profitable as the legacy models with 2.5% – 16% house edge.
People want fixed odds
This model would give the best odds in the world on every market overall but not on every selection. This is because the final odds are determined by everyone’s else’s bets, so a user does not know what the final odds are until betting has closed.
The operator could show indicative odds representing the bets that have been received up to the current point in time, but punters would rather have the certainty of fixed odds.
A similarly automated betting exchange or prediction market could provide all the advantages of this model and with fixed odds! Running an exchange or prediction market requires a lot of liquidity, but the operator can provide initial liquidity to seed markets themselves.
I chose to concentrate on the totalizer model here because it is a lot simpler but hopefully if you have understood this post you can see how the idea can be applied even better with a 0% house edge betting exchange or prediction market.
We have a post detail another way to profitably offer 0% house edge gambling, by investing player deposits in a easy and risk free way.