Skins betting & Blockchains: A brief overview Prepared for ... · Skins betting & Blockchains: A...
Transcript of Skins betting & Blockchains: A brief overview Prepared for ... · Skins betting & Blockchains: A...
1
Skinsbetting&Blockchains:Abriefoverview
PreparedforGambleAware,UK
By
AlexanderBlaszczynskiPhD&SallyGainsburyPhDSchoolofPsychology,TheUniversityofSydney,Australia
ExecutiveSummary:InresponsetoarequestbytheResearchCommittee,GambleAwarehasaskedIROPtoproduceabriefpaperonSkinsbetting&Blockchain.ThepurposeofthereportistoprovideanoverviewoftheconceptofSkinsbetting&BlockchaintoinformtheCommitteeasthenature,functionandpossibleimplicationsforgamblingassociatedwiththeseemergentformsofgambling.• Skinsrefertothegraphicdesignofcomponentsusedinonlinevideogames,notablyvirtual
weapons,armour,equipment,andotheraestheticitemsusedinfirst-personshootergames.• Skinshavenointrinsicvalueorconferanyskilladvantagetoplayers.Theirvalueresidesinthe
capacityoftheskintopersonalisetheaestheticappealoftheavatarandassociatedcomponentsusedbyaplayer.
• Skinscanbepurchased,orwonbybettingontheoutcomeofaneSportevent,lotterydrawjackpot,casino-stylegameoranotherchancebased-outcome.Skinscanbewonbetweenaplayerandanoperator,orbypeer-to-peertransactions.Inthiscapacity,skinsbettingcanmeettheoperationaldefinitionofgambling.
• Skinscanbeexchangedforcashviathirdpartyonlineoperators.• Estimatesarethataround3millionindividualswagered$2.3billionworthofonskinsoneSport
eventsin2015.• AGooglesearchpurportedlyrevealedover600,000sitesofferingskinsbetting.• Inanunregulatedenvironment,risksincludethepossibilitythatfundscouldbeusedtosupport
othercriminalactivitiesand/orlaundermoney.• Intheabsenceofregulatorycompliance,thereisnoguaranteethatgamesofferedarefairand
freefromexploitativepractices,orplayerknowledgeofcommissionspaidtotheoperatorfortransactions.
• Incasesofdisputeorcomplaints,therearelimitedifanyappealbodiesthatcanadvocateonbehalfoftheplayerorimposepenaltiesincaseofbreaches,match-fixingorexploitativepractices.
• Thereareminimalifanyageverificationproceduresappliedtoeliminateunderagegambling.• Therearenorequirementsinanunregulatedenvironmenttoadheretoresponsiblegambling
practicesorstrategiessuchasself-assessment,signageandmessagingencouragingplayerstogamblewithinaffordablelimits,self-exclusionoptions,orlinkstotreatmentservicesforthoseexhibitingaddictivebehavioursorrelatednegativeconsequences.
• ABlockchaincanbeconstruedas“atechnologythatallowspeoplewhodon’tknoweachothertotrustasharedrecordofevents”.Thissharedrecordorledgerisdistributedtoallparticipantsinanetwork.Theserecordsareopenandtransparentwithmasscollaborationauthenticatingtransactions.Alluserscantracetheprovidenceofeachtransactionmade.
• TheBlockchainprotocolseffectivelyremovetheneedforathird-partyintermediarysuchasabanktovalidtransactions.
• EachtransactionisrecordedpermanentlyinaBlocklinkedtoallprevioustransactioneffectivelycreatingachainofblocks(hencetheterm,Blockchain)thattracesandauthenticateseverytransactionassociatedwiththatblock.
2
• ThearchitectureoftheBlockchainprotocolseffectivelypreventsfraud,alterationofrecords,orcracking(hacking)byunauthorizedusers.
• Byeliminatingintermediaries,andestablishingasecureandtrustedprotocol,speedy,costeffectiveandtrustedpeer-to-peertransactionsarepossible.Theuseofcryptocurrency(e.g.,Bitcoin)bypassestraditionalpaymentmethodsthroughfinancialinstitutions,i.e.,banks,creditcardsetc.
• TheopensourcenatureoftheprotocolenablesoperatorstodevelopSmartContracts.Thesearecodesthatrunwithouttherequirementsofexternalnetworkagents,thatis,thenoonecontrolsthegamenorcanitbetakendown.Smartcontractsself-execute,triggeringthereleaseofpaymentwhencertainconditionsarefulfilled).Thiseliminatestheneedforanintermediaryandallowspeer-to-peergamblingusingasmartcontractcode.
• GiventhestructureofBlockchainprotocols,thereisnoriskthatgamblingproductsandgamesareofferedarenotfair.Consumerscanverifyoutcomestherebyreducingtheneedforaregulatortoverifyandlicenseoperators.Itmaysubstantiallyreducedisreputableoffshoregamblingsitesthatdonotprovidefairproductsandpaycustomers,andreduceonlinegamblinglicensingorganisationsasthesemaynolongerbenecessaryorrequiredforconsumertrust
• BlockchainItispartofarapidlygrowingecosystemofadvancedtechnologiesthatwillplayafundamentalroleinthefutureofcommerceandsociety.
Tableofcontents:1.0SkinsBettingandGambling……………………………………………………………………………….3
1.1Whatareskins?……………………………………………………………………………………31.2Howareskinsexchangedandpurchased?…………………………………………..31.3Howextensiveisskinsbetting?……………………………………………………………61.4Is‘skinsbetting’‘gambling’?………………………………………………………………..71.5Whoengagesinskinsbetting?……………………………………………………………91.6Whataretheprimaryissues?……………………………………………………………..91.7Summary…….……………………………………………………………………………………….101.8References……………………………………………………………………………………………10
2.0Blockchain………………………………………………………………………………………………………..122.1Abriefoutlineofitsconceptandimplicationsforgambling………………..122.2Bitcoin…………………………………………………………………………………………………152.3Whataretheimplicationsforgambling?…………………………………………….162.4PotentialBlockchainopportunities……………………………………………………..182.5Summary……………………………………………………………………………………………182.6References………………………………………………………………………………………….19
3
1.0SkinsBettingandGambling
1.1Whatareskins?
