Why blockchain is a game-changer for the igaming industry (part three)

In the final installment of a three-part series, Ron Segev, partner at Segev LLP, looks at how blockchain igaming is already in play and its early adopters

The future of igaming is already here. Ethereum and blockchain developers have been working at breakneck speed developing platforms and a few have emerged as particularly interesting.

FunFair.io is an Ethereum-based online casino platform that allows others to license and run their own online casinos. It claims that when the user-operator is ready, they can take their casino online with just two clicks of the mouse. FunFair has created a digital coin (a FUN) to play with that can reward players and remunerate platform stakeholders.

DAO.Casino is another online casino using Ethereum. It is focusing a lot of its energy on creating fair and transparent random number generation for each game through the blockchain network and using its own cryptocurrency (a BET) to incentivize users, developers, lead generators and other stakeholders to add value to the gaming platform.  

Virtue Poker is an online poker platform also based on the blockchain. It claims to have a peer-to-peer card shuffling application, hold bets in secure escrow accounts, have cryptographically signed hand wallets and, like other blockchain-based platforms, can process cryptocurrency payouts directly to players’ digital wallets.

FansUnite.io is a particularly interesting blockchain-based sportsbook, and one that our firm has been advising for its forthcoming initial coin offering (ICO).

FansUnite’s use of smart contracts technology is interesting because it has developed an ‘Oracle’ that automatically pulls event outcome information from several independent sources to create a reliably true data set of sports outcomes on an almost real-time basis.

This Oracle is supposed to make payouts quick and accurate. FansUnite’s proposed coin is an FU and it would provide players on its site premium pricing and functionality and could be used to place bets on the site.

Initial coin offerings: non-dilutive, non-debt, instant financing
In June of 2017, FunFair.io raised $10m in Ether and more than $10m in other currencies and private institutional investment in only four hours. FunFair raised the money without diluting any share equity of FunFair shareholders or by assuming any debt.

FansUnite.io is launching a token sale in October 2017 and is looking to raise $38m in support of the development of a unique blockchain sportsbook with a unique proprietary digital coin economy.

That would be $38m of debt-free, non-dilutive financing that seeks to create a coin with valuable functionality for sports betting fans (to repeat: our firm is an advisor to the FansUnite token offering). DAO.Casino, Virtue Poker, Edgeless.io, and several other igaming platforms have each raised millions in minutes or plan to do so the same way.

One of the more powerful uses of the Ethereum network is allowing anybody to easily create their own proprietary digital currencies with their own incentive system attached to it. Incentives are usually access or functionality benefits.

The technology is new but the idea is old. Gaming tokens allow token holders access to premium platform or website benefits, functionality or pricing. The difference is that the access and functionality rights are not tied to a person but to a digital token that can conceivably be freely traded with other people for other tokens or fiat currencies.

With the layer of security and anonymity baked into the technology, the coins can represent a compelling asset. 

The Bellagio has tokens too
It’s an idea similar to a land-based physical casino chip, if that chip had certain VIP benefits attached to it. Tipping a cab driver on the Las Vegas Strip with a Bellagio chip would probably be welcomed by that cab driver, but only because he or she knows they can enter the Bellagio and exchange it for USD quite easily.

If the same Bellagio chip were widely, freely, securely and anonymously tradable at low transaction costs and could appreciate in value over time, that Bellagio chip would be far more valuable.  Those are big “ifs” that the Ethereum blockchain has figured out.

Securities law issues
Companies have to be careful not to issue tokens or coins that, in effect, are the same as a stock or financial security. Most regulators have yet to come down hard on cryptocurrencies that are de facto securities, but guidance was recently provided by the US Securities and Exchange Commission and the Canadian Securities Administrators setting out what would constitute an IPO in ICO clothing and warning against engaging in such offerings.

If a token or coin sale represents an investment in a common enterprise, and the token buyer has an expectation of profits realized from the efforts of a third party, then the coin offering will most likely be considered a security. In this case the coin mechanic should be adjusted so that it is a utility, functionality or access token, and nothing more.

Remote gaming licence jurisdictions are adapting
Traditional remote regulating jurisdictions have been responsive to the opportunities and challenges afforded by blockchain technology.

The Malta Gaming Authority has chosen to adopt a friendly approach to the emerging cryptocurrency market. In a white paper published this summer, it stated “the Authority is committed to allow the use of cryptocurrencies by its licensees in the immediate future”.

The Isle of Man has already instituted new regulations that allow for cryptocurrency companies to be started there. These regulations will specifically include KYC and AML rules as well. That means that crypto start-ups still need to follow strict rules to curtail illicit activities on their networks.

Where is this all heading?

About 1,500 years ago, the small island of Yap in the western Pacific saw the emergence of a new store of value: a very large stone coin called a rai.

The stones were typically carried by several men, after a large wooden pole had been inserted through a hole in the center of the stone. Because the stones were so large, the people of Yap developed an ownership registry system based on an oral history of ownership.

Using the stone for trade involved agreeing that ownership of the stone had changed, and sharing that information with the broader community; or to use a blockchain analogy, entering that new block of ownership information with all the nodes (in the Yap example, the community members) on the distributed ledger. In this way, the stone never had to change hands.

Vitalik Buterin, the creator of Ethereum, famously uses the example of rai stones as an example of an early cryptocurrency. He notes that even a Japanese invasion of the island and confiscation of some of the stones, or even a stone lost in the ocean, did not seriously impact or destroy the value of rai stones. Their existence and ownership was recorded on a secure blockchain of oral history.

In a sense, cryptocurrencies, especially Ether and the added value of the programming language attached to it, are similarly robust. Cryptocurrencies are extremely difficult to destroy and control by any single entity. 

The ability to raise money at speed, create deep trust in your community, and to decentralize the power and control of many important system functions and critical information will continue to have innovative impacts on igaming products and services and the regulatory environment that governs them. Ethereum and blockchain technology are igaming game-changers that are here to stay.

Ron Segev is a partner of Segev LLP, a business, technology and real estate law firm with a leading North American igaming practice group. Ron is a business lawyer specialised in igaming and other technology law. He assists his clients with all facets of their business: commercial, IP, corporate, finance, gaming law, regulation and compliance. Ron is also a general member of the International Masters of Gaming Law, and he loves his work. Email: [email protected]

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