Betting on the Blockchain: Sports Gambling and Bitcoin
Sports gambling in America is big business. It is also, largely, illegal. According to the National Gambling Impact Study Commission, nearly $400 billion is wagered on sports by United States citizens during a given year, with only $3.5 billion of those bets being placed at legal books in Nevada.
With only one state offering legal sports betting, how is it that U.S. citizens are able to gamble so much on games?
While a significant portion of illegal gambling is still done in person, the internet has allowed the popularity of the pastime to soar. Widely used sites such as Bovada and 5Dimes that are based outside of U.S. jurisdiction (Canada and Costa Rica, respectively) offer gamblers a way to get in on the action without driving to the desert. But they also come with risks.
In 2011, the online gambling world was hit by one of its worst scandals to date. In an event known as “Black Friday”, the U.S. Department of Justice shut down Full Tilt Poker and PokerStars, two huge online poker sites, and seized over $500 million in player deposits. Customers had to wait a year and four months before a settlement was reached to repay their losses, with the stipulation that they had to contact the Justice Department to claim reparations.
With such a huge bust only a few years ago, sports gamblers are wary of keeping too much money online, lest history repeat itself. So far the U.S. has been lax in their enforcement of anti-sports gambling laws, but there is nothing to stop them from cracking down like they did on poker sites. Nonetheless players continue to use the services because they are widely regarded as the only option around.
Bender is a gambler. He’s also a Bitcoiner:
“I was a semi-professional online poker player during the pre-ban days, and always dabbled a bit in sportsbetting. The minute I understood bitcoin, I saw that it could, just maybe, be the answer for all of online gaming – sportsbetting, casinos, poker…”
Online gambling is nothing new in the world of Bitcoin. It is well known that at times the activity of SatoshiDice has made up over 50% of blockchain transactions. The speed and anonymity Bitcoin offers has made the cryptocurrency ideal for people looking to wager safely and has given sports gamblers like Bender an alternative to traditional online books.
Usually United States players have to go through a tedious process sending and receiving their money from gambling sites. Depositing money requires using Western Union or a credit card. Western Union is convenient, but requires fees unless players meet a minimum deposit. Credit cards are a cheaper option, but require you to upload a copy of your card.
Withdrawals are a bit more difficult. From a Gizmodo article on the topic:
“Each site has different hurdles to jump through. Legends’ best option seems to be getting a cashier’s check sent to you. The site offers one free cashier’s check every 30 days ($55 for additional withdrawals), so put yourself on a monthly withdrawal schedule to take advantage of the freebies. 5Dimes also sends a free check or money order every 30 days, but comes with the stipulation that you request your withdrawal on Monday between 9:00 am Eastern and 1:00 pm Eastern. Mark it in your calendar.”
So…there’s room for improvement. This is where Bitcoin shines as a gambling option. As Bender explains:
“The speed of bitcoin transactions makes using bitcoin sportsbooks a much safer option to me than traditional sportsbooks. I can deposit, wager, withdraw, and have my money back in my immediate control.”
This is made possible by the blockchain. Since the network handles transactions at such low cost, Bitbook operators are saved the headache of managing players’ cash.
James, a representative for the Bitbook NitrogenSports.eu, told Bitcoin Magazine:
“Traditional payment methods are expensive for operators…(t)he operator costs are usually a % of the amount + a flat fee per transaction. By comparison, Bitcoin transactions might cost an operator a flat 10 cents.”
These advantages have Bitbook operations like Nitrogen thinking optimistically: “Once someone experiences the benefits of Bitcoin: Instant and unlimited low-cost (free) transfers, anonymity and personal control of your coins; it would be hard to move back to a traditional book that offers none of these things.”
The Need For Stability
Despite these strengths, there’s a problem holding back Bitcoin from being widely used for online sports gambling.
“The main, possibly fatal, drawback is price instability” Bender explains, “if you figure you have a 10% edge on a wager, and you make that bet, you could win the bet and still lose money if the market falls more than 10% before you cash back into dollars.”
Bender is not alone with this complaint. UmeJack is a moderator of the /r/sportsbook forum on Reddit and, while knowledgeable of Bitcoin books, does not use them. He offered his thoughts on the issue:
“…Bitcoin currently doesn’t allow for adequate bankroll management. Any long term profitable gambler will tell you that keeping careful control of how much you’re risking is key to long term success. If I place a bet for a certain amount of money, I picked that amount for a reason. The current volatility of the bitcoin market, price down 10% over the last 24 hours as I’m writing this, means that the amount I’m betting isn’t entirely under my control.”
Here we run into a problem that has plagued the technology since its inception. A currency should be a stable store of value. And Bitcoin isn’t that. Every time you bet with Bitcoin you are taking on two risks. Bitbooks like Nitrogen can try to persuade gamblers by pointing towards the long-term upward trend of the coin, but for UmeJack that isn’t enough, and in some cases could be a deterrent:
“If I was in a casino, put 100$ on blackjack, won the hand, and the dealer only paid me 90$ because the value of the dollar had fallen while my bet was in play, I’d never go back to that casino. The opposite is also true. If I put down a big bet, and the market spikes up, I might now be uncomfortable having that much money in play. Obviously this isn’t a hold up for the more casual bettors, but it does matter to me.”
There is a solution to this problem. UmeJack suggested that Bitbooks guarantee the bettor’s payout in fiat:
“If I was promised that if I bet 100$ worth of bitcoins(however many that might be when I place the bet) I would be given 100$ worth of bitcoins on a win (no matter how many bitcoins that is at the time of the payout)….I might consider using bitcoin.”
This, of course, leaves Bitbooks on the hook for the currency’s fluctuations. And as we have seen recently with Neo and Bee, this may not be a very good business strategy. Nonetheless, if a businesses is willing to take on the risk (and has the capital to stay afloat), they could be rewarded handsomely.
Taking It Slow
While volatility should keep online Bitbooks from taking over traditional sports gambling options anytime soon, sites like Nitrogen are not in a rush. They recognize that even though there has been tremendous growth in the past year, Bitcoin “represents a small portion of the overall online gaming space” and that their success is directly tied to the “stability, adoption, and growth” of the entire digital currency economy.
Still, it is paramount to recognize the importance that Bitbooks might play in the overall adoption of Bitcoin. In developed countries like the United States, it is hard to make the case that using BTC is more convenient or secure than traditional electronic payment methods. Nearly every store takes debit and credit cards and banks will gladly return your funds if they are stolen. There is almost no obvious consumer incentive.
This is not the case with sports betting in the U.S. Bitcoin offers distinct advantages for consumers. Instant, anonymous, deposits and withdrawals are immense improvements over Western Union deposits and the once-every-30-days withdrawal rules of today’s most popular online sports books.
When I asked UmeJack what he would improve about his current book he said, “The biggest thing I would look for is faster payouts. A payout from Bovada generally takes 10 business days to arrive at my home.” This is especially important to Jack because he was “one of the people who got stung by the Full Tilt poker scandal a couple years back.”
These are the types of concrete advantages that Bitcoin needs to gain a foothold in developed countries. Most bettors don’t know about their services, but as media attention and customer reviews put a spotlight on the benefits of Bitbooks, more users will begin to use them. This increases overall adoption. Which increases stability. Which increases users. Established books might even adopt BTC transactions. There are already rumors.
This is the “virtuous circle” many Bitcoiners speak of. And it might work. As long as negative media attention and instability don’t scare potential users away.
But that only matters for the long term. Right now, U.S. sports gamblers can know that they have an online betting option offering them complete control over their money.
Whether or not they ride the Bitcoin roller-coaster is their prerogative.