Decentralized Gambling: Laws, Morals, and Ethics

Online gambling for many years has held a stigma of criminality, duplicity, and immoral standards of conduct. Depending on where a person lives, various laws prohibit or regulate the participation of online gambling, be it virtual casinos, sports betting, or other prediction markets. With the surge in gambling platforms utilizing blockchain technology to disrupt the existing paradigms, an even grayer area of ethics emerges over the entire industry. Because of the tide of uncertainty, developers, regulators, and players have found themselves swimming in a murky soup of legality.

ETHNews reached out to various founders and developers of leading blockchain gambling platforms to gain insights on this subject. What we learned is that many of the problems online gambling has faced in the past will be dramatically (if not entirely) eliminated through the blockchain infrastructure. Although none of the subjects interviewed made claims of a 100 percent guarantee, the consensus agreed that a revolution of online gambling will eventually occur to make the industry safer and more secure than ever before. In order to understand this, we must first review the many problems associated with online gambling.

Industry Plagues and Notoriety

Internet searches of online gambling may elicit headlines of theft or law-breaking, and other malicious acts pertaining to corruption within the industry. Searches may also bring up stories of casinos shutting down overnight and running off with players’ funds, criminal enterprises using websites to launder drug money, and other salacious material.

Gambling Bots

Gambling bots are software that utilizes a gambling website’s application programming interface to speed up the process of placing bets based upon a strategy to decide which bets to place. Bots have the ability to process odds faster than human players and are impervious to player apprehension associated with betting games. Recent advancements in artificial intelligence have made bots better at bluffing and harder to detect by human players.

Chip Dumping

This method of cheating occurs in Poker, and is an agreement between players whereby one player deliberately loses chips to another player. Chips are “dumped” either to aid another player in his or her quest to win a tournament, or as a means of laundering funds.

Money Laundering

Criminals seeking to clean funds procured from illicit activities can use online gambling sites to transfer fiat currency into cryptocurrencies with the intent to cash out their assets. The funds created in virtual casinos can be transferred to associates of launderers, often located in offshore countries where they can avoid US tax laws and regulations.

Multiple Player Accounts

Individuals or gambling sites themselves seeking to exploit the outcome of games can create multiple player accounts using proxy servers to hide their IP locations, or by providing false identification documents. By creating multiple accounts, players can play multiple hands in a single game, giving them an unfair advantage and shifting the odds in their favor.

Other problems faced by the online gambling industry include the lack of transparency with monitoring and regulating gameplay in virtual casinos. With traditional centralized gambling sites, the player has no way to verify if the shuffling of cards is being executed fairly—they must trust the word of the website owners. Also, with the ability to view a player’s hands while holding their funds in escrow, the temptation to cheat is often too much for operators to bear, leading them to deceive their customers and steal their money.

Blockchain + Ethereum Solutions

Virtue Poker, whose mission is to bring integrity back to online gaming, is one platform seeking to change the negative associations of the industry through blockchain technology. Ryan Gittleson, Virtue Poker’s co-founder, offered insights on how their gambling platform aims to resolve the issue of trust between game providers and players.

“I would say that we are 2/3 towards decentralization but not fully decentralized. Because this is a poker platform, there are certain mechanisms of control that both the site and the players want us to maintain. When it comes to the way the [Virtue Poker] technology works, we are fully decentralized.

“There are two core components to the Virtue Poker application. [First] is the off-chain client or application itself which doesn’t touch Ethereum at all. It uses what’s called a Mental Poker Protocol so that if you have three players at a poker table, your three machines form a subnet and you collectively shuffle [and] deal a deck of cards to play a game—all without an intermediary or centralized server.

“We’re also decentralized with the way we do touch Ethereum, which is for holding on and escrowing tournament buy-ins . For example, if those same three people at the table were playing a tournament for ten Ether (ETH) each, they each send ten Ether (ETH) to a smart contract on the Ethereum blockchain [that] holds onto the funds. You program the logic in terms of what the payout will look like and that contract waits for the game to be completed, at which point the result is piped in and it auto executes and pays out the players. In that sense we’re fully decentralized, the gameplay, the asset transfer, etc., we’ll never touch your money, we’ll never see your cards. The way that we would be centralized is in the way we will execute our identity management, largely for existing regulations.”

By utilizing a system like the one described by Gittleson, an operator who may be tempted to cheat is removed from the online gambling space. Virtue Poker’s core infrastructure allows the platform to facilitate games while eliminating themselves from a role that players don’t want them to hold – a fund holder with the ability to view cards. Virtue Poker also offers a unique solution to how online gamblers can remain anonymous while complying with state and federal laws.

“We wouldn’t be storing your money, data, or account information—we don’t want to be touching your Personal Identity Information (PII). The way this would work is you’d create a uPort account. You would have to submit, depending on where you lived, a government issued ID or some kind of statement that proves you are who you are. A third party would then verify that and attest to your uPort identity, and then Virtue Poker would require you to have that uPort identity in place in order to play on our site. It’s still pretty decentralized in the sense that there isn’t one company that’s holding onto this information—you won’t necessarily have to even trust uPort with this information—it’s the third party verifier that makes sure your documents are OK. That’s the way we see bridging the decentralized paradigm with the existing infrastructure that has been in place for years. This is why you need some kind of mechanism in place to ensure underage gambling doesn’t occur, to ensure money laundering doesn’t occur.

“Conveniently enough, we are a ConsenSys-based product and we’ll be able to work cooperatively with uPort—the Dapp will be able to provide an added level of security and prevent multiple accounts and other things that plague the industry, which players typically don’t like. We want to use uPort to attack that.”