‘Skins’refertothecosmeticappearanceofcertaingraphiccomponentsusedbyplayersinvideogames,typicallyvirtualweapons,armour,equipment,andotheraestheticitemsusedinfirst-personshootergames.Playerscanexchange/tradeorpurchasethesevirtualitemsthatdifferincolourandgraphicaldesignfromthestandarditemusedinthegame.Forexample,abasicdesign(skin)canbereplacedatacostwithamoreelaborateand/orcolourfulone.
Skinstypicallydonotalteroraffordanyadditionalfunctionaladvantageorskilltotheplayerinplayingthegame.Thevalueoftheskins,therefore,isfoundinitscapacitytopersonalizeaplayer’savatar1usedinthegame.However,someskinsdoprovidetactical,ifnottechnical,advantages,forexample,acamouflageskinhelpsgunsblendintoajungleenvironment.
Theavailabilityanddemandforaskindeterminesitsworth.Rareitemsaresoughtmoreoftencomparedtothosereadilyavailable,andthereforeattracthigherstatusasacollectibleandconsequently,costvalue.
Skinscanbe:
(a)Usedduringplayandexchangedwithotherplayersaccordingtotheirvalue,or
(b)Depositedintotheplayer’sSteamaccountthatisoperatedbyValve.
1.2Howareskinsexchangedandpurchased?
ThevideogameCounter-Strike:GlobalOffensive(CS:GO)isapopularshootergameinwhichplayerscantradeandpurchaseskins.Participatingplayerscanacquireskinsbypurchasing,trading,winning,receivingaspartofapromotionalgive-away,orearningitthroughachievingthresholdtargets(e.g.,kills,assists,andcompletingobjectives).Ingame,skinsareobtainedbyfindingandopening“weaponcases”usingkeys,whichcanbeboughtfromthein-gamestore,foraroundUS$2.50UnopenedweaponcasescanalsobeacquiredviapurchaseortradefromtheSteamCommunityMarket.Theseareofferedassomewhatofalotteryor‘luckydip’giventhatthecontentsarenotknown.Usersbidonopenboxeswithoutanyoddsprovidedonwhatmaybeinside,thatis,thelikelihoodofanitemofloworhighvaluebeingobtained(Figure1).Onceobtained,skinscanbeboughtortradedforonthemarket(Figure2).
1Anavataristhevirtualrepresentationofapersonwithinavideogame
4
Figure1CS:GOWeaponCaseforsaleonSteamCommunityMarket10-Jan-17
AlltransactionsonthemarketareconductedwithSteamWalletfunds2.AStreamaccountisanassociatedsitewhereplayerscandepositandexchange/tradeskinsamongeachother.SkinscanbepurchasedforrealmoneyontheValve-ownedsitebutcanonlybesoldtootherplayersforcreditpointswithinanin-gameembeddedtheSteamaccountsystem.Skinscanbesoldwithaccruedcreditsusedtopurchaseskinsofahighervalue.Inthiscontext,skinsaretransferredeffectivelyinabartertypesystemwherethereisnomonetaryexchangeorcash-outforrealmoney.ItisimpossibletowithdrawmoneyfromyourSteamWallet3.Valvemaintainsalimitof$500onSteamwalletfunds,andamaximumsalepriceof$400foranysingleitem.
2Valvetakesa15percentcutofallCS-GO-relatedpurchasesonthemarket3Otherwise,SteamwouldqualifyasabankinginstitutionandValvewouldbesubjecttorelatedregulations
5
Figure2SteamCommunityMarketforCS:GO10-Jan-17
Subsequently,manytransactionsoccuroutsideoftheSteamMarket.Valve’sSteamAPIallowforthird-partyservicestointeractwithplayer’sSteamaccounts.Manywebsitesexisttofacilitatethis,suchasCSGOShopandOPSkins(Figure3),whichallowcustomerstocashoutfundsreceivedfromskinsalestoservicessuchasPayPal.Thesehavenopricemaximums.WebsitesusethefreelyavailableAPIprovidedbySteamtoallowskinstobetransferredtoathird-partysiteexternaltoSteam,andexchangedforcashtothevalueoftheskin.Thiscapacityconfersamonetaryvaluetotheskins.ThereareenoughplayerstradinginCS:GO’svirtualmarkettoestablishmeanpricesoverlongtimeperiods4.Consequentially,eachskincanberegardedashavingmonetaryvalueandrepresentingsomelevelofvalue,analogoustoacasinochiportoken.
4basedonthenumberofthesameitemavailableandthedemandforthese
6
Figure3OPSKINSItemdatabase10-Jan-17
1.3Howextensiveisskinsbetting?
Theconceptofskinsbettingappearstohaveemergedin2013whentheoperatorofValveintroducedthesystemofonlineskinstrading.Simultaneously,eSportshasdramaticallyriseninpopularityandmanyplayersareinterestedinbettingontheseevents.UserscanbetwithskinsontheoutcomeofeSportsdirectlyfromtheirSteamaccounts,orusingsecondarysites.Subsequently,numerousthird-partywebsiteshavebeencreatedusingSteamAPItoallowpeopletogambleusingskins.UsingtheSteamAPI,skinscanbetransferredintoanaccountonspecificonlinegamblingsites.Theseallowplayerstouseskinsascurrencyforgambling,thatis,tobetontheoutcomeofevents,forexampleeSportsoutcome,lotterydrawjackpots,casino-stylegames,orskillgamesthatcontainelementsofchance.Skinscanbewonbetweenaplayerandtheoperatororonapeer-to-peeragreement.PlayerscansellskinswonontheSteamMarket,orviathird-partywebsitesforcash-value(e.g.,depositsintoaPayPalaccount).
InadditiontobettingoneSports,apopularformofskinsbettingispublicpots(Lahti,2016),whichispurelyodds-basedgamblingwithotherplayers.Playersdepositskinsintoasharedpotasashorttimelimitcountsdown,afterwhichnomorebetsareaccepted.Thesystemrandomlypicksawinner,thehigherthetotalvalueoftheskinsyoubet,thegreateryourchanceofwinningthepot(akintohavingmoreticketsinasweepstake).
