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Gambling on Cryptocurrency

by Glenn Baird - July 18, 2017

Just a few weeks ago, if you had typed gambling into Google and searched under “News” you’d have found a few stories about something called iDice. I counted around 3 stories in the first page all relating to a new app that was claiming to “revolutionise” mobile gambling. Given the less than modest proposal I decided that this was something I needed to know more about. After a few days spent tumbling down a cryptocurrency rabbit hole, bouncing dizzily from one link to another, opening up various tutorials designed to chunk difficult concepts down into idiot-proof morsels, I feel less like the expert I’d hoped to be and more like Stephen Hawking’s typist.

I learned early on that iDice was a new type of app that used a similar sort of technology to bitcoin. Unfortunately I knew nothing about how that technology worked or how the evolution of blockchains could, according to certain experts, alter how we use the internet. When I read that this was a possibility and that iDice was looking to take advantage of this new technology to change the online gambling industry I felt like I had to go back to basics and get to grips with as much of the jargon as any layman could.

I began to read in earnest and before I knew where I was I had at least twenty different windows open, each one with long confusing definitions for terms that the previous definitions brought up and expected me to understand. I felt like I was 10 years old again, trying to cheat my way through a Fighting Fantasy role playing novel using each finger to hold open pages in the hope that I’d gone through the right dungeon.

I was introduced to blockchains, bitcoins , onecoins , litecoins , Ethereum , ICO programmes , the aforementioned iDice, nodes, DAaps and yet more verbiage that I’ve inevitably forgotten. I found a world of boffins; coding trailblazers attempting to transform the internet into a decentralised utopia where users can exchange anything that their imagination allows them to without the interference of 3rd party middle-managers. In contrast to this I found con-artists looking to profit within an unregulated system that few properly understand yet. At the ordinary, everyday third layer of this pyramid I found the users, clients, customer, or whatever we want to call the average Joe in the street engaging with cryptocurrencies. This layer can be divided into two: those who understand the system and use it effectively for what it was intended and those who think that they do, only to fall prey to the con artists who feed off their ill-informed greed. The conundrum at the heart of trying to profit from cryptocurrencies is knowing which of the two you are. The catch 22 is that until you’re winning or losing you might never really know.

Everything I read suggested that if I didn’t understand blockchains nothing else would make any sense, so I made that my jumping off point. On a purely phonetic level I felt like I was dealing with something solid, something hefty. It’s a sturdy word with a powerful, plosive opener. After some surface level research I discovered that there was something justified in my initial surmising, but I was quickly beginning to understand which of the 2 sorts of punter I most identified with.

So what are blockchains?

Blockchains are shared databases where financial transactions can be viewed with open transparency and without the cumbersome interference of a 3rd party. A blockchain is a public ledger that was originally developed to allow Bitcoin transactions to take place between 2 users. Each block within the chain is a note within a bank statement and because there is no reliance on the banks to allow the exchange to take place it is quick and apparently reliable.

The blocks within the blockchain don’t disappear and rely on coding instead of human interaction. This means that pesky human error, whether accidental or fraudulent is resigned to the past, transactions are instantaneous.

Bitcoins themselves are the daddy of cryptocurrency. We were first introduced to them in 2009, sold on the idea that with the right hardware we could pull currency out of digital mines that would not be subjected to the same laws of inflation that our familiar paper currency is. This could be achieved because centralised busy bodies like The Bank of England or The Federal Reserve would have no part to play in the blockchain.

The mining process itself is interesting because instead of a pick axe or an industrial drill all you need is a processor capable of solving complex mathematical problems. When bitcoin was first introduced most users could mine the currency using their home computers. However, as more coins are mined, the problems become more difficult to solve. Nowadays you’ll need to fork out a small fortune to have the processing power capable of crunching the numbers. Like gold in the physical world, the number of bitcoins in existence is limited. In this instance there are only 21 million bitcoins to mine and the more we find the more difficult the process of finding them becomes, meaning that those turning up late to the party will have to invest heavily in hardware before they can become bitcoin miners.

Speak to anyone who has made money from bitcoin and they’ll undoubtedly want to spend time expounding its virtues. However, don’t let all the good news stories lure you into a false sense of security. There are problems with bitcoin that need to be mentioned.

One of the major problems with bitcoin or any cryptocurrency is where to keep your coins once you’ve bought or mined them. Bitcoins are kept in a bitcoin wallet, software that you install on your PC, laptop or mobile. If your device breaks then all that cryptobullion could be lost and that time spent mining will have been a waste of time. There’s also the chance that your wallet could be subject to criminal activity. Earlier this month, Bithumb was hacked with report that users’ wallets had been raided. No third parties means no regulators. No regulators means that you need to think very carefully before you place your trust in any bitcoin wallet. Any new money making venture is seen as an opportunity for thieves and con artists. The pitfalls are new, so the warnings haven’t been made public yet and most importantly, when the dollar signs light up our eyes it’s often difficult to see through them.

