Coming together: The past, present and future of crypto gambling

As the first cryptocurrency, the concept of Bitcoin in its early days was somewhat novel. Bitcoin was bought and sold among small circles of investors and internet users, with the anonymity of wallet addresses and global capabilities of the blockchain making it an ideal alternative for those disenfranchised with big banks. It also made it ideal for the black-market sale of drugs on the internet… but that’s another story.

Bitcoin is built on the Bitcoin blockchain. When buying or selling with Bitcoin, the transaction is listed on that blockchain, unable to be altered, deleted or changed. To verify these transactions, crypto miners will use computers to complete mathematical verification sums. These validate the transaction, with the machine to validate the transaction first and affix it to the blockchain, as part of a block of data, receiving a small amount of the currency, called a mining reward. Around 2013, Bitcoin began picking up steam, with its value hitting triple digits.

It hit quadruple digits in 2017 and from there grew rapidly, exploding in value in 2021, when Bitcoin rose to a peak worth of over $61,000 in March. This was outdone in November when prices reached over $64,000, with the Bitcoin all-time high (ATH) price as of writing sitting just shy of $71,500, as reported in March 2024. (At press time, its current value sits at around $52,000.)

It is generally understood in the crypto market that where Bitcoin goes, the market follows. Altcoins describe any cryptocurrency that is not Bitcoin and include stablecoins (coins whose value is based on a fiat currency, such as the US dollar), meme coins (see the Elon Musk favourite Dogecoin and Shiba Inu) and utility coins, which includes the market’s second-highest traded coin, Ethereum.

These coins are often built on their own blockchains, or may be designed on an existing blockchain, with examples including Shiba Inu being built on the Ethereum blockchain. With Bitcoin’s explosion at the start of the decade, more and more businesses across sectors have begun to see the potential of crypto as an alternative payment method for their business. The gaming industry, specifically, has taken particular note, giving rise to the growing trend of crypto integration across the market.

The rise of crypto casinos

One of the primary ways that crypto has been utilised in the gaming industry is through crypto casinos. Much like any other online casino, a crypto casino will offer a host of online games that may include slots or virtual table games, though, instead of betting with fiat currency, they are simply made through crypto. The level of crypto functionality on each casino will differ. Some may only offer a wallet-linking system for bets to be deposited, while others may provide a more extensive crypto exchange, where currencies can be bought, sold and swapped on-site.

Some crypto casinos may also offer an in-house currency for exclusive use on their platform, which may come with certain player benefits to encourage its use. Crypto sportsbooks function similarly to crypto casinos, using cryptocurrency to make bets on sports. There are several notable sportsbooks that fit this definition, including Stake, which recently became the primary sponsor of the former Alfa Romeo F1 team, changing its name to Stake F1 Team Kick Sauber. However, to state that all crypto casinos and sportsbooks are a 1:1 reflection of traditional online gaming sites – and that they always have been – would be false…

A brief history

Online gambling has existed since the early 1990s. As Finix CEO and Co-Founder Richie Serna tells Gambling Insider: “Back in the late 1990s and early 2000s, if you wanted to place a bet online, you were probably using wire transfers and e-wallet payments, not cards.”  From the beginning, it seems, online betting operated differently to other industries – Serna points to the 2006 Unlawful Internet Gambling Enforcement Act (UIGEA) as a reason for this in the US; but across the globe, the 2000s existed as a time of routine change and adjustment, as regulation caught up with the new frontier of online gambling.

The earliest crypto casinos and sportsbooks came to being in the early 2010s, combining the still-niche crypto market that had bloomed in the last half-decade with the developing iGaming market. “I think crypto started appearing two or three years after Bitcoin’s conception in 2009,” Adam Gros, Head Affiliate of Gamblineers, tells us. Gros explains how, as seen with the trend in Bitcoin value, cryptocurrency was still relatively niche and confined to small groups until the mid-2010s, though “by 2014, Bitcoin definitely became a thing in online casinos and bookmakers. From that point on, its large adoption in the gaming market began.”

Crypto casinos are not necessarily just carbon copies of other iGaming platforms, accepting crypto payments to play on various digital slots. This was especially so among the earliest crypto casinos, which Gros describes as “one-game websites accepting Bitcoin.” “It all started with dice games developed by crypto and technology enthusiasts. These were one-man-band websites with no features as we know in casinos today (no support, no  promotions, only one game). One such example is SatoshiDice, which still exists!”