Withinatimeframeoftwoyears,theEilersandKrejcikresearchagencyreportedthateSportsskinsbettingparticipationratesincreasedapproximately1,500%witharound3millionindividualswagering$2.3billionworthofonskinsoneSporteventsin2015(Brustein&Nevy-Williams,2016).Grove(2016)estimatedthattheglobalworthofskinsacrossallproductsreached$7.4billionin2016,andaccountedfor93%ofeSportstotalgamblinghandle.Fifteensiteswereconjecturedtogeneratethemajorityofexpenditure,witheSportscontributingtojustunderhalf(44%),followedbyJackpot(lottery-typegames)(26%),andRoulette(14%),oftheexpenditure.AGooglesearchpurportedlyrevealedover600,000sitesofferingskinsbetting(Edmonds,2016).Incontrast,
7
BetCSGO.orglists54differentsitesonwhichskinscanbegambledonincludingjackpot,skill,matchbetting,fantasy,andskillgaming5.
Valvehasalsomadesubstantialrevenue,estimatedatover$500millioninJuly2016,associatedwithfeesleviedontransactions(Masters&Louchnikov,2016).Valvemakes5percentoffthesaleofanySteamMarketsale,but15percentofthesaleofitemsfromValvegameslikeCS:GO,Dota2,andTeamFortress.
AsearchofwebmetricsforCSGOLounge.complaceditsglobalrankas4,296and154inthegamescategory.TotalvisitshavesubstantiallydeclinedsinceJulyfromover30millionto8.4million.ThesiteannouncedthatitwouldnolongerallowplayersfromtheUnitedKingdomtoaccessthesitesbettingfeature.CSGOLoungeisthelargestskinbettingwebsiteintheworldandisestimatedtohaveprocessedmorethan90millionskinsinbettinghandleonCS:GOmatchesinthefirsthalfof2016(Green,2016).
CS:GOBigprovidesindicatorsofbettingwithskinsinthepast24hours,with$347,094wononJanuary10,2017.CSGOFast.comtracked28643uniqueplayersonJanuary10,2017offering7056gamesandthelargestwinof$2433.Thetoprankedplayerhad352wins,atotalof$101156.
1.4Is‘skinsbetting’‘gambling’?
Theconceptofgamblingincorporatesthefollowingelements:
• Anagreementbetweenoneormoreparties.• Tostakeanitemofvalueontheoutcomeofanevent.• Thatiswhollyorpartlydeterminedbychance.• Fortheprofitorgainofonepartyovertheother/s.
TheUKGamblingAct(2005)setsouttheparametersdefiningtheconceptofgambling,definingthetermunderbetting,gamingandparticipationinlotteries.Theseareoperationallydefinedinsection9,section6,andsection14oftheAct,respectively.
Whereskinsaretradedbetweenplayerspurelyonthebasisofpurchasesorexchangewithinthesite,theactivitycanbeconsideredasnon-gambling.Skinsarenotdistributedaccordingtotheoutcomeofachanceevent,orcashedinforrealmoney.However,thereareseveralelementsofgamblingassociatedwithskins.Skinscanbeconstruedashavingrealvaluegiventhefactthatthesecanbecashed-outforrealmoneyviathirdpartyoperators.
Thefirstisthemechanismofobtainingskins,throughthecrateandkeymechanism.Thisoperatesonavariable-ratereinforcementschedule,inthesamewayasaslotmachine.Itintroducestheabilitytogeneratein-gamerevenuethatisintegratedwithincoregameplay.Thatis,playerscomeacrossaweaponscasethattheypaymoneytopurchase(profitsreceivedwhollybyValve),withoutknowingthecontents(chance).Furthermore,playershavenowayofknowingthelikelihood(odds)thattheywillobtainanitemofloworhighvalue.Thisisakintoplayingaslotmachinewithnoinformationontheoddsofwinningthemaximumprize,orevenwhatthepossibleprizesare.Unlikeaslotmachine,playerscannotlose,allweaponscasesobtainanitem.Akeyquestioniswhethertheoutcome–skins–areconsideredtobeanitemofvalue.
Thereissomeprecedentforpreventingthismechanismwithinvideogames.In2012,Japan’sConsumerAffairsAgencyruledthatthismechanism(“kompugacha”,afeaturewhichallowsplayerstopurchaseentriesintomultipleelectronicdrawstowinspecialitems)wasillegalasitwasinviolationofadvertisinglaws(Gainsbury,King,Delfabbro,Hing,Russell,Blaszczynski,&Derevensky,
5http://betcsgo.org/10-Jan-2017
8
2015).Eachdrawcostsmoneyandtheprobabilitiesofwinningareunknowntoplayers.However,althoughbannedduetomisleadingconsumers,itwasnotidentifiedasaformofgambling.
Thesecond,andmoreconcerningaspectisgamblingwithskinsusedforcurrency.Inrespecttoskins,itcanreasonablybearguedthataspectsofskinsbettingcontainalltherequisitecharacteristicsthatmakeitfallwithinthedomainofgambling.Thereisanagreementbetweentheplayerandoneormoreotherstostakeanitemofvalue(skinsthatcanultimatelybeexchangedforrealmoney),oneventsthatarepartlydeterminedbychance(theprocessbywhichaplayerwinsaskin;outcomeofeSportseventwherechanceplaysapart,orroulette,lotteryorcointosswhollygovernedbychance),fortheadvantageorgainofoneparty.
Steamaccountrulesstatethat“SteamWalletfundsdonotconstituteapersonalpropertyright,havenovalueoutsideSteamandcanonlybeusedtopurchaseSubscriptionsandrelatedcontentviaSteam(includingbutnotlimitedtogamesandotherapplicationsofferedthroughtheSteamStore,orinaSteamSubscriptionMarketplace)andHardware.SteamWalletfundshavenocashvalueandarenotexchangeableforcash.”6Thus,claimingthatbettingwithskinsdoesnotconstitutegambling.However,bynotpubliclyintervening,ValveallowedgamblingtobecomeaninseparableaspectofCS:GO’sculture(Lahti,2016).Furthermore,bymakingitsAPIfreelyavailable,Valvewerecomplicitinthedevelopmentofthird-partygamblingandcash-outsites.Bychargingatransactionfee,Valveprofitedmonetarilyfromthefunctioningofthesites.ValvealsoprovidedsponsoredValvelinks,allowinguserstolinktheirSteamaccountstothird-partygamblingsites.
