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Breaking Down On-chain Wagering

For those not familiar with blockchain technology, a reference to an on-chain transaction means that the transaction was logged on the applicable blockchain (i.e. Ethereum). It also means that transaction details cannot be altered and provides transparency since the transaction is publicly viewable. Take a look at a sample transaction on the Ethereum blockchain here.

One of the biggest use cases for blockchain technology in the iGaming industry is utilizing on-chain transactions for wagers. We made this short brief to go deeper into that use-case. For more information on blockchain, cryptocurrency and smart contracts, you can view our explanatory article here.

A bettor places a casino wager…

With traditional iGaming software, a bettor places a wager and as a result they are putting their trust in the operator that bets have been placed, are secured, and winnings are paid out. Even if the operator only uses games with certified random number generators this level of trust is still required from the player. An unscrupulous operator could accuse the player of cheating, of the game malfunctioning, or simply refuse to payout. Unfortunately these are not rare events, with even major iGaming companies eschewing bettors for reasons out of the bettors’ control.

This is where on-chain transactions and wagers can make a massive difference. If a bettor places a wager on an on-chain casino game, the transaction record on the blockchain serves as a public receipt of their wager. Since transactions on the blockchain are immutable, it is impossible for an operator to claim that a wager was not placed. Also, through the corresponding smart contract for the game that was played it is also impossible for an operator to claim that the bettor cheated, as the smart contract would only execute within the guidelines established by the operator. The use of smart contracts can also ensure that the player will be paid out in the event of a win as the execution of the smart contract would automatically return any winnings to the bettor. Unlike the legacy casino games from older iGaming platform providers, on-chain games are Provably Fair, meaning the bettor can independently verify their game results without relying on a 3rd party.

The use of these technologies is also beneficial for operators. Operators no longer need to be concerned about malfunctioning games that improperly pay out, do not run the risk of chargebacks or fraudulent transactions via the use of cryptocurrency, and can more easily defuse an aggrieved bettor who lost due to the nature of independently verifiable results. It’s easy to see why the concept of on-chain wagering is disrupting the iGaming industry.

A bettor places a sportsbook wager…

Wagers on casino games are not the only wagers that require trust. Players who bet on sports also are placing faith in their respective operators. Bad faith sportsbook operators can also cancel wagers. As an example of cancelled wagers on sportsbooks, bettors who place wagers on Major League Baseball games have notoriously been subject to last second cancellations of their wagers due to pitching changes. Thankfully, more sportsbooks have trended away from the “listed pitchers” system, where a change in the starting pitcher would automatically void their wager. Instead, these operators have moved to “action” bets – that is, the wager is valid regardless of who is pitching. While this may not seem like an issue, in the past many sportsbooks would hide their right to cancel wagers in their terms and conditions, rather than making it abundantly clear to the bettor that their wager was not set in stone.

Other things that require trust from the bettor include operators incorrectly grading event results (or cancelling the wager post-event), and in extreme cases even refusing to payout winnings due to a lack of funds (i.e. operator did not properly manage risk). With legacy sportsbook technology, there is no way for a bettor to avoid these risks.

On-chain transactions solve these problems in the same manner they did for casino games. With public receipts that a bet was received and accepted, it is not possible for an operator to claim that a bet was not placed. The use of smart contracts not only locks in the terms of the wager (i.e. bettor “x” placed a wager on “y,” not “z”) which prevents disputes over grading, but also ensures that an operator has sufficient liquidity to pay out any potential winnings.

In summary

On-chain wagering is the future of iGaming, as it minimizes the need for trust through the elimination of fraudulent behavior between bettors and operators, while simultaneously reducing transaction processing costs. Start your transition from legacy software to Lion Gaming Group’s white label crypto casino solutions today by contacting [email protected].

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