Indeed, many will suggest that SatoshiDice, launched in 2012, was one of the first crypto ‘casinos,’ with other early entrants to the market including BitStarz. BitStarz OG Olle Dickson tells Gambling Insider: “You could put the early crypto casinos into two categories. You had the casinos that derived from traditional fiat casinos who looked and operated like your standard casino…

Then, you had the casinos that started to focus more on very simple, scaled-down games, like plinko, crash etc, wanting to move away from the traditional casino label.”In this early period, crypto was niche, but provided a workaround for placing online bets when laws and regulations may have made it challenging or impossible for traditional payments processors to operate.

As was the case in the US, Serna explains: “When UIGEA was passed in 2006, it didn’t ban online gambling outright, it just made it illegal for financial institutions to knowingly process payments for illegal online gambling… It became harder for players to fund their accounts, expensive for gambling operators to process payments and many payment processors pulled out of the US altogether. This pushed the remaining players to use alternative payment methods like prepaid cards, cryptocurrencies, bank transfers and more specialised payment processing solutions.”

As crypto’s popularity began to skyrocket at the start of the latest decade, crypto has become more present and popular among players. Payhound Managing Director Elton Dimech points to crypto gaining popularity in iGaming for two primary reasons: “Firstly, operators can easily accept player deposits in crypto by integrating an API. Secondly, companies have been using crypto to pay B2B fees and commissions instantly around the globe. Given the iGaming industry’s strong connections to the crypto world, we can expect more expansion from here.”

New online casinos may launch offering fiat and crypto payments off the bat, while others may choose to integrate crypto payment methods onto a pre-existing platform. The days of single-game ‘casinos’ are, for the most part, behind us. But with this newfound popularity comes a wave of questions – questions that are key to understand, given cryptocurrencies’ general technicalities.

Regulating anonymity

When writing this article, a major thought I had regarding crypto casinos and crypto sportsbooks was the legality of it all. Specifically, how can these businesses assure bets are coming from legitimate sources, when crypto is global and anonymous? Blockchain wallet addresses are pseudo-anonymous. The address can be used to prove activity from a wallet, but the individual’s name or details are not connected to it.

The decentralised nature of the blockchain also makes the location of transactions challenging to ascertain, hence why it was so popular with illegal product vendors during its early years. So, when each country around the world has different laws and regulations on gambling, with some countries having a complete blanket ban on gambling, how are platforms able to ensure they are accepting bets placed legally?

Gambling Insider put this question to FinteqHub CEO Vadim Drozd. He explains: “Anonymity in payments is not exclusive to cryptocurrencies. Voucher payments and prepaid cards also offer users anonymity, which has long been a feature of the payment industry. While the advent of crypto may have enhanced the ease of anonymous transactions, it is not a fundamentally new concept in the context of payment methods and anti-money laundering (AML) practices.

“To ensure these systems operate within legal frameworks, several measures are in place. First, crypto-processing systems like CoinsPaid conduct blockchain analysis to track the origins and sources of funds, categorising the associated risks. Second, AML teams request documents when they identify suspicious factors… Additionally, AML protocols for cryptocurrencies involve monitoring transactions from different sources. For example, a deposit from one address and a withdrawal to another.

This thorough scrutiny complicates fraudulent operations. ” Payhound Managing Director Elton Dimech echoes similar ideas, stating: “In Malta there has been a solid regulatory framework in place for years. Crypto payments can be deemed to a certain extent anonymous; however, all crypto asset service providers that are subject to a regulatory regime similar to Malta must adhere to AML obligations which mitigate the anonymity aspect, by implementing the right screening and transaction monitoring tools.

“At the end of this year, we are expecting the enforcement of a new upcoming legislation that will help widespread adoption of crypto across EU member states. This new regulation called Markets in Crypto Assets (MiCA), together with the newly introduced Travel Rule, will allow companies to have better access to information for a better AML landscape. “

Speed and power use

Many will describe crypto as being a faster and cheaper solution to transactions using traditional banks. Fast transactions are a crucial need for online gamblers, Serna explains, noting that “Instant withdrawals and payouts are something people have come to expect in online gambling. This sometimes means supporting alternative payment methods like e-wallets, prepaid cards or cryptocurrencies.” For crypto, Gros states, “faster transactions and very low fees are a consequence of no third-party intermediaries such as banks and credit card companies.”

While this may be true for some currencies, depending on their usage and validation speed, for some cryptocurrencies like Bitcoin, this may not be the case. Now is a good time to bring up the concept of gas fees. When making a blockchain transaction, the user typically must pay a gas fee for this transaction. Depending on how busy the network is, these prices can go up, with those willing to pay a higher gas fee able to skip a portion of the wait time. This means for blockchains like Bitcoin, transactions can take a long time, or alternatively, be quite pricey.

