Enough of Paranoia about Bitcoin, We Need to Talk: DAO.Casino to Regulators

Online gambling is a rapidly growing field, and the amount of players worldwide is expected to almost double by 2021, as forecasted by the report from Juniper Research. The industry is developing as the number of online gambling websites is increasing with an emerging possibility to use Bitcoin and other cryptocurrencies for betting.

Bitcoin has been shining as a perfect gambling option for a number of reasons, starting from the (quasi-) anonymity of transactions, user-friendliness, speed and easiness to use comparing to other payment methods.

How to regulate online gambling?

Regulation-wise, online gambling is treated very differently around the world. With some governing authorities freeing the industry players from any restrictions, while others requesting specific requirements from industry players, or even opting for a strict ban. The situation is even more uncertain with cryptocurrency online gambling, which remains in the gray area in many jurisdictions.

The United Kingdom Gambling Commission was among the first authorities to raise the question on specific rulings for Bitcoin gambling websites. In August last year, it gave permission to UK licensed online casinos to start accepting Bitcoin as a deposit and cash out method, noting that proper regulations still need to be developed to prevent the use of these platforms for money laundering.

The Isle of Man officials have been weighing regulatory changes to allow acceptance of cryptocurrencies just like cash. Gibraltar, Costa Rica, and Curacao are so far among those offering licensing for Bitcoin casinos.

Some believe that gambling business should be considering Blockchain technology beyond a payment method. Cointelegraph caught up with Ilya Tarutov, CEO at DAO.Casino to chat about the influence of Blockchain tech on gambling industry and willingness of regulators to embrace innovative technologies for their own good.

Reimagining the concept of trust

DAO.Casino is building a decentralized public system for gambling industry consisting of an automated value distribution protocol acting as a mechanism of incentives built in a system of Ethereum smart contracts together with a system that is capable of providing equally unpredictable pseudorandom numbers for the gamers. DAO.Casino team is attempting to solve some of the most common issues in traditional online gambling industry through applying crypto economics and building a platform on Ethereum.

Thus, automating crucial elements of the online gambling industry that normally require trust can potentially reduce a risk of fraud, minimizing overheads for casino operators allowing higher payouts for the players, and monetizing game developers’ efforts, eventually enabling development of new and more sustainable business models.

In a chat with Cointelegraph Tarutov summed up some of the key challenges that could be eliminated with Blockchain technology in the gaming industry.

The concentration of trust and risks of abuses of trust and corruption are relevant for any industry. Trust has long been considered as one of the biggest concerns for online gamblers, Blockchain technology is often said to be able to entirely remove this concept as a source of uncertainty.

Tarutov believes that if it doesn’t entirely remove, it certainly significantly minimizes the need for it and distributes it differently.

He explains:

“If you can’t audit the code yourself, you still have to trust someone who does security audit. The trick here is to automate trust out of the process where this trust can be abused. Running software on a decentralized open virtual machine, such as Ethereum, where everything is recorded to the public Blockchain allows minimizing trust and distributing it differently.”

Fighting temptation to cheat

Transparency enabled through open source software and public Blockchain, in his opinion, is what does the trick. It can be audited by anyone at any time, providing constant and uninterrupted recording of all data and code, bringing a great deal of honesty and fairness to the industry.

Tarutov shares his view:

“If the software is proprietary and runs casino’s servers, casino can potentially do anything with it. Even in the case of strict regulations over certification of software, there is potentially a risk of trust abuse, because the lack of transparency and integrity of data and code allows a casino to cheat. You can prevent cheating by stricter regulations and more frequent checks of casinos, but if the software runs publicly, there is no temptation to cheat. On top of making it fairer, it makes security and customer protection potentially cheaper.”

Although Blockchain would not solve everything, it does provide a way of building a system that is less prone to corruption and fair by design. In his opinion, it happens on multiple levels. For instance, on the gambling software level, casinos are not able to fiddle with the game results and with the user account balances.

On the crypto economic and business level, casinos would be able to find a way make different nodes able to cooperate. Thus, they would have to display games from independent game developers, and they won’t need to trust each other.

He explains:

“If a player discovers a game through a specific online platform, the platform would be rewarded for discovery automatically, so the developer gets a reward, as well as the casino. They can agree on the percentage, but it will be written as solidity contract on Ethereum, like an escrow.”

What’s more that Blockchain brings to the table is the potential for interoperability.

Tarutov says:

“When we roll out our MVP and develop the protocol further, we will be able to work with projects that are using Ethereum public or permissioned chains in the context of identity management. Right now we just need to test everything, make sure that everything works fast and is as good as or better in terms of user experience than in a server based old school gambling, that random generation is reliable and equally unpredictable. We are working a lot on that and implemented a very special fast PRNG that no one implemented before. Further, we are planning to team up with online casinos who are willing to play fair, open to innovation and competitive, and together with those projects work on identity systems to see how we can make the whole industry safer.”