Grove(2016)notedthatinlightofrecentevents,potentiallitigationandmovesbyValveinmid-2016toissuenoticestoaround40third-partysitesrequestingcessationoftheiractivitiesorclosingtheirsite,thereisaneedtorevisethepredictedlevelofexpenditureonskinsbettingoverthenextfewyears.Valve’sactionswereinresponsetoinstructionsfromtheWashingtonStateGamblingCommissionissuedinlate2016,coupledwiththreatsofforfeitureofassetsandcriminalproceedingsforfailuretosodo(Green,2016).TheWashingtonStateGamblingCommissioner,ChrisStearnsdescribedskinsbettingonsportsas“alarge,unregulatedblackmarketforgambling".Therehavebeeninconsistentdecisionsincourtrulingsregardingtheweightgiventothird-partysitesofferingmoneyforvirtualgoodswhensiteprovidingthevirtualgoodsdonotallowcash-outsystems(Lahti,2016).CourtsintheUKandtheNetherlandsuphelddecisionsthatvirtualchipsanditemshavemonetaryvalueandthattheftoftheseisaviolationofthelaw(Charif,2011;MorganStanley,2012).LegaldecisionsintheUShavelargelynotawardeddecisionsbasedonsecondarymarketsforvirtualitems(Lahti,2016).
Thecontroversiessurroundingskinsbettingrelatesto:
• Itscurrentunregulatedstatus,allegationsthatitconstitutesanillegalgamblingbusiness.• ScrutinybytheUKGamblingCommissionastowhetheritbreachesrequirementtobe
licencedasagamblingproduct.• PotentialtransgressionofthelegislationenactedintheUnitedStatesofAmerica,notably
theUnlawfulInternetGamblingEnforcementAct,IllegalGamblingBusinessActandtheWireAct.
• Incidentsofcelebritiespromotingbutfailingtodiscloseownershipofsites(Edmonds,2016).
6http://store.steampowered.com/subscriber_agreement/10-Jan-17
9
1.5Whoengagesinskinsbetting?
Esportsisapopularformofentertainment,althoughthereisrelativelylittlereliableresearchabouttheusers.ThereisaclearmajorityofmalesintheeSportscommunity,estimatedattwo-thirds.Youngadultsarethedominateage(24to27yearsofage)(Zalik,2015).
CS:GOisthefourthmostpopularmassivelymultiplayeronlinegame(MMO),althoughoneofthemostrecent(releasedin2012).Anestimated3millionplayersusethegameeverymonthwithmorethan250millionhoursofgameplay(Paul,2016).TheCS:GOsiteranksamongthetop700sitesgloballyattractingaround38millionvisitors.AnalysesofSteamdataindicatethatUKplayersmakeupapproximatelyfourpercentofallCS:GOplayers,rankingseventhoutofallcountries(Imgur,2016).Dota2hasaround15millionuniqueplayerswithroughlyonemillionplayerssigningineachday.Estimatesfrom2017indicatethatCS:GOisthemostpopulargamecurrentlyintheUK(Steamspy,2016).Todate,thereisminimalifanydataavailableonthecharacteristicsofplayersintermsofsocio-demographicfeatures,degreeofinvolvement,percapitaexpenditureandnegativeimpactassociatedwithskinsbetting.
1.6Whataretheprimaryissues?
Thereareseveralsignificantconcernstoregulatorsandcommunitymembersregardingskinsbetting.Incontrasttomostformsofonlinegambling,skinsbettingremainsunregulatedandunlicensed.Therefore,sitesoperateunderlimitedifanyconstraintsincreasingtheriskordegreetowhich:
1. Operatorsbecomeexposedtothepossibilityofallocatingfundstosupportothercriminalactivitiesand/orlaundermoney.Thereisnoprobityorregularcomplianceandmonitoringcheckstoguaranteeindustrystandardsaremetimposedonoperators.Thiscontrastswithstringentassessmentsandreportingproceduresasrequiredbyoperatorsinastrictlyregulatedmarket.
2. Relatedtotheabove,intheabsenceofregulatorycompliance,thereisnoguaranteethatgamesofferedarefairandfreefromexploitativepractices,orplayerknowledgeofcommissionspaidtotheoperatorfortransactions.Restrictionsonadvertisingandinducementsareabsentallowingoperatorstomakemisleadingclaimsorbonusoffersthatarenottransparentorfullyexplained.Probabilities(odds)associatedwithevents(lotteries,roulette,coins)arenotpublicized.Incasesofdisputeorcomplaints,therearelimitedifanyappealbodiesthatcanadvocateonbehalfoftheplayerorimposepenaltiesincaseofbreaches,match-fixingorexploitativepractices.Inessence,consumerprotectionisminimal.
3. GivenpurportedhighratesofunderageparticipationinvideogamingandexposuretoeSports,thereareminimalifanyageverificationproceduresappliedtoeliminateunderagegambling.Under-ageplayersarenotpreventedfromaccessingthird-partysitestocashoutthevalueofskins.Inapollofover10,000playersinReddit’sGlobalOffensivecommunityin2015,42percentofrespondentssaidthatwereundertheageof18.7
4. Therearenorequirementsinanunregulatedenvironmenttoadheretoresponsiblegamblingpracticesorstrategiessuchasself-assessment,signageandmessagingencouragingplayerstogamblewithinaffordablelimits,self-exclusionoptions,orlinksto
7https://www.reddit.com/r/GlobalOffensive/comments/33hudc/survey_how_old_is_the_average_csgo_player/?st=iqbaqw86&sh=fa0b0516
10
treatmentservicesforthoseexhibitingaddictivebehavioursorrelatednegativeconsequences.Skinsbettingsharescharacteristicswithotherformsofgamblingthatarehighlyassociatedwithexcessivegambling;rapid,continuousspeedofplay,instantfeedbackonoutcomes,andunrestrictedexpenditurelimits.