How these transactions occur is also important to note. When a transaction is validated, the machine to add the transaction to the blockchain must do so with proof. There are many proofing methods; however, the one used by Bitcoin is known as proof-of-work. With this system, any computer can engage with the proofing system, though to receive the mining reward, typically only the best machines win. This means a lot of wasted energy from other machines, alongside the high energy use needed to run a high-tech mining computer.Naturally, this is not the most eco-friendly solution, with some estimating that Bitcoin mining uses more energy than some small  countries annually.

The wider altcoin market has been working to alleviate this issue as much as possible, it must be noted. In September 2022, Ethereum completed what was known as ‘The Merge,’ migrating from the aforementioned proof-of-work validation system to a proof-of-stake system; a system that was quicker, more scalable and operating using over 99% less energy. Even so, each Ethereum transaction still uses as much energy as it takes to fully charge an iPhone 13… three times.

Other altcoins, such as Solana, operate on even less energy, with each Solana transaction using less kilojoules than a Google search. These solutions are better, undoubtedly, yet Bitcoin is still the cryptocurrency with the highest market capitalisation by far, with a market cap 2.8x larger than Ethereum and Solana’s combined. But, if people are gambling with crypto, there’s a good chance they’re gambling with Bitcoin.

“The most popular cryptocurrencies used in casinos are the ones with the highest market cap simply due to the fact that a higher market cap usually correlates with the highest number of people owning that coin,” says Gros, while Dimech adds: “It is estimated that 80% of crypto transactions are made using the 2-3 most popular coins, so it is understandable that operators interested in offering crypto as a payment option should offer these coins for ease of access for players.”

Navigating this energy use, the associated gas price and wait time for Bitcoin transactions is a challenging issue to navigate, Dickson admits. “One of the issues now and again are the fluctuations in price for sending BTC as an example. When that’s the case, we always encourage our players to use another cryptocurrency for the time being.

As we accept many, they’re able to pick an alternative such as Litecoin (LTC) and avoid the potential BTC traffic jam.” Although he states that, with the right tools, “it shouldn’t take away from the overall gambling experience.” Drozd echoes a similar sentiment, noting that FinteqHub crypto provider, Coinspaid, uses various mechanisms to aid in transaction cost and speed optimisation. He adds: “Operators often absorb the increased costs of crypto transfers, ensuring that players do not experience the higher fees typically associated with such transactions. Essentially, the operator pays extra to expedite payments.”

Price volatility

Finally, there is price volatility. As any crypto investor will tell you, the price of most non-stablecoins can fluctuate rapidly, with some coins such as meme coins being particularly volatile. Buying when prices are low (otherwise known as ‘buying the dip’) and selling when they are high again is a key to crypto trading; however, for those just wanting to use crypto to make bets, this volatility could result in a player paying more or earning less than expected due to the very quick price changes.

We ask Drozd how crypto payment solutions ensure the value of a $5 bet remains solid during volatile periods: “The value of a bet is secured through hedging mechanisms. When a player deposits any cryptocurrency, such as Bitcoin, and chooses to play with fiat money, crypto payment providers hedge this deposit based on the current exchange rate. This ensures that, at the time of withdrawal, we have the necessary liquidity to match the player’s fiat balance….

However, if the player opts to exchange between cryptocurrencies, such as Bitcoin and USDT, we employ the same hedging strategy as we do with fiat currencies to manage and secure the funds. Dickson adds: “There are a few things to bear in mind with cryptocurrencies and that is that volatility varies a lot between them. Some coins have extreme volatility and some rather mild (within the realm of crypto volatility of course).

There are, however, stablecoins that eliminate the volatility problem altogether, such as USDT. At BitStarz, you also have the opportunity to instantly convert the crypto amount to a fiat currency upon deposit, in case you’re worried about the swings in price. “Aside from using stablecoins and relying on fiat conversions to curve price volatility, one solution to the challenge of market volatility and transaction prices is the use of an in-house currency. Some crypto casinos and sportsbooks may offer currency for use exclusively on the site, which can typically be purchased on the platform with both fiat and other cryptocurrencies.

As Gros outlines, “There are two challenges involved with cryptocurrency for operators: Crypto volatility and in the case of smaller crypto tokens, their support by game providers. While crypto players want to deposit and withdraw cryptocurrency, they mostly still want to play with the display currency of Dollars or Euros. Most bet limits and promotions are also carried out in fiat currencies, which means constant conversions and keeping track of the live crypto market prices.

By converting all deposits to in-house currency, you do theconversion only once. After that, everything is simple because internal currencies can have a fixed value. This also means players can play all games with any cryptocurrency, even if that cryptocurrency otherwise isn’t supported by game providers.”

