The impact of Ethereum-based online betting sites have made on the real money gaming has taken the industry entirely by surprise. Players do not need an account with a casino to place bets, never have to reveal their identity, and with all this comes growing security reassurances.
With anonymous gambling opportunities offered by the latest crop of Ethereum-based betting sites, players do not have to reveal who they are. All they need is ETH or to purchase the digital currency that the blockchain-based gambling application uses to allow players to place bets.
After this, the entire cryptographic coded transaction is completely encrypted over the Ethereum network. There is no way to trace who made the bet, and as such, people in countries where gambling is illegal can make bets without their governments being able to track them down.
Only the players public key is required by the betting website. The casino’s application does the rest of the hard work. The very first inception of this concept led to casinos such as Edgeless smart contract powered casino – an online casino that offers its players the chance to play casino games with a 0% house edge.
Why Ethereum and Not Bitcoin?
Bitcoin’s network was the first to invest in smart contracts, but it is restricted by currency. On the other hand, Ethereum allows private ICOs to write their own codes (‘autonomous agents’). This is how the creation of Ethereum based casinos and betting applications came to light.
Although there are Bitcoin-based betting websites, another key reason Ethereum gambling is so popular is speed. The Ethereum network is much quicker at processing gambling compared to Bitcoin. That being said, there are still Bitcoin casinos coming through such as sp8de that aim to challenge the Ethereum model.
The idea behind Ethereum based betting sites is that players connect to the blockchain based application and create a smart contract. The player selecting a betting option starts the contract. This could be a bet on a sports event or on who will become the next president of the United States. It could even be a casino game. However, both work in slightly different ways.
Sports and Recreational Betting
For sports or recreational betting, once the smart contract is started using the betting application, the casino will place the payout amount for the bet (the amount the player stands to win). The player will release the amount bet. These amounts are kept within the smart contract until the bet has been resolved.
If the player wins, then the smart contract releases both the player’s bet and the amount of digital currency transferred by the betting website (the winning bet amount) to the player’s public key. The player’s Ethereum account is instantly credited. On the contrary, if the player loses, then the player’s bet is released to the betting website, and the amount the betting website put up in case the player won is also returned.
Meanwhile, no personal information is exchanged whatsoever. Even wallets such as Coinbase cannot detect what this transaction was. As far as any outside party is concerned, this was an entirely private transaction between two public keys that agreed on an anonymous contract that would result in an exchange of funds.
Etherium Casino Betting
There are two ways Etherium casinos function using smart contracts. In essence, the same process is used as mentioned above using sports and recreational betting, but there are still some slight differences.
Firstly, if a player has to create a new contract for every bet made playing Roulette or every spin on a slot, this would slowly begin to overload the Ethereium network. Earlier blockchain casino models did start using these types of smart contracts. The problem was that between each spin, there was at least a 15-second delay while the smart contract was created for the next bet.
The solution was simple. Players can begin a session with a slot machine, roulette game or any other gambling game. When the session is started, the player decides how much he/she is willing to deposit into the session. Therefore, if I wanted to gamble 100 ETH, I would deposit just 100 ETH to the session.
At the end of the session, the winnings are taken from the casino’s Ethereium funds as per the smart contract dictates. On the other hand, if the player ended the session down, then the remaining balance is transferred back to the players, and the amount lost transferred to the casino.
Using Smart Contracts Makes Online Gambling More Transparent
Another great aspect of using smart contracts is the fact the Etherium network records all transactions. This means the casinos are unable to cheat.
We will be covering the term ‘provably fair’ in a follow-up news article.