1.7Summary:
Skinsbettinghaswitnessedasignificantgrowthoverarelativelyshortperiodfollowingitsintroductionin2013.Currently,skinbettingoperatesoutsideanyregulatoryframeworkcomparabletothatimposedononlinegamblingindustryoperators.Thishasraisedconcernsaboutpotentialinvolvementbyoperatorsincriminalactivitiesandmoneylaundering,exploitativeadvertisingandinducementoffers,unfairgames,underagegambling,andlackofresponsiblegamblingandconsumerprotectionoptions.
Althoughdemonstratedtobepopular,thesocio-demographicsofparticipantsandthepotentialnegativeimpactsofexcessiveskinbettingbehaviourremainsunknown,operatorsarefacingseriouschallengesfromregulatoryagencies.Thesethreats,originatinginallegationsofillegalgamblingbusinessesandoperatingwithoutauthorisedlicenses,haveresultedintheclosureofanumberofthird-partysitesofferingskinsbettingopportunitiesandcash-outfacilities.Thefutureofskinsbettinginitscurrentformatisunderthreatandfalterunderincreasingpressuretocomplywithregulatoryrequirements.
Accordingly,theextenttowhichskinsbettingisatransientphenomenonwhosepopularityandlevelofparticipationwilldeclineinresponsetoeSportsindustryconcernsandtighteningupoflicencingandregulatoryrequirementsisyettobedetermined.
1.8ReferencesBrustein,J.,&Nevy-Williams,E.(2016).Virtualweaponsareturningteengamblersintoserious
gamblers.URL:https://www.bloomberg.com/features/2016-virtual-guns-counterstrike-gambling/.
Campbell,C.92016).WashingtonGamblingCommissiondemandsendtoValveCS:GOskingambling.URL:http://www.polygon.com/2016/10/5/13176244/washington-gambling-commission-demands-end-to-valve-cs-go-skin.
Charif, M. (2011). Show me the money: Social games, virtual currency and gambling. iGamingBusiness,March.
Edmonds,T.(2016).Examiningskinsbettingfromagamblinglawperspective.WorldOnlineGamblingReport,145:3-6.
Gainsbury,S.,King,D.,Delfabbro,P.,Hing,N.,Russell,A.,Blaszczynski,A.,Derevensky,J.(2015).Theuseofsocialmediaingambling.GamblingResearchAustralia.URL:http://www.gamblingresearch.org.au/resources/d06679ec-3577-4cb0-867c-594ce741dbf6/grasocialmediareport.pdf.
GamblingCommission(2016).Virtualcurrencies,eSports,andsocialgaming–Discussionpaper.URL:http://www.gamblingcommission.gov.uk/PDF/consultations/Virtual-currencies-eSports-and-social-gaming-discussion-paper-August-2016.pdf.
Green,W.(2016).CSGOLoungeTolimitskinbetting,saysitwillacquirelicense.URL:http://www.esportsbettingreport.com/csgolounge-limit-skin-betting-valve-get-license/.
Grove,C.(2016).Understandingskingambling.LasVegas:Narus.URL:http://www.esportsbettingreport.com/wp-content/uploads/2016/07/A-Guide-To-Skin-Gambling.pdf.
Lahti,E.(2016).CS:GO’scontroversialskingambling,explained.URL:http://www.pcgamer.com/csgo-skin-gambling/.
11
Masters,T.,&Louchnikov,A.(2016).Valve’sskingamblingbanandhowitaffectstheeSportsindustry.URL:http://esportsobserver.com/valves-skin-gambling-ban-and-how-it-affects-the-esports-industry/.
MorganStanley(2012).Socialgambling:Clickheretoplay.MorganStanleyResearch.
12
2.0Blockchain:2.1AbriefoutlineofitsconceptandimplicationsforgamblingAccordingtotheBankofEngland,aBlockchainis“atechnologythatallowspeoplewhodon’tknoweachothertotrustasharedrecordofevents”.Thissharedrecord(ledger)isdistributedtoallparticipantsinanetworkwhousetheircomputerstovalidatetransactions,thusremovingtheneedforathirdpartytointermediate.Blockchainshavetheirorigincirca1981followingattemptstointroduceadigitalpaymentsystemusingdigitalcurrenciestobetransactedontheInternet(Tappscott&Tappscott,2016).Althoughinitialsuccessandacceptanceratesremainedrelativelylow,theconceptwasrevitalisedin2008inresponsetotheglobalfinancialcrisis.TheshiftininterestwasgeneratedbyanewprotocoldevelopedbySatoshiNakatmoto8thatallowedpeer-to-peertransferofcryptocurrency(e.g.,Bitcoin),contracts,agreements,andbusinesstransactionsthatensuredintegrity,security,privacy,andtransparency(Iansiti&Lakhani,2017).AsoutlinedbyTappscottandTappscott(2016),thisprotocol,layeredontheInternet,effectivelyremovedtherelianceontrustedthirdpartiestomonitor,confirm,andmaintainpermanentrecordsofthevaliditytransactions.Bywayofillustration,currentonlinebankingtransactionsrequireathirdparty(thebank)toauthenticateandtransferfundsfromonepartytoanother.Thisprocedureguaranteesthatanindividualisunabletospend/transactaquantumoffiatcurrency(physicalmoney)morethanonce;e.g.,theindividualpaysbycreditcard,thebankdeductsthatmoneyfromtherelevantaccountandtransfersittoathirdparty.Transactionsarerejectediftwoseparateblocksreceiveinputsfromthesamecryptocurrency(Ross,2015).Nakatomo’sprotocolwasdesignedtomaintainapermanenttraceablerecordbetweentwopartiesthatistransparentandopentopublicscrutinywithouttheneedofamiddlemantoauthenticatetransactions.HowdoesBlockchainoperate?Cryptocurrenciesarenotsaveddirectlytoafilerecordedinanonlineserverordepository.Rather,thevalueofthecurrencyislocatedinablockthatislinkedtoformaBlockchain,hencetheterm.Eachtransactionformsapermanentencryptedtimestampedrecordinablockwithinapublicallydistributedledger.Thisblockcontainsallinformationrelativetoalltransactionsprecedingthelatesttransactionstogiveachainoftransactionsthatcannotbealtered(Figure4).LedgersaredistributedacrosstheInternetwithnocentraldatabasetocrack(atermoftenmistakenlyreferredtoas‘hack’or‘hacking’)makingitsafefromfraudoralteration(Figure5,Figure6).Alluserscantracetheprovidenceofatransaction.Theprotocol,bypassingtheneedforthirdparty(middleman)authentication,allowsspeedytransferofcurrencies(almostinstantaneousreconciliationofaccounts),lowercostinmaintainingrecords,security,andtheeliminationofcentraldatabasesorsystemopentofailure,theftorcorrupt.Althoughthetechnologyissomewhatcomplex,theprotocolorBlockchainsystemisfoundedingeneralprinciples(fromTappscott&Tappscott,2016):1. Networkintegrity:Blockchainsrepresentagloballedgerwherealltransactionsaretime-
stamped,validatedagainstpriorblocks(transactionrecords)inthechainpertainingtothattransactions,arepublicallyaccessibletherebyprecludinghiddentransactions,andupdatedeverytenminutes.Thereisnocentraldatabasebutdistributedacrossmultiplenetwork
8Theidentityofthecurrency’sfounderremainsamysterydespiteattemptstoverifythem
13
computersguaranteeingthenetwork’sintegrity.Theendeffectistoestablishapublicallyacceptedtrustedsystem.