If you can afford the tech and keep it away from scam artists and con men then the only problem you have left is how to actually make your money. The value of bitcoin has and continues to fluctuate dramatically, with many experts believing that the bubble has burst, only to see its value rise and then subsequently fall again. Knowing when to cash out is a huge dilemma for bitcoiners. The early pioneers, the ones brave enough to take the leap before any money had been generated have made their fortunes whilst those who have been slow off the mark are left panning in the shallows, peering desperately for the faintest glimmer of digital gold.

A popular option appears to be to jump ship and try mining for a different type of cryptocurrency. Given the number of them out there, consumers are certainly spoilt for choice. However, the further off the beaten track we stray the more we open ourselves up to attacks from con artists. Any attempt to get involved with cryptocurrency has to be properly researched. If there are any doubts in your mind, if anything doesn’t feel right then leave it alone. This is an industry that you need to know, that you need to understand on all levels before you should be prepared to part with your own, hard earned cash.

One of the first pieces of advice that I read helped put into the context the issues that face those new to cryptocurrency:

“Like the internet (or your car), you don’t need to know how the blockchain works to use it.”

I’d like to use the analogy to help cement the point I’ve been trying to make, a point that is entirely contrary to Quora’s intensions.

Most of us know where the petrol, oil and water need to go in our cars. Some of us are even handy with a spark plug or two. Yet, beyond that, do we really know anything about the car we drive to work every day? When our car heads to the garage for its yearly MOT we trust the mechanics working under the bonnet to tell us the truth. And of course, most of them do. However, if we’re in any doubt we can pay for a second opinion. With cryptocurrencies you won’t have that security. There is no one to hold the con-men accountable and once your money is gone, it’s gone. You have to invest time before you can invest money in cryptocurrencies.

The list of bitcoin alternatives is fairly extensive, proving just how much the market has grown since 2009 and how difficult it is to stay on top of the changes. Coinmarketcap.com lists as many as 982 cryptocurrencies, ranging from market leaders like bitcoin, Litecoin and Ethereum, to some of the more obscure examples like Rabbitcoin and Pokecoin. The idea that all 982 of these cryptocurrencies are a money-making opportunity is an absurdity that few will need me to point out, which suggests that there is a percentage of this market that exists for those who don’t see cryptocurrencies as a get rich quick prospect but as a fun little dalliance.

However, for most people cryptocurrencies are all about the money and where that mentality exists there are punters to be exploited. Whilst the majority of cryptocurrencies are considered reputable there have been accusations of malpractice levelled at many over the years with one of the most high profile cases being against a company called Oneline, whose currency does not actually appear on Coinmarketcap’s list.

Accusations against the company have been extensive, with the UK’s Daily Mirror alleging that the currency, called Onecoin was “virtually worthless” back in February 2016. In that report Andrew Penman describes his attendance at a recruitment rally for the company in a London hotel. Penman claims that during his pitch, Key Speaker Kari Wahlroos stated “that OneCoin was ranked No 2 in the world by market capital.” He is also alleged to have stated that the currency had a market capital of “£3 billion.” All this despite the fact that they are not listed in coinmaketcap.com’s top nine hundred and eighty-two.

Penman went on to describe part of the company’s sales model:

“The audience was tempted with a Special Combo Package. You get 506,000 tokens, and six splits turn them into 32million tokens. The cost was roughly £28,000 and those splits would turn that into £1.2million.
And that’s also even if OneCoin doesn’t increase in value – that financial miracle again. If the value goes up your investment is worth even more. But hurry, this offer is available only until February 20.”

If Penman’s description is accurate then Onecoin could be accused of operating a Pyramid scheme. Some critics have even accused Onecoin of running a global ponzi scheme, an accusation made by William Suberg did back in 2015 when writing for The Cointelegraph in his article titled, “One Coin, Much Scam: OneCoin Exposed as Global MLM Ponzi Scheme.”

For those who don’t know, ponzi schemes are nothing new. They were named after Charles Ponzi, who made a lot of money conning people in the 1920s. The premise of a ponzi scheme is straight forward. You convince people to invest in anything. They need to recruit new investors and you use the money they invest to pay the existing ones. This means that when the scheme inevitably ends, those on the bottom rung will lose all their money and the longer the scheme runs the more people are ripped off.

Suberg states in his article that:

“The amount of evidence contributing to OneCoin’s status as a pyramid scheme is considerable. Its directors have previously been involved in other known scam operations, its resources contain no verifiable evidence for any of its business claims and documentation uploaded to support claims often conflicts with the claims themselves.”

