Bitcoin: disruption time
While there are some challenges which still need to be overcome, the iGaming space is rapidly developing an infrastructure which will allow for fuller bitcoin integration and its establishment as a genuine alternative to traditional payment methods, argues CoinGaming CEO Tim Heath.
The betting and gaming sector is no stranger to technological disruptions which turn an industry on its head, as we have seen with the advent of mobile gaming in recent years. Firms which adapted to the new market realities were the ones which succeeded.
Those which resisted change, or failed to adequately prepare and adapt, were left behind. With that in mind, the gaming industry should be watching bitcoin very closely.
A challenging currency
Bitcoin has the potential to be the next big transformative disruption in the gaming industry, but that is not to say that it does not pose some major challenges for the gaming sector.
Bitcoin is still a volatile currency, prone to large swings in value over short time spans. This can have serious implications in terms of the way players gamble with deposited funds.
It can also create a sense that players are gambling with their money simply by depositing bitcoins into an account, let alone in placing a wager.
Of course, all currencies are prone to sharp value changes, as we’ve recently seen with the pound on news of Britain’s vote to the leave the EU. A common complaint among mult-ijurisdictional operators when reporting quarterly results is the impact of negative FX impacts on the bottom line.
Over time, bitcoin’s price will stabilise versus fiat currencies, but in the meantime it certainly adds an additional layer of volatility for both players and operators. However, this could add to its appeal among a certain group of punters.
Courting the elusive Millennials
There is an increasing acceptance and normalisation of bitcoin as an everyday currency, with ordinary people now using it for everything from making an online purchase to placing a bet.
Operators have been speaking for some time about the importance of connecting with the ever-elusive Millennial demographic. The rise of mobile-first gaming has certainly helped in this respect, and bitcoin offers a further opportunity to engage with this digital generation.
These Millennials have tended to be the early adopters of bitcoin and just happen to be the most sought-after marketing segment. As well as growing up with digital technology, many are already engaged with the idea of virtual currencies through playing social games on mobile devices.
The segment is more adaptable and likely to embrace change compared to its elders, and has shown a particular willingness to adopt new technology.
But that is not to say that there not is a massive education process to undertake, of which the gaming sector should position itself at the forefront. Only a tiny fraction of the population has ever made a bitcoin transaction, and for the time being it remains a niche of the technologically sophisticated.
There is also the danger of fragmentation between alternate emergent cryptocurrencies, such as ether. Such a division would be bad news for any e-commerce sector looking to normalise bitcoin transactions.
While offering a number of cryptocurrencies across one platform is not impossible, it would mean further complex integrations. If the gaming industry wants to offer a genuine alternate to fiat currencies, then its best move would be to unite behind a single option, with bitcoin being the most obvious.
E-commerce and other digital sectors are already making moves to update their existing infrastructure and make it bitcoin-friendly. PayPal now accepts bitcoin, and Visa and MasterCard have dipped their toes into the water when it comes to the digital currency.
On the online gaming side, we are starting to see the emergence of operators with a focus on bitcoin. A number of operators across the verticals are now looking into further bitcoin integrations.
For all the digital progress the gaming sector has made in recent years, particularly on the mobile channel, payments continue to prove a frustrating bottleneck in the user experience for many players.
While operators now offer a range of payment options for players, many of these come with a fee, a host of cumbersome security protocols and minimum deposit limits.
This delay is even more pronounced when it comes to withdrawals. How many players have churned out of frustration at having to wait three to five working days to get their hands on their winnings?
The bitcoin proposition
In recent months we have seen a number of products introduced into the gaming space which promise ‘instant access’ to winnings. These have often taken the form of debit cards which mirror a player’s online balance and allow the player to make purchases based off that balance in real time.
Innovation in the payments sector is strong, and bitcoin faces a challenge when it comes to selling itself as the most progressive solution – both to operators and players. But it is in a strong position to make that case.
Bitcoin solutions can already offer customers an average withdrawal time of just 2.5 minutes, and it won’t take long until this becomes the minimum expectation from customers looking to play on an online casino or sportsbook.
Bitcoin brings the on-demand, instant satisfaction that users are demanding to the payments sphere, in a secure, discreet and swift manner.
Deposits are either free or carry low fees, and most importantly the currency allows operators to offer the type of payment flexibility simply not available with traditional methods. Which other payment processor allows micro-deposits of as little as €0.01?
However, there remain a number of concerns over the security of bitcoin. I would argue that many of these are reputational, but they nonetheless have a material impact on the acceptance of bitcoin within the gaming industry.
There have been questions raised in the past about the security and alleged anonymity of bitcoin. Gambling firms are right to be cautious when it comes to introducing new technologies which could damage their reputation.
However, bitcoin offers a number of security features which, if correctly implemented, can provide a level of accountability far higher than that offered by many fiat casinos. However, it is critical that responsible operators lead the way in defining the terms upon which bitcoin gaming is operated.
It is possible for a bitcoin casino to have stronger know your customer (KYC) and anti-money laundering (AML) analytical tools to trace the origin of money than fiat casinos which accept credit card deposits.
It’s now possible to take a digital fingerprint of a user’s device, as well as IP information, every time they connect to a site and undertake any activity, which gives confidence that it is the same device which is accessing the site each time.
There are other basic steps which can be taken to ensure KYC/AML compliance. Any user who deposits bitcoins and subsequently does not have any game play before withdrawing funds in the next 24 hours can be immediately flagged up for extended due diligence.
It is a myth that bitcoin is anonymous. Every transaction is recorded in a public ledger, the blockchain.
While the identifiers used in these ledgers are not intrinsically tied to real world identities, it’s still possible to assess the history of actions that any users coming to services such as ours have had, including identifying customers dealing in illicit activity.
As with traditional currencies, it is important to remain vigilant, but there is no inherent reason why a bitcoin casino or sportsbook should be weaker on KYC and AML compliance than a fiat currency casino.
Innovate to differentiate
There are still a number of additional challenges to overcome. Some suppliers still require games to be played in a traditional currency, however a solution is to simply convert the player’s bitcoins into that currency at the point of transaction and credit winnings using the same exchange rate.
However, we are already observing a growing number of suppliers that allow their games to be played in bitcoin without the need for conversion at the time of transaction. The online gaming space is quickly developing an infrastructure which will allow for fuller bitcoin integration.
Everyone in the gaming industry loves to discuss the importance of innovation and differentiation. Much of this has focused on the areas of product or marketing.
The traditionally unglamorous world of payment services is rarely considered an area where an operator can stand apart from competitors. Yet bitcoin offers precisely that opportunity.
The payment journey is central to the user experience for online gamers. Too often the player payment process is a source of frustration, but bitcoin radically changes this and opens up new markets and new revenue streams.
Tim Heath is the CEO of Coingaming.io, a platform provider specialising in the provisioning of bitcoin cryptocurrency solutions for the iGaming sector. The firm provides the gaming platform for the Bitcoin casino bitcasino.io and the Bitcoin sportsbook sportsbet.io.