2. Distributedpower:Thereisnocentralorsinglepointofcontrolinapeer-to-peersystem.Itissteepedinaframeworkofmasscollaborationwhereeveryonecanobserveandacceptthevalidityoftransactions.
3. Valueasincentive:TheBlockchain,bynatureofitspublicdomainandsupport,ensuresthatthereiscollaborationinmaintainingvalueofthecryptocurrencyanditssystem.Thenotionofself-interest,accordingtoNakatmoto,wassufficienttomaintaintheviabilityofthesystem.Therearealsofinancialincentivesinthatthesystemeliminatescostsassociatedwiththirdpartyfees.
4. Security:Thedistributednatureofthesystemdoesnotlenditselftocrackingorcorruption.Thesystemhasnocentralrepositoryofdata,andanyattempttoalterorcorruptwouldrequirebreachingaseriesofencryptedblocksformingthatchain,adifficultifnotimpossibletasktoachievewithoutmassivecomputationalpowerandtime.
5. Privacy:Thesystemdoesnotrequirepersonaldatatobetransferredacrosstransactions.Theidentificationandverificationlayersarekeptdistinctfromthetransactionlayer.Transactionsarereferredacrossencryptedaddressesthatdonotrequirepersonaldetailstobesentinparallel.AnequivalentanalogyistheTCP/IPaddressthatidentifiesanetworklocationbutcontainsnopersonaldata.
6. Rightspreserved:Allownershiprightsaretransparentandenforceable.Thisenablesrightstobeidentifiedandtraced,includingintellectualproperty.
7. Inclusion:Thesystemisopenandaccessibletoeveryoneglobally.Thereisnoneedtouseintermediarieswithtransactionsabletobeeffectedoveranyonlinedevice.
Blockchaintransactionscanbeusedacrossarangeoffinancial,contractual,andintellectualpropertydomainsgiventhateachblockrepresentsapermanentrecordonwhatcanbeconsideredaglobalvirtualledgeropentopublicscrutiny.
14
Figure4HowaBlockchainworks(http://technofaq.org/posts/2016/08/blockchain-what-is-it-and-how-can-we-use-it/)
Figure5Paymentprocesses:Currentvs.Blockchain(Bitcoin)(http://traxpay.com/2015/09/banking-on-the-blockchain-part-1/)
15
2.2BitcoinTheprimarycryptocurrency,Bitcoin,isnotoriouslyvolatile.Atthetimeofwriting,oneBitcoinequals696.77BritishPounds.Thecurrencyhasenduredaseriesoffallsbuthasbeenincreasingsincemid-2016(Figure7).ThevalueofBitcoinisrelatedtosimilarfactorsasothercurrencymarketssuchastheavailabilityofmoneysupplyaswellaseconomicandpoliticalfactors(suchasBrexit,USelectionoutcome,andvalueoftheChineseyuan)(JuniperResearch,2016).Bitcoinscanbepurchasedanonymouslyastransactionsaretiedto‘wallets’ratherthanindividuals.Thisenhancesprivacy,butmayreducetheabilityforidentityverificationofconsumers.However,identifieswithinaBlockchainareuniqueandcanbesettorequireahighlevelofassurancethatusersareaccuratelyidentified(Deloitte,2016).
Figure6Howabitcointransactionisprocessed(TheEconomist,2015)(http://www.economist.com/news/special-report/21650295-or-it-next-big-thing)
UKresidentscanpurchaseBitcoinsthroughnumerousonlineexchangesusingbankpayments(althoughsomebanksarereluctanttoserviceBitcoincompanies),creditordebitcards(Figure8)(Coindesk,2016).Inmostcases,consumersneedtoregisterandprovideproofofresidencyandidentity.BitcoinATMsarealsoavailableintheUK.Peer-to-peerplatformsalsoallowindividualstobuy,sell,ortradebitcoinandaltcoins.SomeretailoutletssellBitcoinvouchers.Bitcoincanbestoredinelectronicorhardwarewallets.VentureScanner.comestimatesthattherearenowover800newventuresintheglobalBitcoin‘ecosystem’,whichincludenovelandinnovativecompanies,aswellastraditionalcompaniesengagingwiththisconcept(ReportedbyDeloitteSee:https://www.venturescanner.com/)
16
Figure7Bitcoinprice(£)
Figure8RegionalshareofBitcointransactionvalue,2016($92.4bn)
2.3Whataretheimplicationsforgambling?Apeer-to-peersystemhasthecapacitytoformadecentralizedgamblingplatform(Davies,2016).Forexample,VDicealeaderinthisdomainofgambling,usestheEthereumBlockchaintooffergame
17
codes(SmartContracts)thatresideonthenetworkandeliminatethirdpartyfinancialinstitutiontotransferfunds.SmartContractsarecodesthatrunwithouttherequirementsofexternalnetworkagents,thatis,thenoonecontrolsthegamenorcanitbetakendown(Davies,2016).Smartcontractscanself-execute,forexample,triggeringthereleaseofpaymentwhencertainconditionsarefulfilled(Figure9).Thistakesoutthemiddle-man(operator)andallowspeer-to-peergamblingusingasmartcontractcode.Blockchainallowsthegame/codetoexistontheEthereumnetworkwhereitcannotbecontrolledoraltered.
