Crypto-betting: Transparency and traceability against compliance challenges
As an emerging sector, cryptocurrency has caught the attention of numerous actors across a wide range of industries, and the prospect of crypto-betting has not gone unnoticed in the gaming sector.
In a similar vein to other sectors of the global economy – with interested parties ranging from payments platforms, financial organisations, governments and operators – the adoption of crypto and blockchain technology by the betting and gaming industry has received a mixed response.
Speaking at the Isle of Man eGaming Seminar, hosted by MannBenham Advocates, Kendra Ross, the Designated Official for crypto at Shelgegyr Limited, and two separate panel sessions of industry specialists, addressed the topic of increased engagement between cryptocurrency and blockchain and the sports betting and gaming space.
Two of the primary advantages of crypto and blockchain for betting operators, Ross observed, is its traceability and transparency, enabling greater for financial tracking when accepting wagers.
However, the Designated Official acknowledged that more needs to be done to promote blockchain and crypto to mainstream banking firms, and to conduct education on its positive attributes.
“Crypto is anonymous and it is traceable,” Ross remarked, adding: “I feel that people think ‘you send me one Bitcoin, someone else sends me one Bitcoin, then I send two Bitcoin’ – and then all we really know is that I sent two.
“But really when you look at my transaction it’s easy to step back and see where each of the small transactions that make up my bigger one came from.
“I can actually follow that transaction trail back in time to the beginning of the Blockchain network – hundreds of thousands of steps – and can follow it forward in time too. I know now what happens when Bitcoin leaves my website, which I don’t think is possible if you are working with Fiat.”
This transparency, Ross argued, would enable betting operators to effectively trace and monitor the transaction history of deposited money before it enters their accounts – meeting AML and compliance requirements and assisting with offsetting the danger of customers wagering with potentially criminally-linked money.
Earlier in the day, Mark Sperring, Head of Gaming at MuchBetter, shared his own views on blockchain and the gaming sector alongside Loraine Nelson, Grant Thornton’s Tax Director and Paul Smith, Head of Bank Products and Propositions at Capital Bank International, on a Much Better-sponsored panel.
“We find that some operators have got issues with accepting cryptocurrencies,” Sperring detailed. “It’s certainly an important part of our business, and people talk about how the source of funds is not known, if anyone’s opened a crypto wallet, they are regulated businesses and you have to verify your identity.”
He continued: “A lot of operators are looking at integrating crypto payments directly, and there are a lot of operators out there with a whole business model based around crypto, that’s what they take. I guess they have to look at it from a compliance point of view, quite often that does drive what these operators do, but it is certainly being looked at.”
When quizzed on the future adoption of emerging payment methods, whether these be open banking, crypto or an alternative format, Smith said: “It’s the activity that’s more important, regulators may say ‘should we regulate crypto?’, for example, but it’s less about the crypto but more about the activity that underpins it and the compliance that sits around that.
“I think it’s going to be an ongoing challenge but I don’t think it relates to the payment mechanism, I think it relates to the activity and making sure that it’s well controlled and regulated.”
Taking note of developments in Germany and the Netherlands – the latter of which recently launched its first online gaming market – Sperring outlined his view that ‘as country licences are rolled out, that verification of customers is going to become vital’, a process which could see a more prominent role for blockchain.
Meanwhile, speaking on the Champion Sports-sponsored ‘Asian Markets and the Isle of Man’ panel, Oliver Wu Peng, Co-Founder and CEO of PRIMAS, outlined his belief that operators interested in leveraging cryptocurrency in the Asian market must ‘beat the market’.
Wu Peng observed that ‘there is opportunity everywhere’, but warned operators to ‘be more cautious’ especially when looking to expand activities into Asian markets due to higher risk, adding: “If you see a blue sea, this blue sea can turn into a red sea in a very short period of time. Execution will always be the key for the success.”
For Ross, the future of crypto gaming could go to one of two places; the first being deep player knowledge – on or off site – enabling operators to know ‘a lot about’ their players by viewing what other sites they are visiting.
The alternative of this is that the crypto environment will become more ‘decentralised’ and ‘more trustless’, and according to the speaker the future could see crypto operators either split down each pathway, or potentially do both.
However, she maintained her viewpoint that the future will see more ‘provably fair games’ – meaning those whose fairness can be supported with mathematics – in particular dice based or CRASH games, as the crypto-betting community ‘trust the math’ behind these blockchain-built products.
“We’re going to a place where things are provably fair, the crypto community people do not care that you have validated a casino game. They do not care about your testing certificates – they do not trust it because it is a ‘government’, and you could be bribed or be corrupt – they don’t care because it’s human infallibility.”