Gittleson’s description of how Virtue Poker will address the problems of online gambling touch upon a subject that traditional sites have not expressed in the past—the issue of underage gambling. With the internet shielding identity, many opponents of the online gambling industry have voiced their concerns to lawmakers in hopes of preventing children from entering the space. Whether or not players seeking to remain completely anonymous will use Virtue Poker is uncertain - for many online gamblers and proponents of blockchain technology, anonymity is not a privilege but a right that needs to be defended.

Edgeless, an Ethereum-based platform that offers a zero percent house edge on blackjack and video poker, seeks to protect player anonymity while changing the ecosystem of online gambling for the better.  Co-founder Tomas Lukosaitis spoke to ETHNEWS on the subjects of anonymity and underage gambling:

“One of the main features of blockchain gambling is that it provides full anonymity. We cannot combine the two things—providing full anonymity and preventing underage people. We need to choose either full anonymity or regulations to make sure underage people are not gambling. However, the philosophy we have is that blockchain is all about decentralized power, anonymity, free will and freedom of choice. We want to provide these features for our players who choose full anonymity.”  

Lukosaitis’ view on this subject also raises a poignant issue regarding privacy as it pertains to online gaming as whole.    

“Regarding full anonymity, we expect to have no problems in that area. However, in three or four years, governments will start to push for laws on [player identity] and we wouldn’t be surprised if we had to register every player, even if they’re using bitcoin (BTC) or Ether (ETH).”

One of Edgeless’ missions is to create a secure brand through open source technology that can be adopted and implemented into other blockchain-based gambling platforms. The company seeks to redefine online gambling for the better, operating from the belief that “a rise in tide lifts all ships.”

Lukosaitis expands on this notion:

“In the long run, we want to take all the casinos and make them fully transparent. When Dapps have Oraclize integrated, people will have a sense of transparency. In the future, let’s say five years, well-known casinos would have an Edgeless Logo signifying a transparency solution for the casino. Once people go to [an Edgeless] casino and play, they would know this casino can’t cheat. Once we develop a fully transparent technology, all other casinos will have to provide full transparency in order to compete for traffic. The solution for transparency will be for sale so other platforms can integrate our solutions into their own casinos.”   

Combating Gambling Addiction

 A topic even more taboo for the gambling industry is the issue of addiction—it’s the elephant in the room no one wants to talk about.

Lukosaitis sums this up best, “It’s no secret that casinos make the most profits from people who suffer from gambling addiction.”

While this concept holds water and is arguably the crux of the debate between supporters and opponents of online gambling, the problem still leaves addicted individuals to spiral out of control and lose vast sums of money. With online casinos being more accessible than their brick-and-mortar counterparts, gambling addiction becomes a serious problem in a tech savvy society with cash to burn. Some of the ways Virtue Poker aims to contend with gambling addiction are based on existing methods revamped through innovations in blockchain technology. Gittleson states:

“We will put in place a lot of the programs and functionality other sites have put in place, which is the ability to essentially lock yourself out from playing. If you’re playing and you’re on a down swing and losing a lot of money, it’s common for other sites to allow users to consensually check a box that prevents logging in for the next day, week or month, etc. We’ll definitely put those mechanisms in place as well as institute programs for rehabilitation. For players who do find they have a gambling problem, we’ll partner with outside companies to provide that service. That is why a certain degree of centralization is good for a platform, to not only protect players from other cheating players but to protect players from themselves.”    

Edgeless has also considered various solutions to combat this growing problem:

“In the upcoming years, we will have protocols where if a player doesn’t want to gamble anymore they can fill out an online form and ban their IP address. Another possible way is to have an algorithm to track gambling patterns so we can identify people who are off the charts—that would then facilitate a call to the player to assess the situation and determine if they are addicted or not, and then possibly we would take some measures. Players could also set limits on their account so they could only gamble what they have predetermined. We have some ideas, but for now, they are still in development. If you create a casino that is fair, has zero edges, and also has protocols to prevent gambling addiction, you create a brand that is associated with trust. This branding can then be sold to other casinos as a solution. With a zero edge, we would have to design a way to earn a profit while responsibly addressing this issue.”

A Hopeful Future

Online gaming has exploded and is on its way to becoming an American past time, while circumventing issues traditional casinos have had to face. With the solutions proposed by blockchain-based platforms Virtue Poker and Edgeless, the problems that have plagued the industry would be a thing of the past. Future virtual casinos implementing Ethereum and other blockchains will be able to facilitate games in a more secure manner than their predecessors, appeasing opponents while erasing the bad reputation associated with the gambling space.

Gittleson summarizes his beliefs for the future:

“My hope is that our platform utilizes blockchain’s core utilities of transparency and immutability and trustless asset transfer, in tandem with our ability to implement a peer-to-peer protocol for gameplay. We want these virtues and functionalities of the platform to get regulators excited and back on board in hopes of viewing online poker as an industry that should be allowed to operate globally. I would like to see a global playing pool where everyone can play on the same site from anywhere in the world. This might be a little idealistic, but if we are able to clean up the tainted reputation of the industry and begin to work with regulators to help showcase these utilities to them, ideally they will open up and allow for a moral global playing pool.”

2017 will be a year where realization and implementation occur, solidifying the many proofs-of-concepts platforms have been working to deliver. Included with these much-anticipated unveilings are online gambling platforms Edgeless and Virtue Poker, which will join other Ethereum-based companies which have already launched such as Vdice and Etherplay. As more gambling platforms release, test and gain traction through user play, participants and spectators will be able to witness the evolution of online gambling from a somewhat seedy industry to a legitimate enterprise.