In 2017 Bitcoin has taken the world by storm. During the last year the leading crypto currency has appreciated nearly tenfold as measured in most major currencies. The ones who bought some of the precious crypto coins early enough have made a killing. Stories made the rounds about unassuming crypto enthusiasts who bought/mined a few coins some years ago to forget them on their hard drives and come back years later to find out their coins are now worth a fortune. But only few of us realise that many of those who cashed in on the latest price increase were fellow bettors.
Bitcoin for betting – how did it all started?
If you look around at some of the Bitcoin communities around the web you will find out that the bitcoin economy currently consist almost entirely of gambling websites. It only make sense – in such a heavily regulated industry there are a number of extremely lucrative markets that are basically closed to the books due to legal restrictions on betting. Finding a way around those regulations is guaranteed to make any sports book a fortune provided they could get away with it.
This is indeed what is happening since online gambling has been banned in the USA and bitcoin has made the news. Bitcoin turned out to be one of the few (and probably the easiest) way for US gamblers to place an online bet. Furthermore, a number of Blockchain enthusiasts (Blockchain is the technology behind Bitcoin and all the other crypto coins) are just looking for a marketplace where they can turnover their favourite crypto currency.
This is how the first bitcoin bookmakers have been founded. The likes of Nitrogen Sports and Sportsbet are already on the market since a few years and have established themselves as brand names in the crypto community. After their initial success a number of bitcoin gambling websites started popping up around them. We already have the bitcoin betting exchange BitBTC and the bitcoin prediction markets BetMoose and BitBet, with Augur and Gnosis being in development after having attracted large investment capital (I found out about the last two companies thanks to a great post by Steve from Daily25 on the same topic).
At this point surely many of you are already wondering – are crypto coin betting websites worth it? What are the benefits compared to traditional books and are there some money-making opportunities in this space? Here I will try to shortly answer these questions.
Power to the punters?
When I first started my research to this article I was really pumped up about this new blockchain technology and its applications in betting. Blockchain is being marketed as a technology that brings trust into a trust-less world. And I can hardly thing of an industry with a lower level of trust between operators and customers than gambling. I was already imagining the Blockchain bookmakers of the future where you keep no balance on the book but every bet is a separate transaction that gets settled by independent miners. No verifications, no limits, no frozen accounts and no forfeited funds.
I was in for a let-down. Even though in theory Blockchain technology could offer the means to settle bets by an independent party bitcoin books are not nearly there. What you get is simply the same old softbooks with Bitcoin (or another crypto coins) as an offered account currency instead of (or next to) the traditional (referred to by the crypto community as ‘fiat’) currencies. Can the bookie run away with your money – no doubt. Arguably it would even be easier as the Bitcoin books are even less regulated than the traditional books and since the technology is relatively knew there are not many established names in the field so the risk of stumbling upon a scam website is higher.
Then why would I use crypto coins for betting?
That discovery has surely somewhat cooled my initial enthusiasm about crypto coin betting. However, digging deeper I managed to find out there is more to it than I initially thought. Swinging between excitement and disappointment my dive into the world of crypto coin betting has revealed to me some interesting innovations that crypto currencies are introducing into the betting markets. Here I will shortly list the main advantages and disadvantages of crypto coin betting that I have identified.
Low transaction fees
That’s a big one. I want to say it upfront because that might just sound like a boring detail – it is not. Remember when I said you are still at the mercy of the bookmaker as far as your balance is concerned? Well… there’s a bit more to it. Even though you are still required to hold a balance with the bitcoin book in order to place a bet and bets are still settled by the book alone and not in a decentralised manner, the Blockchain transaction technology is changing the game quite a bit.
Every time you deposit or withdraw via a credit card the merchant (a bookie) will pay something like a 2-3% transaction fee to the credit card company. Therefore bookies hate transactions and will make whatever necessary to restrict them to an absolute minimum. The main measure to achieve that is passing over the fees to the customer after a certain number of withdrawals within a time period. Not to mention that due to the costs involved, a transaction always puts your account under scrutiny and might take quite some time to get processed. All of this usually results in a large player balance held at the bookmaker in question, which is always asking for trouble.