Given Onecoin’s aggressive pursuit of a German blogger who called the company out for alleged fraudulent activity, few will come out and openly condemn the company. But the point remains that cryptocurrencies need to be researched. Whether the information you garner is empirical or theorised it is important to make sure you are aware of everything before you invest and given the growing profile of the new big player in the market, Ethereum and the further changes that their more advanced blockchain can bring, if you are interested then you need to start reading now.

What is Ethereum?

On the surface, Ethereum is just another cryptocurrency. On closer inspection and when you take the time to read and to listen to the experts you soon realise that bitcoin and the blockchain are the starting whistle to what could end up being a race to change how the internet works. Right now Ethereum is leading that race. Most of what has been predicted sounds like guess work, but behind all that surmising there is a sound foundation and group of coding experts who want to change everything.

Like the blockchains used by other cryptocurrencies Ethereum has no server, meaning that there is no centralised authority. But unlike traditional blockchains Ethereum doesn’t limit itself to the exchange of currency. Co-founder of Ethereum, Vitalik Buterin, stated that:

“Bitcoin is a book where you may write only in one language and only about movement of people. Ethereum is more flexible. Universal mathematical formulae are the language of its book.”

He goes on to explain that Ethereum deals with the exchange of smart contracts, instead of currency:

“Ethereum may store the cryptocurrency transfer history, but that’s not what it is about. Our blockchain records data on a contract (smart contract). It has a balance (how much ETH there is), and a history of transactions it had been involved in. Any contract has its own internal memory containing a code. When an item participates in a transaction, the code gets executed. It may work with data from the memory and create new transactions. Thus one may encode any kind of rules or any sequence of events that have to happen should the rules are observed. Programmable contracts managed and protected by blockchain may apply to diverse interactions between parties.”

In other words, Ethereum is the exchange of contracts that operate through coding instead of third parties. For some, it might not seem like that revolutionary but if Buterin’s vision is fulfilled then huge changes could be coming our way.

A very useful analogy that I’ve seen used a number of times is to compare Ethereum to oil. This works if we think of bitcoin as gold. Like gold, bitcoin is valuable but we have little use for it other than a means to store currency. Ethereum gains its value, not through some arbitrary decision to assign it value but through the things that we can do with it. The possibilities, that I am far from qualified to describe or endorse, are apparently endless.

What might this mean for online gambling?

It could mean that in the future we use gambling apps that bypass traditional bookies and casinos. If your bet or your gamble are processed through coding then the winnings should be instantaneous. The blockchain is transparent and as such there would be no dispute from either party. It has even been argued that regulators will become a thing of past as the system will naturally regulate itself in a sort of harmonious, self-governing, online anarchy.
Which brings me back to where all this began, when I first read about iDice. In one of the numerous press releases that have been published since the middle of June iDice states that:

“Top gambling industry experts believe that iDice’s revolutionary mobile platform will soon be used by gambling sites and casinos all across the world as the start of what they call, the mobile revolution. iDice encapsulates the hearts and minds of investors around the world as it sets forth in dominating what could be the biggest gambling market segment of all time: mobile gambling.”

The article goes on to describe why they believe the use of Ethereum smart contracts will change everything:

“Thanks to this new technology, iDice players don’t have to worry about getting cheated, as the iDice game source codes are viewable by the public online. iDice is also immune to 3rd party attacks such as hacks as players aren’t required to make any accounts or deposit their funds to iDice.”

For those in the know who have been waiting for an Ethereum based gambling app, the creation of iDice is a very exciting prospect. Yet, like all new ventures, iDice should be met with a degree of cynicism until we know more about it.

As of writing, I have been unable to find any expert corroboration for the assertions made by iDice and have yet to read anything published online written by an independent source that supports the claims being made. All the articles that populated the internet upon the inception of iDice and all the articles that I have seen now come with a disclaimer stating that it is a paid for press release. This suggests that everything we read has been written by someone with a vested interested in iDice. Until a third party comes out and supports the claims that this is a new gambling app that will “revolutionise” the industry we have to approach with caution.

As for the claims that an Ethereum based gambling app will be so open and so transparent that the role of the regulator will become obsolete then I would please ask you to take some time to cast your mind back over an industry that has become synonymous with fraud.

It would be naive to believe that there is no way to exploit punters in a system that is apparently open and transparent. In fact, what better environment for a con artist to work in than one claiming to be impossible to exploit? If changes are coming then the one thing that will remain a constant within the gambling industry is that there will be those who look to take advantage of the blinding glare of our own greed and will do so without following the rules to fill their own pockets.