Cryptocurrency & world of Gambling and Prediction Markets

Cryptocurrency leads to gambling. Gambling leads to Prediction Markets. Prediction Markets lead to…the dark side?

The Beginning of Gambling

Cryptocurrency has been around for about a decade, but gambling has been around for nearly as long as written records have existed, and probably much longer. As soon as people found a way to easily exchange value they started gambling. Maybe it was for chickens, maybe it was for property, maybe it was for their first born, but either way people gambled.

The medium used to gamble has shifted over the ages. If we look way back at forms of value exchange we can trace one thread of history to an interesting series of large stones called Rai Stones. These huge stones, quarried and carved out of limestone rock, were upwards of 4000kg and were used as the monetary system on the island of Yap.

In some ways you can think of these stones as coins, just like cryptocurrency, and their value was tied to immaterial things such as the craftsmanship of the stone, or how many people died transporting the stone to its final testing destination. Regardless, the stones conveyed value, and it would be a very likely guess that at least some of these stones changed hands after a late night of whatever the local drinking and gaming tradition was.

While the earliest gambling may have been simple verbal wagers, they quickly evolved into more sophisticated games of chance. Some evidence suggests that gambling may have occurred as early as 2300bc in Ancient China, where a rudimentary form of tiles were used, possibly in a lottery type game. But we can look even further back to 3000bc where a pair of dice were uncovered in an ancient tomb. It’s hard to tell exactly what the dice were used for, but most dice games are games of chance, with all the associated trappings for gambling alongside them.

The twentieth century saw a significant evolution of gambling and games supporting the frivolous entertainment, and saw the introduction of what could be called the first casino in Italy. With the dawn of the Internet innovative entrepreneurs evolved all the physical ways of gambling into an easily accessible form of online entertainment, where you could lose just as much money as you can in real life, but in purely online digital casinos.

Gambling Goes Online

“The gambling known as business looks with austere disfavor upon the business known as gambling.” — Ambrose Bierce, The Devil’s Dictionary, 1906

Over 80 Nations have legalized online gambling, with the largest online gambling market firmly located in Europe. The United States is beginning to shift their stance with a few states allowing online gambling, and the anticipation is that more will follow. With the overall income from online gambling estimated to reach $60B by 2020 there’s plenty of interest by governments and municipalities in capturing some of that value.

Online gambling comes in all shapes and flavors, but the core essence is that you win something at the end of a game. The traditional games of chance are well represented online, effectively turning websites into digital casino’s with the likes of poker, blackjack, roulette, slots, bingo and more. Moving beyond the traditional we get into sports betting, lotteries, and the more curious prediction markets.

With our innate human desire to play games, and take risks, it’s no wonder that we gravitate to online gambling, especially when it’s at our fingertips on the smartphones in our pocket. Legality often comes as a secondary concern as people ignore local laws and gamble in jurisdictions where it’s not allowed. This is where a form of currency that is largely anonymous would come in handy. Enter cryptocurrency.

Cryptogambling

With the advent of cryptocurrency, there’s really no surprise that new digital casino’s are turning to these digital stores of value to accept payment, or run their entire casino from, since they provide a largely ungoverned, unregulated and untraceable cash flow that users worldwide can tap into.

Fast forward about 1500 years (give or take) from Rai Stones and we now have purely digital coins that weigh nothing and are technically stored everywhere due to the distributed nature of cryptocurrency. That cryptocurrency would be used in gambling, especially due to the untraceable and borderless nature of many coins, was almost a given, and are now bound on a collision course with nearly all forms of gaming.

Some estimates indicate as much as 3.7 Million BTC (~$22 Billion at today’s valuation) have been leveraged in online bets. Considering the entire online gambling market is somewhere between $50 and $80 Billion, this represents a reasonable chunk of the market, and growth is only going to continue.

Gambling with cryptocurrency, however, is not without its risks. In fact, gamblers run into a trifecta of concerns beginning with the murky swamp of laws that are in a constant state of flux, where you can legally gamble online is hit and miss, and the new trend of crypto-hacking or jacking poses a reasonable threat of digital wallets being emptied.

Forecasting the Future

Price reflects value over longer periods of time, but in short periods, price reflects many people trying to predict price — The Nature of Value

Perhaps the most interesting (and possibly the most dark) form of gambling squarely lands in the area of prediction markets. A prediction market is more or less what it sounds like, a marketplace where you can make predictions on future events. The key is that you can put a stake, or bet, against these predictions with other people, and win or lose money depending on the outcome.

The combination of online gambling, future forecasting and cryptocurrency have come together in the form of Augur, a decentralized prediction platform that lets users create a prediction market around a specific event, then buy and sell shares (bet) against that event. The Augur site suggests a slew of use cases, from political forecasting to weather prediction and even hedging against catastrophic events. This all sounds fairly tame, however in a dark twist we’ve now seen the first assassination markets arise on Augur. Perhaps humans of been wagering on life since the dark ages, but it is still a little surprising to see how quickly this went to the dark side.

Even so, Augur does present an incredibly interesting mechanism to provide a decentralized way to create predictions on real-world events, allowing users to tap into markets and capital that would normally be out of reach. What kind of markets will appear as this platform evolves and matures is anyones guess, and it will be fascinating to watch it play out.

The Future of Gambling

To say that technology is rapidly changing the face of gambling is a colossal understatement. It’s now possible to gamble anywhere you are with a little gadget called the smartphone. Nearly every form of traditional gambling has been ported to software and can be easily accessed over a WiFi connection. Mobile wallets and digital payment pipelines allow the easy transfer of funds into and out of digital casinos. And now cryptocurrency can be used for gambling, providing a decentralized and potentially untraceable way to lose (win?) all your money.
Perhaps we should open a prediction market on Augur to predict what the future of gambling looks like. At its root it appears that it will be increasingly digital, increasingly decentralized and borderless, increasingly anonymous, and we will have the ability to gamble on literally everything including future events.

Whether cryptocurrency is a good thing for gambling will probably depend on who you ask. While we’ve touched on the anonymous nature of crypto, the underlying blockchain architecture has the potential to provide a more honest and open gambling environment where the transactions themselves are transparent and cheating (aka hacking the underlying system) is extremely difficult if not impossible.

It’s hard to grasp the full picture of decentralized cryptocurrency-based gambling, but make no mistake, amid the dark forest of regulation and legal issues that dominate there will be millions of eager gamblers ready to throw their hard earned money at games of crypto-chance.

Food for Thought:
• Is the future of cryptogambling in the form of decentralized casino’s?
• Will offline gambling be bolstered by cryptocurrency (since you could easily shunt wallets around on USB)?
• Will AI help protect people from the addictive nature of gambling (or will it rather be used to offer up games with ever increasing stakes to make you lose more)?

Posted using Partiko Android