Blockchain – The New Digital Concept In iGaming
iGaming industry as we know it, is steadily evolving around the digital world of blockchain technology. To date, the technology is commonly known by the general public for the cryptocurrency Bitcoin, however blockchain technology brings a far more useful agenda to the table that could potentially be a game-changer for online gambling.
What is Blockchain?
Blockchain is a decentralized database of transactions or assets, otherwise referred to as a distributed ledger, where each participant has an identical copy of the ledger that is protected by their own digital signature. The distributed ledger can be shared across multiple nodes (touchpoints) of the network and any alteration made to either one of the ledgers will be time-stamped and securely linked to the previous transaction within the network, creating a chain of activity almost simultaneously. Blockchain technology applies to any online digital asset transaction where each entry is validated, safeguarded and preserved through historical records that can be verified at any time in the future. Furthermore, blockchain makes use of cryptographic signatures so as not to comprise the privacy of digital assets and the identity of the parties involved.
Bitcoin and Blockchain
Let us consider Bitcoin to understand how blockchain processes information and maintains its data integrity across the network. Initially, Bitcoin places transactions in groups (otherwise known as blocks) and these blocks are then linked to one another in the blockchain. Each block is considered to happen at a particular time period where each one contains a hash of the previous block, allowing them to be linked in a chronological order. However, there may be instances where there would be nodes creating multiple blocks at the same time that would result in having several blocks, each with its own unique order, on different nodes in the network. Bitcoin addresses these instances by establishing a mathematical puzzle, one where each block is only accepted in the blockchain if it answers to a special mathematical problem.
Blockchain technology makes it even harder for fraudulent activity to take place. In the event that someone tries to enter a fraudulent transaction in the system, that transaction would not only need to solve the mathematical puzzle to join the network but would also have to mathematically surpass all the ‘good’ nodes to generate all the blocks subsequent to that block. Hence, this would then require all the other nodes to accept the transaction and block the valid one in its place. However, this is considerably difficult to achieve as blocks share a cryptographic connection.
Basis for Blockchain Recognition
Currently, traditional gaming platforms store sensitive data such as player information and game-play history, together with corporate game technology on their servers. These central hosting servers are the primary focal point for cyber-attacks and information security breaches when considering possible data leaks within the system. At present, iGaming platforms not only have full control over the games’ software and commands they use, but also privately withhold the outcome logs from the general public. Nonetheless, the payment processing fees incurred by players when making deposits and withdrawals are seen as an unnecessary burden as these have become even more expensive than other online e-commerce services. The desire for faster payments is paving the path for companies to evolve from the traditional payment system as we know it towards an innovative way of doing things, through the application of blockchain technology.
The Future of iGaming with Blockchain
Blockchain-based iGaming platforms are what could potentially be leading the iGaming industry in the next few years. With the recent acceptance of blockchain based companies such as Funfair and Unikrn in Gibraltar’s online gambling market, blockchain technology has gained greater traction amongst online players as they experience what could possibly become the new digital gaming environment. Blockchain technology brings several changes to the online gambling market, the most prominent of which are:
- Inducing More Transparency
Across the blockchain network, online gambling operators are transparent to their players as there is full disclosure of gambling odds and of subsequent results of bets placed on their platform. In addition, the parameters used to generate games’ outcomes when operating on the Ethereum blockchain, gives players strong assurance that the RNG (random number generator) is not being manipulated by the operator in any way.
- Establishing Smart Contract Agreements
Smart contracts are digital agreements between parties that execute payments when a preprogrammed condition is triggered by the outcome of an event. These are basically a set of instructions – ‘if this, then that’ – which entails all participants to a transaction. Smart contracts provide a more secure and trustworthy arrangement between the player and the operator since they are based on verifiable and publicly available immutable contracts. If you apply this to a casino, a case in point would be the Roulette, if I bet on red and the ball stops on red, I win and the casino pays me my winnings. If the ball stops on black, I lose and the casino takes my money. By introducing these smart contracts, there would be less need for interference from top-level administration as everything would be integrated through digital agreements and processes would have become fully automated and verified.
- Shift to a ‘Pay-As-You-Go’ Platform
This payment scheme has already experienced substantial growth within several iGaming companies and a considerable number of individuals are also making use of Bitcoin, Ethereum, Litecoin and other cryptocurrencies to make payments. In comparison to the traditional method of payment via banking systems, these cryptocurrency transactions are faster and easier-to-use while at the same time do not make use of any intermediary throughout the transaction. With cryptocurrency transactions, the blockchain itself acts as an intermediary processor for transactions incurred by its participants which also explains the lower transaction costs borne by its users.
- Cutting-edge Data Security
Since blockchain is built on a decentralized structure, having a cryptographic secured network makes it even more difficult for hackers to attack. Without a central focal point to exploit, hackers face even higher levels of resilience when attempting to hack the system.
Blockchain and the Malta Gaming Authority (MGA)
So far the MGA has only issued consultation requirements, thus, it has not granted licensing to any blockchain gambling related activity. At present, MGA remarks that the Authority supports companies “that are hosted fully or partially on a Blockchain environment” under the condition that the operator ensures that the gaming service it provides to its customers will not be unduly disrupted by its operational setup.
The MGA is working towards having a regulated licensing system for gaming developers with standards set out for cryptocurrency payments and digital currency wallets. The recently issued guidance on the use of distributed ledger technology and on the acceptance of virtual currencies is meant to serve as a potential ‘test and learn’ live environment as part of the preliminary acceptance of an online gambling regulated environment.
The MGA strategy to be at the forefront of remote gaming regulation while embracing innovation, is balanced with the recognition that a prudent approach in this area is sensible and needed
The Implications for the Maltese Accountant
As blockchain oriented start-up companies are set up in Malta, other globally renowned gaming companies have become compelled to plan their next move in light of blockchain technology. What this implies for professional accountants is that, while blockchain allows for greater efficiency in the accountant’s work, it opens up the possibility for the accountant to focus time and resources towards the value-adding areas that are becoming increasingly dependent upon by these companies.
Blockchain technology brings to the table clarity across the ownership of assets and existence of obligations. Furthermore, ledger reconciliation as we know it is changing, with verifiable blockchain records automating the bookkeeping process for the accountant. Henceforth, the accountant directs attention on the significance of the data itself and its implications, while keeping a professional skeptical mindset when applying their professional judgement. Additionally, blockchain opens up the possibility for ‘real-time reporting’ as distributed ledgers enable more timely recordings of corporate cash positions.
As advancements in digital technology continue to evolve and regulations are set out, the auditors’ role will also progress towards the digital era; one where auditors’ express governance over the types of blockchains being used within the online gambling industry. While it has already started to take effect at present, there is no doubt that in the near future, auditors need to provide an exhaustive level of assurance on the digital systems being used by these businesses, rather than solely focusing their testing on the transactions themselves.