Figure9UsingtheBitcoinBlockchainforsmartcontracts
TheadvantageforthegamblingindustryistheabilityforBlockchainstoprovideanefficientandreliableauthenticationoftransactionsinatimelyandcosteffectivetechnologyarchitecture. AsnotedbyHuber(2016),“Onblockchain’sdecentralizedsystem,whichisbuiltbyacoordinatednetworkofindependentnodes,noparticularindividualorentitycanhaveacentralizedadvantageatanystageofthegamblingprocess.Gamblingcompaniescanuseblockchaintoassureusersthattheyarecompletelyincapableofknowingtheresultofanoutcome–suchasthedealingofaparticularcard–inadvance.Byremovingtheentireconceptofcentralization,andbyputtingtheverificationofbetsinthehandsofthenetworkofnodes,therequirementforathird-partypointoftrustautomaticallybecomesredundant”.Asuserscanverifytheintegrityofgamesandgamblingproductsthemselves,thisremovestheneedforregulatorstoperformthisfunction.Thismayrepresentacompetitiveadvantageforonlinegamblingsitesasconsumersarenotreliantonverificationofproductfairnessbyathird-party.Theuseofdigitalcurrencybypassesrestrictionsonpaymentmethods.Forexample,intheUnitedStatesofAmerica,paymentstoonlinegamblingsitesarenotpermittedfrombankingproviders(Nyairo,2015).Digitalcurrencydoesnotinvolvebankingprovidersandthuscanbeusedforonlinegambling.Currently,thereareseveralstart-upgroupsadvancingthetransformationalshiftfromtraditionaltoBlockchain-basedsystemingambling,forexample,AugurinCalifornia,FirstbloodintheUSA,andPlayChineseonlinecasinooperator,andagenciesinMalta,IsleofManandAlderneyadvocatingfortheintroductionofBlockchaingambling.Thereareover100bitcoin-basedcasinoscurrentlyoperatingalthoughtheindustryisyettofullyadoptandacceptdistributedledgertechnology(TotallyGaming,2016)withsignificantimplicationsforinvestmentsalreadyallocatedtoland-basedvenues.Giventheopensourceplatform,softwaredevelopershavethecapacitytowritetheirownversionsofsmartcontractgamecodes(Kastelein,2016).
18
TheopenandtransparentnatureofBlockchainhasadvantagesforregulators.AsAndréWilsenach,previouslyoftheAlderneyGamblingControlCommissionstated,“shared,digitalized,decentralized”informationinablockchain-basedledgersystemwouldprovideregulatorswithsignificantlyeasieraccesstoimportantdata”(Huber,2016).AsAyre(2106)stated:“Withtheblockchaindocumentingeveryfinancialtransaction,spinofaroulettewheelandrollofthedice,gamblerscanactastheirownregulators,withanyexamplesofshadybehavioronfulldisplayforalltheworldtoseeandmarketforcespunishinganyoperatorstupidenoughtothinktheycangetawaywithit.”2.4PotentialBlockchainopportunities:
• Reducedofriskoferrorandtimetakenforerrorchecking–makingpayments,transfersandgamblingactivityoutcomesmoreaccurateandrapid.
• Reducedriskoffraudandinvalidtransactionsasrecordscannotbealtered.• Noneedforcurrencyexchangeandassociatedfees–allowsonlinegamblingsitestoaccept
playersfromanycountry,consumerscanengagewithanyinternationalonlinegamblingsiteswithoutcurrency-relatedfees.
• Nolimitationssetbyfinancialinstitutionsongamblingtransactions–mayreducetheneedforconsumerstorelyonlessreputablethird-partypaymentproviders.
• Norisksthatgamblingsiteswillnothonourpayoutsoraccountwithdrawals–mayreducetheneedforaffiliatesandinformationsites/forumsthatverifyonlinegamblingsites.
• Noriskthatgamblingproductsandgamesarenotfair–consumerscanverifyoutcomes,mayreducetheneedforaregulatortoverifyandlicenseoperators;maysubstantiallyreducedisreputableoffshoregamblingsitesthatdonotprovidefairproductsandpaycustomers;mayreduceonlinegamblinglicensingorganisationsasthesemaynolongerbenecessaryorrequiredforconsumertrust.
• Peer-to-peergamblingcanbeverifiedwithautomatedpayments–mayreducetheneedforconsumerstouselicensedcommercialgamblingsitesforpeer-to-peergamblingactivities(e.g.,poker,bettingexchanges).Thiscouldbetransformative,e.g.,socialbettingsitesbecomingactivebettingsitesandpokergamesbeingwidelyavailablewithknownandunknownassociates.Othergamblingactivitiesmayincreaseinpopularity,suchasbettingonacoin-tossandlotterydraws,allpossiblethroughsmartcontractsensuringpaymentstothewinningparties.
• Noabilitytobetwithcredit–accountsmusthavefundsbeforegamblecanbeallowed.• Reducedcosts,includingforfacilitatingandverifyingtransactions–mayreducecostsfor
consumers.• Adistributedledgerincreasestransparency–mayincreaseconsumerconfidenceand
subsequentuptakeofblockchaingambling.Alsomayincreaseefficiencyforoperatorsandregulatorsasdataisstandardizedacrosstheindustry,processesareconductedwithintegrityandrecordsareverifiedinnearreal-time.
