GAMING AND CRYPTOCURRENCY SECTOR - PART I

On "cryptogambling": the new emerging segment in the online gaming industry

Both 2019 and so far in 2019 are being unexpectedly good for Bitcoin and most virtual currencies, as well as in general for everything related to the blockchain, that is, the technology on which cryptocurrencies are based (mining process, listing , transactions in an encrypted form and the obligatory authentication in a database).

It is not the purpose of this SPECIAL REPORT to analyze the usefulness of digital or virtual currencies of this type that have been created to function as a medium of exchange. Nor are we interested in pointing out the future, control or the creation of new cryptocurrencies; Instead, at an introductory level, we only want to review how the link between the online gaming industry and the crypto-ecosystem has been.

And we will do it -firstly- by describing the three phases in which this interconnection has occurred in the last decade; to later explain how these businesses have received the so-called "cryptogambling" both by players and by regulators and / or public institutions.


1- THE ASSOCIATION BETWEEN ONLINE GAMING AND CRYPTOCURRENCIES

Although these are two realities that have revolutionized the internet in different ways and times, the online gaming industry and blockchain technology have not only coexisted as independent realities, but there has been a close link for years.

Below we review the three phases through which we could say, this relationship has passed:

• PHASE I - OPERATORS INTEGRATE CRYPTOS AS A FORM OF PAYMENT

We have been here for almost five years, where the payments subsector in the online gaming industry has been advocating for having cryptocurrencies as one more way to carry out financial transactions with its users. A reality that dates back to the first months of Bitcoin's success, but that is still very present today, as we can see in the recent news about Paypal and its announcement that will allow buying and paying through cryptocurrencies.

So as the first link, we must relate cryptos to the payments sector in online gaming.

Something that should not surprise anyone because as we know, the online gaming industry is characterized by being one of the most dynamic and by lacking fear in adopting new technologies.

The evolution of this phase has materialized with a significant presence of cryptocurrencies in the cashiers of online gaming operators, guaranteeing safe and almost instant payments with very low commissions.

• PHASE II - OPERATORS CREATE THEIR OWN CRYPTOCURRENCY

But in addition to being a mere "payment method", cryptocurrencies have had a memorable period of quantitative expansion when in 2017 and 2018 ICOs proliferated (initials that in Spanish would be translated as "Initial coin offering" when translated from the original into English "Initial Coin Offering"). This was the formula chosen by hundreds of projects to seek financing for their initiatives by issuing their own currency based on Blockchain technology.

So the first casinos and online gaming operators (mainly poker, bingo and sports betting) that created an entertainment offer designed solely to be accessible through transactions in cryptocurrencies, it did not take long to see very profitable launching their own "crypto".

As a practical example, we recall the launch in the form of ICO / Initial Coin Offering, of the first 500 million Tokens of the cryptocurrency-based online poker room called CoinPoker, which named its currency Chip (CHP) and that began circulating on the platform in November 2017.

• PHASE III- OPERATORS ADOPT BLOCKCHAIN TECHNOLOGY

For now we have only been talking about cryptocurrencies. However, the blockchain reality is much broader. If we add to that that there is an evident coincidence in the socio-demographic profile of the online player and the connoisseur of blockchain technology, it was a matter of time before online gambling operators appeared to take advantage of the many other elements in this field.

Perhaps the most important use of this kind of technology in gaming portals was what Rais Busom describes in this 2017 opinion article as "ensuring the reliability" of the various gaming products on offer. And it is that the stage of security and privacy that have been generated in these first portals was unprecedented in the industry, even in the most regulated markets.

Especially online casinos, were the ones that knew how to take advantage of all these advantages that blockchain technology offers and through the use of its characteristic "smart contracts", the new versions of software could provide transparency and solve the problems of the ecosystem, such as fraud. or claims. All of this while also being able to verify each game through blockchain, guaranteeing players that all their bets are fair and safe.

The possibility of publishing game statistics in real time (in blockchain format), gives much more confidence to the players, who can be sure that it is impossible to falsify the result.

In addition to their own currencies, it did not take long for gambling operators to greatly expand the amount of cryptocurrencies accepted in player transactions, also being able to change quickly and safely since all deposits and payments are tracked and stored on the blockchain. Obviously, everything related to Responsible Gaming also takes advantage of these elements of blockchain technology in all its processes.

