Regulators in the USA have had a long history of suppressing online gambling at a federal level. The Professional and Amateur Sports Protection Act of 1992 and the Unlawful Internet Gambling Enforcement Act of 2006 all but annihilated the online gaming industry, leaving hopeful gamblers with limited options away from the flashing lights of the main strip. That was of course, until January 3rd 2009 when an anonymous user by the name of Satoshi Nakamoto let Bitcoin loose on the world.
Bitcoin was a revolution for online gamblers; seen initially as a convenient way to sidestep regulators, the cryptocurrency has grown to become a legitimate currency for privacy-conscious and libertarian players. The volatile price movements of Bitcoin have also played a favorable role in its success, after all, what could be more exciting to a gambler than the enormous potential upside of the world’s fastest growing currency? But not all players see Bitcoin’s price volatility in the same light; losing a fistful of dollars may be tricky to deal with, but the loss of a Bitcoin, whose value may skyrocket without you is – for many – a risk not worth considering.
Bitcoin has caught the imagination of the world, but for gambling markets to gain confidence and grow, price stability is essential
Bitcoin’s Gambling Problem
The volatility issue that faces Bitcoin will certainly deter some players from its use in gambling, but the greater problem that Bitcoin faces is one of user experience; not just for new players in the Bitcoin casino game, but old-hands too. With a Bitcoin now standing at $6,500 at the time of writing, a single “milli-bitcoin” or “mBTC” has a value of $6.50 – more than most people are willing to bet on a single roulette spin. This forces users into dealing with fractions of a milli-bitcoin, counting zeros before placing their bet to ensure they haven’t just blown the bank. And the problem does not stop there; the moment a player familiarizes themselves with the worth of an mBTC, its price may have moved by 10% or more. To avoid this problem, many casinos will convert BTC into “chips” or US dollars at deposit, but they do so at the expense of the player in the form of an exchange rate fee. Other casinos will allow Bitcoin deposits but not withdrawals, stating that only fiat currencies (US dollars, euros etc) may be withdrawn – making the use of Bitcoin entirely redundant.
The ultimate solution to a crypto-gambler’s banking needs is in the advent of the stablecoin. Hailed as the next evolution of cryptocurrency, stablecoins offer their holders one thing that Bitcoin, Ethereum and others cannot – price stability. A stablecoin that operates on the blockchain provides the same security guarantees as the blockchain it was built on, as well as the benefits of self-sovereign ownership, privacy, low transaction costs and the frictionless payments that we are slowly becoming use to.
Stablecoins are typically pegged to a fiat currency whereby 1 coin is equal to 1 USD (or one GBP as is being planned). There are multiple implementations of stablecoins “in the wild” today but each chooses their own mechanism for ensuring price stability.
USDT or “Tether” was the first stablecoin in the market. Created by the exchange, Bitfinex, USDT is backed 1-to-1 with fiat currency reserves. Or so it is claimed. Centralized stablecoins like USDT suffer from a lack of transparency and public auditability. These same issues also apply to the Gemini dollar and Circle’s recently announced USDC, both of which do not have publicly auditable reserves but simply state that their stablecoin can be claimed for 1 USD at any given time.
Asset-backed stablecoins like Digix DAO’s “Digital Gold Token” (DGX) have digitized gold on the blockchain. Owners of DGX have a claim to physical gold, with 1 token equalling 1 gram of gold – providing the token with a somewhat stable value that correlates closely with the price of gold. Asset-backed stablecoins suffer a similar problem to reserve-backed ones; it is not possible – at least not yet – to verify that the promised underlying assets actually exist.
The other type of stablecoin is one that may be most interesting to blockchain enthusiasts. Collateralized stablecoins are not backed by “real world” assets; instead, collateral – in the form of cryptocurrency – is locked up in return for a stable currency. This stable currency can then be traded on the market and passed between wallets where it can be spent freely. This type of stablecoin is by far the most transparent as the collateral, the stablecoin and the programmatic logic underlying it all resides entirely on a publicly verifiable blockchain (currently on Ethereum). The most popular stablecoin of this type is MakerDAO’s DAI token, where each token is equal to 1 US dollar.
How To Bet With Stablecoins
For the purposes of this section, we will not discuss asset-backed or reserve-backed stablecoins. While they provide an interesting use-case for many businesses, their role in the gambling market will likely be a small one as their centralization and lack of privacy should be cause for concern for gamblers. Instead, collateralized stablecoins like the DAI provide the most exciting future for gamblers. These currencies are transparent, verifiable, anonymous and stable – a set of features which make any other payment method seem archaic to the modern gambler.
DAI is a stablecoin which operates on the Ethereum blockchain. Users are able to hold and transact this token by using a token-compatible Ethereum wallet like MetaMask or MyEtherWallet. Transfers are made in the same way to a typical Ethereum transaction, however some Ether will need to be held in the wallet to cover gas fees. The next step after procuring some DAI is to find a cryptocurrency casino that will accept this new form of stablecoin, for which you may have some trouble… Stablecoins are so new to the space that their value has yet to be realized or even understood. The prediction betting platform, Augur, has been one of the first to outline plans of incorporating DAI into the platform but the rest of the market has remained quiet. It seems at this stage that this new technology has gone somewhat under the radar, blazing a trail in some far away location that no one has yet discovered. It is of this author’s opinion that the stablecoin market will lead to a boom that will finally compel the mainstream to take a peak at what cryptocurrencies have to offer.