Blockchain Use-cases in the Gaming Industry
Tags: Casino Games, Blockchain, Compliance, Cryptocurrency, Gambling

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Status: Working Draft

Blockchain Use-cases in the Gaming Industry

Version 0.2

Introduction

In our next examination of blockchain use cases, we are taking a look at blockchain use cases in the gaming industry.²

There are four issues, which we covered here, in the gaming industry, primarily related to customer experience and regulatory compliance, where a blockchain-based solution provides an adequate remedy for stakeholders in the gaming industry.

The four issues we briefly cover in this article are:

Identity Verification Game Mechanics Funds Custody Auditing Records

1. Industry Issues

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1.1. Identity Verification

Issue

For establishments in the gaming industry (especially in the USA), it is paramount to require customers to undergo a know-your-customer (KYC) process (i.e., an identity verification process) before engaging in any games as to protect the establishment from interacting with suspicious individuals, such as individuals tied with illegal activities (.e.g, money laundering) or individuals who intend to defraud the establishment, and to ensure compliance with applicable laws, regulations and rules [1, 2, See 3 for an example list].

In doing so, the establishment must devise a KYC process before entering into a business relationship with a customer, such as requiring a customer to complete KYC processes before playing any games or entering the establishment grounds, requiring the customer to undergo KYC when they are cashing out their winnings, or requiring KYC when the customer intends to deposit a threshold amount of money, e.g., $2,000.00 [1, 2].

The KYC process itself may be lengthy, and if online, may require the verification of multiple identifiers such as name, age, payment method, etc.

This becomes an even greater problem when considering that gaming establishments have their own KYC procedures, and that a customer may need to complete multiple KYC procedures at the same gaming establishment for different gaming activities [4].¹

Solution

A blockchain-based solution can be implemented to handle customer KYC procedures to create a single digital identity for customers that can be secured and shared among establishments in the gaming industry when the circumstances are appropriate [2, 4].

For example, establishments could implement two approaches. First, establishments could require customers to complete a jurisdiction-wide KYC process by creating a digital identity on the blockchain. Second, establishments could require customers to utilize a self-sovereign identity (SSID) or decentralized identifier (DID) provider (signing up for a service, and then allowing the establishment to use the customer’s ID) before engaging in any gaming activity.

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1.2. Game Fairness

Issue

The fairness of a game is also paramount to establishments in the gaming industry, in particular, for regulators (though, less of an issue for land-based establishments)[2, See 5 for Nevada’s Gaming Rules on testing games].

Though, this is generally an issue for online-based establishments rather than an issue for land-based establishments [2].

Issues surrounding fairness generally center on the mechanisms of the game (i.e., is the game rigged in favor of a certain player, is their third-party interference, or is the “house’s edge” for the establishment beyond normal expectations) and the cashout process [2]. Concerning game mechanics, especially in an online context (since this is an interactive space), a major concern is whether the game’s software is rigged [2]. Even if the game mechanics are not rigged, another concern for customers is whether the establishment employs a fair cashout process (i.e., will the customer receive their reward and if so, will it be the expected amount of the reward) [2].

Solution

By utilizing blockchain-based solution for games (e.g., storing games and associated business logic as smart contracts), it will be easier for customers and regulators to ascertain whether a game has run fairly and customers have received their expected payouts [2]. Additionally, each state of the game can be verified on the blockchain, thereby allowing for customers, regulators, and third parties to verify and audit the results of the game [2].

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1.3. Funds Custody

Issue

Custody of funds can also be an issue for establishments in both an online and land-based context (though, more of an issue with online-based gaming establishments)[2].

Before a customer can wager in a game, they are often required to deposit funds with the establishment (e.g., converting cash into chips) [2]. This is an issue for customers because their funds may not be protected in the case of the establishment becoming insolvent, or the establishment is not required to prove that it has the ability to payout certain winnings [2].

Additionally, at many land-based establishments, for customers to wager in a game, they first need to convert their cash into chips at the establishment (i.e., going to the Cash Cage), which adds additional manual labor to the process the cash, and also the security and accounting practices needed to watch over the cash deposits [4, 6, 7].