Even blockchain technology serves to enhance customer acquisition, thanks to the development of affiliate programs based on blockchain technologies and smart contracts, providing webmasters with their benefits in a fair, fast and transparent way thanks to having access to the statistics of referred players.


2- FROM THE PLAYER'S POINT OF VIEW: MORE ADVANTAGES THAN DISADVANTAGES

For most players, especially those who know the usefulness and performance of this technology, using the services of poker rooms, casinos or bookmakers that have incorporated blockchain technology has many more advantages than disadvantages.

First of all, those who used virtual currency transactions, used to do so for two main reasons: speed and security. Both reasons are also repeated in the case of opting for this class of operators. But in this case there are also many other interests such as participating in an investment. And it is that regardless of the entertainment factor, being clients of operators that use cryptocurrencies and launch ICOs, is extremely interesting for a certain profile of clients who like to invest in currencies of their own creation by these companies, as is also taking into account the fluctuation of the price of said currencies (or of any cryptocurrency) to make decisions such as the amount that is bet, the one that is entered or the one that you want to withdraw.

And in a much broader sense, clients who have doubts about monetary stability and feel a lack of security with respect to their deposits, also find in these operators the perfect place to see their expectations fulfilled. That is why for the average customer, having an operator support as many cryptocurrencies as possible is a very important added value. Also for this reason, operators must increase said offer and be attentive to the reality of this dynamic market to gradually incorporate the usual Bitcoin, Ethereum, Bitcoin Cash, Litecoin, DogeCoin or Ethereum Classic, many others that are appearing such as Stratis, Monero  GAS, or Dash or so-called alternative cryptocurrencies or "altcoins".

Anonymity is also something to consider for certain users; especially those that have the possibility of playing from a non-regulated jurisdiction under the characteristic standards of the European regulations that we know.



3- FROM THE POINT OF VIEW OF THE REGULATOR: DISTRUST

But we must not be misled. Despite the revolutionary technology and the undoubted advantages that we have already seen when putting ourselves in the shoes of the player, online gambling operators based on blockchain or "cryptogambling" in general, have arrived at a difficult time for their development.

The boom in this business has coincided with the tightening of communication policies and the phase of restrictive measures in relation to payment methods in regulated markets. That is why, of the multitude of operators that exist on the internet, it is difficult to be sure when choosing one of them since the vast majority operate without national licenses.

We detail below some of the main attacks that regulators and governments have launched against this kind of online business:

a) The attack on the anonymity of these operators: although anonymity should be considered in the first place as an advantage, for the states it also becomes a factor that means that they stop receiving taxes. That is why the majority of regulated markets do not grant licenses to these operators and that they cannot be considered legal gambling operators even though they comply with the customer identification requirements.

However, since Facebook announced the creation of its own Libra cryptocurrency (which has already been in operation since 2019) many governments have chosen to expand their licensing concessions and it is expected that there will be some flexibility when authorizing this new one. was of operators.


b) Putting international operators in the spotlight: Faced with the impossibility of obtaining licenses, crypto-based gaming operators have opted for an organic expansion based on their licenses issued by little-recognized jurisdictions. So its growth is similar to what many legal gaming operators today chose a few years ago: creating private labels from the aggregation of gaming products that are easily integrated from the gaming offer of the different providers .

However, this formula has served so that regulators have put the entire sector in the spotlight, putting all kinds of companies in the same bag of doubt. The reputation crisis is the main problem faced by companies like Bitcasino, 1xBit, FortuneJack, Cloudbet and True Flip. And as we have already said, Blockchain technology has many applications beyond currencies and Regulators seem to ignore the advantages they provide.


c) The fear that the video game sector is also attracted: allowing the integration of online gaming operators with blockchain technology may mean that other sectors of entertainment with enormous potential, such as video games, can through of this technology, develop its own financial ecosystem based on cryptocurrencies; something that would also complicate the future regulation of this class of industries in the terms in which gambling has been regulated.

For gamers, the idea of ??a gaming specialized in cryptocurrencies is gaining popularity since security, transparency and speed are key aspects to improve the existing experience. That is why a revolution in the sector that is pioneering in absorbing the good of the "Crypto reality" is a threat to the regulator.


After this first approach to the reality of "Cryptogambling", in a second part of this SPECIAL REPORT BY INFOPLAY -which we will publish in the next few hours- we will explore the different types of businesses that connect online gaming with the blockchain world that have emerged in these years, to finish by exposing some of the new trends that are expected to lead the future of internet entertainment.