However, in-house currencies may not be the solution for every operator. As Drozd notes: “Developing and maintaining a proprietary token requires significant resources and attention, which can divert focus from the casino’s primary objective of providing entertainment and quality games. Additionally, there are extra costs associated with building player trust and convincing them to adopt and use the internal cryptocurrency, necessitating a substantial marketing budget.”

So, why gamble with crypto?

In the early days of crypto casinos, before Bitcoin hit the five-digit or even four-digit pricetag, gambling was like any other reason to use Bitcoin. Dickson comments: “It is fair to say that the early crypto gamblers in our casino were most likely into crypto as investors more than anything. We also have to understand that back in the day many places didn’t accept crypto.

But that has clearly changed as it has gained popularity in the mainstream now. “I remember it being very stigmatised early on; people equated crypto to the dark web and Silk Road among other things. Now we see a lot more people realising the benefits of virtually instant peer-to-peer transactions, especially when banking regulation is getting stricter. To give you a concrete gambling-related example, I remember a friend having a hard time getting a mortgage simply because the bank saw gambling transactions on his statement. The benefits of utilising crypto are becoming more and more evident.”

Indeed, it was a rebellion against the big banks that kicked crypto off in the first place, and now it seems that cycle of using crypto as an alternative to typical bank oversight has continued as it has entered the gaming market. So crypto exists and is popular, especially among ever elusive under 35s. That alone will be enough to convince some operators to integrate crypto payment solutions into their platforms, or some providers and suppliers to integrate crypto-based services into their offering. But beyond that, as seen above, crypto is not perfect. So why are some people, especially those who are not typical crypto investors, turning to the alternative currency as a payment solution?

Serna tells us: “Gambling operators will often face higher processing fees, cash reserves and volume caps because the compliance and financial risks are higher for this industry than others. These higher fees and risk mitigation techniques can be passed along to consumers, but there’s a constant risk of upsetting customers and driving them to a competitor. Whatever the case may be, each business is unique and there is no one-size-fits-all approach to payments.”

As such, many operators may seek out alternative payment solutions, be it crypto or another payment processing solution.  Sarna continues: “To thread the needle between compliance, risk, growth and customer delight, it’s important to find a payments solution that’s dynamic and customisable. Many traditional processors won’t work with gambling businesses and, even if they do, implementing their tools can be a nightmare for developers.”

He points to the fact that some traditional payment processors will “charge high fees for gambling transactions because they see it as a risky industry,” which may in turn force operators to seek out non-traditional options. Apple Pay and PayPal, for example, are popular payment choices online among players. When we asked why these solutions may be sub-optimal for the gaming industry, Gros responded: “While services like PayPal and Apple Pay are convenient, they usually require you to add your credit card or bank account, which serves as a source for your payments.

This means bank and credit card fees are still there (sometimes even additional fees by the gateways). You’re also limited to how much or how little you can pay and how fast the transactions are, most notably for withdrawals. If a casino implements crypto payments directly on the blockchain, the only fees that are left are the mining fees, which are negligible in most cases. There are also no payment limits except those set by the casino itself, and the transaction speed depends only on the average block time.

“Another factor is anonymity. Obviously, giving away your personal information is unavoidable when using a bank or a credit card, as well as when buying crypto in an exchange. However, after that, paying with crypto doesn’t require giving your personal information to anyone else, which isn’t the case with services like PayPal or Apple Pay.”

It seems, with crypto betting, both operators and players gain access to a freedom not afforded by fiat casinos. In using crypto, they are free of data brokers and others who may use their data when inputting into online casinos, and are also free of the limits imposed by banks. This is the longstanding mindset behind crypto, after all: your money is yours; banks should not be the ones dictating what is done with it. But it would also be untruthful to say every crypto gambler out there is doing so purely to spite the banks. Bettors play with crypto for the simple reason that playing with crypto is fun.

Crypto is different, exciting and constantly changing. It is a market that has never sat still – something anyone who has spent any time in the online gaming market in the last 30 years can likely relate to. When new technology is accessible, those with an interest will follow. Crypto is just the latest in a line of new technologies and, considering its anonymity and innate rebellion, makes it particularly appealing to younger players seeking something new and exciting.

Yet, beyond the fun of it all, crypto has also come to serve as something of a lifeline for those in financially challenged nations. Bitcoin has become legal tender in El Salvador and the Central African Republic, while in Venezuela, gambling can only be conducted via cryptocurrency.

As Dimech puts it: “Crypto transactions have no chargebacks and are settled almost instantly. This gives operators a better ability to accept deposits from players and execute payouts in their target markets, particularly in countries with inefficient banking infrastructure.”

While it may serve as an alternative to some, for others it is crucial – putting at least a little more weight behind the argument for continued crypto integration. And, as far as gaming and crypto and concerned, we can definitely conclude the two are coming together.