Solution

A blockchain-based solution for escrow is applicable here. A smart contract-based escrow application can be utilized to store customer funds when customers want to wager on games [2, 4]. This will allow customers to directly interact with games offered by gaming establishments by using their cryptocurrency wallets while keeping control of their funds [2, 4]. Thus, with escrow smart contracts, a customer can be assured that their deposited funds and wagers cannot be misappropriated by the gaming establishment or a nefarious third party while playing a game [2, 4]. Additionally, this is a benefit for gaming establishments and regulators because gaming stbalishmetns will no longer need to store customer deposits (especially cash deposits) and deal with the processes associated with managing and securing customer deposits [2, 4].

The escrow smart contract can be written to ensure the safety of the deposited funds, and ensure customers receive their expected payouts [2, 4].

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1.4. Auditability

Issue

Auditability is also an issue present for gaming establishments [4]. Gaming establishments want to have an auditable trail of customer activity to enhance regulatory compliance (e.g., anti-money laundering) and improve customer experience (e.g., a single wagering account for multiple gaming activities)[4]. And as mentioned in the previous issues, auditability makes it easier for customers and regulators to trust that gaming establishments are offering fair games and paying out winnings [2, 4]

Solution

A possible blockchain-based solution here is for gaming establishments to develop a consortium blockchain and a cryptocurrency wallet [2, 4, 8, 9].

First, gaming establishments can develop a consortium blockchain for gaming activities (membership can be based on jurisdiction or some other qualification), where gaming establishments and/or regulators can act as validators on the blockchain, certain members can read from the blockchain, and anyone can write to the blockchain [2, 4, 8, 9]

By developing a consortium blockchain, the gaming establishments can increase data interoperability among themselves and improve the security of their records from cybersecurity threats [2, 4, 8, 9].

Second, gaming establishments can provide customers with a single cryptocurrency wallet that can interact with multiple games at one or more gaming establishments (built with smart contracts) [2, 4]. With this cryptocurrency wallet, customers could deposit funds and convert them into cryptocurrency (maybe call them virtual chips?), and then start interacting with any type of game that they want [2, 4]. Since the cryptocurrency wallet interacts with the consortium blockchain, all of the customer’s activities are recorded, thus providing an auditable trial of customer activity [2, 4].

Conclusion

Thank you for reading this article on blockchain use cases in the gaming industry.

For any and all correspondence (including any corrections you believe are needed), please either leave a reply to this article or send an email to hello@ledgerback.coop.

About Greyscail Blockchain Review

Greyscail Blockchain Review (“Greyscail”) is a Medium publication managed by Ledgerback Commons Research Cooperative (“Ledgerback”) that covers how emerging technologies, with a particular emphasis on blockchain, can be applied in multiple industries and fields.

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Notes

¹ [4] “ Around the same time, a licensee petitioned the Nevada Gaming Commission to expand and integrate the wagering accounts maintained by casino customers. A customer with an account with the casino’s sports book, for example, had to open a second account with that company’s race book, another one for its online poker site, and another to deposit front money for use on the casino floor. None of those accounts could be linked to each other.”

² Primarily focused on the Nevada Gaming jurisdiction.

References

[1] https://funfair.io/wp-content/uploads/FunFair-Commercial-White-Paper-v2-draft.pdf

[2] https://www.gamblingcommission.gov.uk/for-gambling-businesses/Compliance/General-compliance/AML/How-to-comply/Anti-money-laundering-compliance-advice.aspx

[3] https://gaming.nv.gov/index.aspx?page=71

[4] https://www.americangaming.org/wp-content/uploads/2019/02/Advancing-Regulatory-Modernization_FINAL.pdf

[5] https://gaming.nv.gov/modules/showdocument.aspx?documentid=16470

[6] https://www.wsop.com/online-poker/banking-options/cashatcage.aspx

[7] http://casinosformoney.com/how-much-money-does-a-casino-keep-on-hand/

[8] https://openledger.info/insights/consortium-blockchains/

[9] https://medium.com/7sevencoin/types-of-blockchain-public-private-and-consortium-blockchain-e190604df820