Not anymore. The fees for a crypto coin transaction are many times lower than the ones for a credit card transaction. Furthermore, the transactions are processed quickly and reliably. Therefore most bitcoin gamblers typically make a significantly larger number of transactions compared to the traditional punter. It is not unusual to deposit the required coins just before you place a bet and withdraw immediately after the bet has been settled. The result is a much lower balance in the book which, save for really large bets, gives less leverage to the bookmaker in case of a dispute. That in itself makes quite a big difference to how bookmakers traditionally operate and is one of the biggest advantages of crypto coin betting.
…however, the crypto currencies (lead by Bitcoin) are extremely volatile. Given that you can’t buy your groceries in Bitcoin just yet sooner or later you will need to exchange your coins for local currency so the wild swings in the price might hurt you. Sure, they might benefit you as well but my gut feeling is telling me that the more crypto currencies raise in price the less likely it becomes that the volatility will work in your favour. Of course, I have little to no clue on where the prices of crypto currencies are going so, as always, make sure to do your own research.
The other thing that grabbed my attention on the bitcoin betting platforms was the prediction markets. The most developed one as of now seems to be BetMoose. Prediction markets function a little bit like a betting exchange with the difference that anyone can open their own markets. Furthermore the markets don’t need to be on a sports event (although this is a possibility), but can be based upon just about anything. The future price of Bitcoin seems to be a popular bet but there are even platforms betting on the weather. Given that some weather patterns are so random that they are sometimes being used for random number generators it is not a market I would like to be involved in but apparently there are people who see it differently.
I believe the prediction markets represent an interesting opportunity. An experienced punter, armed with his knowledge about probabilities and some basic maths can give those markets a try and eventually turn a profit. Not only that, but creating an interesting market and attracting some volume there could earn you a fee for “managing” and settling the market when the time comes.
Unfortunately as it turns out the current liquidity on those prediction markets is quite low. The markets also normally last for a long time (a couple of months on average) which means you won’t be able to withdraw your money for much longer then you are used to. Needless to say, in the meantime you need to account for various risks connected to the platforms reliability. Therefore I must conclude I see some good potential in those markets, however they need some further growth in order to become attractive for the average punter.
Some people like to stay under the government’s radar and there is nothing wrong with that in itself. Being able to initiate direct transactions to the bookie with no intermediary payment provider, a player is able to maintain anonymity to a higher degree, even though bookmakers still might request verification. I believe everyone is well aware of the regulation in their own countries, so use this option at your own risk.
Low quality of service
However, the lack of regulation on the one hand and of established brands on the other inevitably leads to a lower quality of service. Many of the bitcoin betting websites that are popping up recently have significant downtimes, change of ownership leading to operating halt or what’s worse, a scammer deliberately closing it all down to run away with the punters’ money. Needless to say, those risks exist with the traditional bookmakers as well, however due to regulation and the reputation of the books (or whatever’s left from it) it is less likely.
There is definitely great potential in Blockchain-based gambling but I am not too excited about the developments in the area just yet. I will personally adopt a ‘wait and see’ approach as it comes to crypto coin betting exchanges and prediction markets. Perhaps they develop into something interesting but the liquidity does not seem to be there yet. Furthermore, the Bitcoin books might be a good target for arbing, but given the taste of arbers for safe and steady returns the wild swings in any crypto coin’s exchange rate might give them a second thought.
But mostly, the big question for me remains whether the time will come when bets will be settled by an independent third party making bookmakers merely a counterpart in a bet as opposed to a self-elected guardian of customer funds and arbiter of bet outcomes. That would certainly ignite a revolution on the betting markets and the Blockchain technology has the potential to make it happen.
If you want to chat about crypto books and exchanges feel free to drop a comment below. In any case, thanks for reading and stay tuned for the incoming articles on DFS, betting strategies and arbitrage.