Know Your Customer and protect his privacy

Tarutov points out that current KYC procedures deployed in online gambling industry are far from being perfect and it is clear for the regulators as well. For instance, it might be very difficult to enforce KYC on Bitcoin customers because of its pseudo-anonymous nature, however, there are certain procedures in place, where users can only pay and withdraw through the same channel with KYC.

Besides, most gambling platforms set a certain threshold for withdrawals, once a customer goes beyond that, they are asked for identification, which poses additional concerns about data security.

Tarutov notes:

“It seems easy to just make every company to collect and store their customer’s data to reduce the risk of money laundering or underage gambling, but if you look at it from the perspective of security specialist it can create bigger threats - personal data is sensitive. Can a company in question store this data securely? What if the data is accessed by someone with malicious intent? Innocent people will suffer. The last but not the least: if a casino knows everything about you - age, gender, behavior - it can also influence you. Customer protection is also protection of customer’s privacy. We should all raise those questions as much as we can.”

Beneficial for regulators too

Blockchain tech has long been going hand in hand with Bitcoin and for unfortunate reasons, both might have acquired a reputation of some sort of ultimate money laundering and drug purchasing machine in the early days.

Tarutov finds it ironic, as the technology carries the virtues of absolute transparency, auditability, and game theory, which makes cheating economically nonsensical. Regulators are now starting to understand this.

Currently, gambling software certification authorities impose certain rulings and requirements to the software that casinos use. Tarutov says that it is not totally unrealistic that some time in the future writing all the transactions into Blockchain, or running a software on an open auditable virtual machine can be included in this pack of requirements.

He says:

“If you have your casino tokens on the server, no matter what certified software you run, an admin would always have an admin permission to go into the server, change data and remove the logs. No one can do this with Blockchain without the whole ecosystem being notified about the changes. But we also understand that this technology is new, and regulatory authorities are often old, slow and complex institutions. But they will also adapt. A lot of pioneers of Blockchain technology are now helping the regulators to understand the benefits of it in all spheres from financial to provenance, identity management, etc. We hope that we will be able to contribute to this process as well, and to highlight potential benefits that transparency and integrity of data and code can bring to the gambling industry.”

Shared, digitalized, decentralized information on Blockchain-based platform provides everyone with significantly easier access to the data. Tarutov believes that it can potentially change the general perception of the online gambling industry.

He remarks:

“Regulators are also people, they don’t just want to out regulate everything. Even though Blockchain technology is new, very powerful, and therefore can be little scary for the regulators, it is also obviously beneficial.”

New opportunities for partnerships

Tarutov points to one interesting potential feature that Blockchain technology can provide for gambling industry apart from gambling software - user balances and random generation in the games – it comes to better identity systems, and gives an example:

“Imagine that a regulatory authority wants to enforce age restriction for online gambling. What would you do to prove your age to the casino? Send them a copy of your passport? Apart from trusting a casino with your money, you have to also trust them with your identity, and this is ridiculous. In Europe, for example, it would be difficult in regards with regard to data protection regulations, but people want to play gambling games anyway, and they will go to casinos outside of the given jurisdiction, what can lead to other consequences. Instead, one can have a federated identity system, based on cryptographic signatures, where you can first prove your age to the authorities and then just prove it to anyone with your signature without giving your entire identity to everyone on the Internet.”

Tarutov expresses a huge interest in partnering with projects working on federated identity systems to cover all the aspects of the gambling industry and provide consultancy to the regulators as well.

Getting regulators interested might be challenging, as we all know, they often might be quite slow embracing innovation. While they might not rush into embracing tech as an additional tool for regulating online gaming, there is something that could at least increase their acceptance of Blockchain’s potential to bring benefits for various parties, and it is examples of software that users want and that is working.

He explains:

“Just a couple of years ago, you would read any EU paper on Blockchains and it was just plain paranoia about buying illegal memes with bitcoins, this kind of stuff. Now there are serious open discussions about Blockchain tech in parliaments, and people who build this technology are having meetings with the regulatory authorities. Of course, there are examples when regulatory authorities are still acting slow and paranoid. It’s actually good that they don’t rush into something, and understand the potentials and tradeoffs in depth before embracing all aspects of Blockchain tech.”

Regulators - We Need to Talk

Blockchains and decentralized public virtual machines are extremely powerful technologies, in his opinion, they can bring a lot of benefits if regulators understand all the tradeoffs and advantages.

He continues:

“It will be adopted very fast because it allows people to transact p2p across the globe, which was never possible before. Regulators have to do their homework too & learning takes time.”

To speed up the learning process, Tarutov finds it necessary for online casinos and technology developers should initiate discussions with regulators to prevent them from enacting legislation that could potentially impede the growth of new products.

He explains:

“Online casinos might also not understand in detail what this decentralized stuff is about. For example, people keep mixing up a concept of a decentralized trustless smart contract-based casino and a normal online centralized casino that accepts bitcoin. These are two totally different things. We really need to put effort into communicating those concepts to general public, regulators and industry professionals - online casino operators. So, projects like ours, building protocols and new types of software for casinos should initiate discussions too. Message to any regulator or online casino operator who happened to read this article - We need to talk.”

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