• ABlockchain-basedregistrycouldremoveduplicationofeffortinconductingidentityverificationandenableencryptedupdatestobedeliveredtoallrelevantpartiesinnearreal-time.
• Aledgerwouldprovideahistoricalrecordofalltransactionsforcustomers.• Subjecttodataprotectionregulation,datacouldbeanalysedtodetectirregularactivity,
whichmayindicatematchfixing,moneylaunderingorothercriminalactivity.
2.5SummaryThecurrentrequirementtoinvolvethirdpartiesinonlinetransactionsmaybefundamentallyalteredbyBlockchaintechnology.IansiteandLakhani(2017)notethattheBlockchaintechnologyhasthecapacitytoexertamajorinfluenceofeconomic,financial,andsocialsystemsandinteractionsbutapplyamoretemperedpredictionofitsadoption.Theseauthorsreflectonthenumberofdecades
19
since1972requiredfortheInternettotransitionfromalocalsingleusergroup-orientedresourcetoaglobalvirtualcommunicationsystemthatisnowfunctioningfullyindependentlyofanyoneoperator,server,oragency.Initiallylackofunderstandingandknowledgeofitscapacity,privacyconcerns,andsecurityissuesrepresentedseriouschallengesandbarrierstowidespreadacceptance.Thirtyyearshence,theInternethasbecomeanintegral,essential,andcommonplaceresourcetoeverydaycommerceandsocialexchanges.Relativelyslowuptakesoftechnologyarenotunusual.Similarshiftsareoccurringwithvirtualreality,althoughheadmounteddisplayswereavailableinthe1960s,newtechnologyandadoptionareseeingarapidincreaseintherelevanceofthistechnology.Ithasbeenarguedthata“killerapp”mayresultinabreakthroughandtippingpoint,likethewidespreadadoptionofaugmentedrealityfollowingthehugelypopularappPokémonGO.IansiteandLakhani(2017)havesimilarlyestimatedthatitwilltakeasignificantpassageoftimeandpopularacceptanceforBlockchaintoevolveintoauniversallyadoptedplatformreplacingtraditionalcommerceandfinance.Theseauthorssuggestaquadrantormatrixdescribingthepotentialpathoftransitionfromsingleuse,tolocalizationofusewithinadefinedcommunity,tobroaderandincreasingpublicusage,tofinaltransformationandwidespreadadoption.Settingasidethecomplexitiesandtimeframeforatransformationaladoption,theseauthorsconcludethatBlockchaintechnologywillemergeovertimetoaffectamultitudeofsocial,financial,andcommercialactivitiesincludinggamblingasabusinessactivity.Blockchainisnotjustaboutcryptocurrenciesandfasterpeer-to-peerpayouts.Itispartofarapidlygrowingecosystemofadvancedtechnologiesthatwillplayafundamentalroleinthefutureofcommerceandsociety.Accordingly,itispredictedthatBlockchainwillformastrongfoundationforgamblingopportunitiesandtransactionsthatwillinsomewayimpactregulators,eithergeneratingnovelapproachestoregulatoryandcomplianceissues,orthroughmasscollaboration,eliminatetheneedforregulatorsinaself-governingsystem.2.6References:Ayre,C(2106).CrystalBalls:CalvinAyre’spredictionsfor2017.URL:
http://calvinayre.com/2016/12/28/business/calvin-ayre-has-crystal-balls/.Retrieved15January2017.
Coindesk(2016).HowtobuyBitcoinintheUK.URL:http://www.coindesk.com/information/buy-bitcoin-uk/.Retrieved16January2017.
Davies,J.(2016).HowBlockchainisdecentralisinggambling.Techinasia.https://www.techinasia.com/talk/blockchain-decentralizing-gambling.Retrieved15January2015.
Deloitte.(2016).Blockchain:Enigma,paradox,opportunity.Deloitte.London,UK.Huber,S.(2016).Gamblingindustry,HowBlockchaincanmakeitmoretransparent.Fintech.URL:
http://fintechnews.ch/blockchain_bitcoin/transparent-gambling-blockchain-gambling-industry-how-blockchain-can-make-it-more-transparent/3844/.Retrieved15January2017.
Iansiti,M.,&Lakhani,K.R.(2017).ThetruthaboutBlockchain.HarvardBusinessReview.URL:https://hbr.org/2017/01/the-truth-about-blockchain.Retrieved15January2017.
Imgur,2016).http://imgur.com/a/iglkX.Retrieved16January2017.JuniperResearch(2016).Blockchainreaction:Whitepaper.JuniperResearch.Hampshire,UK.Kastelein,R.(2016).Onlinegamblingindustryworthsome$40billionfiringupforBlockchain.
BlockchainNews.URL:http://www.the-blockchain.com/2016/11/26/online-gambling-industry-worth-40-billion-firing-blockchain/.Retrieved15January2017.
20
Nyairo,D.(2015).WhatifonlinecasinoswerebuiltontheBlockchainitself?BitcoinGambling.URL:https://www.bitcoingg.com/online-casinos-built-blockchain-instead/.Retrieved15January2017.
Paul,J.(2016).Bythenumbers:Mostpopularonlinegamesrightnow.URL:https://nowloading.co/posts/3916216.Retrieved16January2017.
Ross,S.(2105).Howdoesablockchainpreventdouble-spendingofBitcoins?Investopedia.URL:http://www.investopedia.com/ask/answers/061915/how-does-block-chain-prevent-doublespending-bitcoins.aspRetrieved15January2017.
Steamspy.(2016).http://steamspy.com/country/.Retrieved16January2017.Tappscott,D.,&Tappscott,A.(2016).Blockchainrevolution:HowthetechnologybehindBitcoinis
changingmoney,businessandtheworld.London:Penguin.TotallyGaming(2016).Insight:WhyBlockchainscouldbeawinnerforthegamblingindustry.UTR:
http://totallygaming.com/news/lottery/insight-why-blockchain-could-be-winner-gambling-industry.Retrieved15January2017.
Zalik,D.(2015).SurveyingThescene:ExaminingthedemographicsofeSports.URL:http://www.esportsbets.com/998/who-makes-up-esports-community/.Retrieved16January2017.