Bitcoin and online gambling: What does the future hold?
We explain how the crypto-currency works, and analyse whether casinos could soon adopt the digital cash alternative in place of real money transactions.
Could new digital currencies like Bitcoin provide cheaper and faster way to help players fund their accounts? And is it time to look at the way we pay for services in an entirely different way?
With more online merchants – including names like Microsoft and Expedia.com – accepting this intriguing (and increasingly more valuable) crypto-currency, will we all soon be ditching the bank notes for something more abstract?
What is Bitcoin?
Bitcoin is a digital 'crypto-currency' that was designed specifically with the Internet generation in mind. It allows transfers of digital cash across the globe, and its supporters cite the lack of bank or government control as a major plus.
It emerged in 2009 from an anonymous inventor who went only by the name of Satoshi Nakamoto. Many have claimed to be Nakamoto since, but his true identity remains a secret.
Instead of a regulated currency like GBP, Bitcoin operates in an open network where the users are in control. Coins are created, or ‘mined’, from users' machines performing complex mathematical algorithms.
Every Bitcoin that is created is added to a Blockchain, and the system required to create the coins is so complex only a finite number will ever be mined. Once 21 million Bitcoins are created, no more will ever be mined.
Rather than being pegged to the dollar or another currency, the value of Bitcoin increases or decreases as people buy and sell.
Since Bitcoin was developed, the price has risen dramatically. It had a value of just $0.01 in 2010 when the first online purchase was made, but by 2013 this had risen to $1,250.
Major security breaches, such as when the exchange site Flexcoin was hacked, meant that a year later Bitcoin's price had slumped to $200.
But since then it has rebounded and continued to grow. At the start of 2017, a Bitcoin was worth between $800 and $1000. By November 2017, it had risen to over $7,500, its highest ever price.
Bitcoin and online casino gambling
On the face of it, Bitcoin could be an ideal deposit option for online casino games, with more and more gambling sites adopting it as a recognised currency on its cashier page.
But will Bitcoin ever overtake VISA, MasterCard and PayPal as the payment preference for online casino players? And what if the Bitcoin bubble bursts?
The argument for...
1. Transactions are instant
Unlike a bank transfer, where users have to wait days for processing, a Bitcoin deposit or withdrawal is instant and usually arrives in players' wallets the next day.
2. The value shows no sign of dropping
The value of Bitcoin has risen exponentially over the past year or so, and the price shows no sign of dropping dramatically any time soon. Some experts predict that Bitcoin values could reach $1m, which would ensure it is taken seriously be governments.
3. It's not controlled by central banks, yet
For now, Bitcoin is a 'democratic' currency that isn't hampered by major banks and financial institutions. Transactions are also secure, encrypted, and tax-free. But as the Blockchain grows, it may need larger bodies to get involved.
4. There are no fees
Some online Bitcoin exchanges have introduced fees but the majority of peer-to-peer Bitcoin exchanges have zero charges. The transactions are also totally anonymous.
5. You can spend Bitcoin with large online businesses
Bitcoin used to just be a way of transferring cash across the globe safely. However, many large companies are now beginning to accept Bitcoin, with e-wallets like PayPal allowing Bitcoin transactions with a small fee attached to every payment.
The argument against...
1. Completing transactions can still take days
While online merchants can process payments and withdrawals quickly, the Bitcoin network still has a scaling issue since what was originally set up as a speedy peer-to-peer payment option simply wasn't mean to handle such huge volumes of traffic. However, the advent of the Lightning Network and Segwit2x could speed up the process going forward.
2. Mining can be expensive and time-consuming
In reality, exchanges are the only way to store large quantities of Bitcoin. Mining your own coins can be time-consuming and saps electricity – most home PCs just don't have the processing power to create enough Bitcoin to make it viable.
3. The price can crash
Bitcoin has been proven to crash, especially when high-profile thefts or fraud have taken place. In 2011, the price slumped by 68 per cent before ending the year down 94 per cent after the dip continued.
4. The market is hugely volatile
Daily fluctuations in Bitcoin prices can be huge. That's fine if you're holding on to your coins, but not so good if you've won a major slot jackpot and want to cash out your winnings in Bitcoin.
5. Stolen bitcoins aren't protected
And with no protection from federal governments, it's a risky business. But most leading exchanges these days are regulated.
Is Bitcoin the way forward for online gambling?
So, will we be paying for our online blackjack and online slots with Bitcoin in the next few years?
As long as websites continue to dip their toes into the water it seems likely, but the price needs to rise dramatically.
A Bitcoin needs to be worth a lot more so that small-stakes gamblers can play their favourite games.
A Bitcoin contains 100 million Satoshis, and it’s these Satoshis that will be used by everyday consumers. With one Satoshi currently worth a tiny fraction of a dollar, they aren't yet viable for any casino games.
So, how high does the value need to rise? eToro's Iqbal Gandham argues that a million-dollar Bitcoin would be a good start and, with Bitcoin rising 300 per cent in 2017 alone, we may not be far away from that figure.
Investor Steve Lambourne has been buying and selling Bitcoin since the early days, and he believes its value could rise even further now that it has proven itself as a functioning alternative to established currencies.
"The price is now at such levels that institutional investment is going to take off and we'll likely see further gains going in to 2018," he told us when asked what he thinks the future might hold.
"It's still very early days but I think we're going to see Bitcoin realise its potential first as Gold 2.0, then later when the price has stabilised and the volatility reduced, more readily as a medium of exchange.
"People are going to want Bitcoin and want more of it so online gambling is an obvious application for it."
Online casinos have already shown plenty of innovation when it comes to how players gamble in 2017, with mobile casinos and apps giving players more freedom than ever.
Equally, the range of casino deposit options is wider than ever.
So, in the same way that Bitcoin has changed the way banks think about currency, could we see Bitcoin deposits becoming the norm in 2018 and 2019?
If major banks get involved and develop their own crypto-currencies, then don't bet against it.