The Difference Between On-chain Wagering vs Crypto as a Payment Rail
In the iGaming space, there are many casino operators who brand themselves as a crypto casino because they have a payment rail for one or more cryptocurrencies. However there is a drastic difference between accepting cryptocurrency as a payment rail and an iGaming platform that uses blockchain technology in their online casino software.
Simply accepting cryptocurrency is not an innovative feature for a iGaming operator. This is evident due to how common it is for iGaming platforms to now accept at least one or more cryptocurrencies. If you have an existing iGaming operation that does not currently support cryptocurrency transactions, you need to read this article that outlines the reasons why online casinos should accept crypto.
What we will cover in this article is the differences between accepting cryptocurrency as a payment rail, and utilizing on-chain wagering technology – a truly revolutionary innovation in iGaming.
Basics of a cryptocurrency payment rail
When an online casino or online sportsbook accepts cryptocurrency, their customers are able to deposit and fund their accounts using assets such as Bitcoin. Some operators immediately convert these deposits into fiat currencies, for instance crediting an account with $100 USD after a player deposits 0.0035 BTC. Other operators keep the player’s balance in the original format, i.e. if the player has 0.0035 BTC and loses 0.001 BTC they now have 0.0025 BTC in their account balance.
In the first example mentioned the online casino or sportsbook may or may not allow withdrawals in cryptocurrency – many of the operators in this situation will only allow withdrawals in Bitcoin as a cryptocurrency option if they allow crypto withdrawals at all. In this instance the operator is providing a poor user experience while also incurring unnecessary costs. For starters, depending on jurisdiction the customer may have incurred a capital gains event by having their cryptocurrency turned into fiat. If the player wins their wagers, it is plausible that they receive less on withdrawal than what they initially deposited depending on Bitcoin exchange rate. From the operator’s perspective they are now paying exchange fees in addition to 3rd party transaction fees.
In the second example listed, users have a more pleasant experience because they are able to wager in their preferred currency, while operators in many cases enjoy lower transaction fees than they would through fiat payment rails, along with mitigating the risk of fraudulent chargebacks.
For a blockchain casino or sportsbook, the entire user experience takes place on-chain. What this means is that when a customer places their wager, whether it be on a game of roulette or on a sports match, the bet executes a smart contract and the bet is then logged on its applicable blockchain (i.e. ETH on Ethereum). For a more in-depth look at on-chain wagering, and why it is important for iGaming operators to transition from legacy technology to blockchain-based solutions, you can read our article that explains on-chain wagering in more detail. Due to the use of smart contracts to execute wagers, it is only possible for an operator to offer on-chain wagering if they have a native wallet solution for the blockchain they wish to operate on.
For the payment rail examples, neither of the instances provided is a case of an operator using on-chain wagering technology, as the customer experience takes place off-chain. Even if the operator is using a native wallet solution and not using a 3rd party payment processor, each change in account balance from wagers is taking place off-chain, whereas every aspect of the customer action, from deposit to bets to withdrawal, is logged on the blockchain when using on-chain wagering technology.
Essentially, the playing experience is no different than playing with fiat currency like dollars or euros when you use crypto as a payment rail.
Why the difference matters
It has long been common for casino directories and rating sites to categorize casinos based on various deposit methods such as direct deposit, credit card and so on, but rarely (if ever) does the actual casino brand itself as a “credit card casino” – so why do online casinos brand themselves as crypto casinos? The answer is that they are trying to capitalize on buzzwords by associating themselves on the bleeding edge of technology.
Even though cryptocurrency and blockchain are not interchangeable words from a technical point of view, they are commonly used interchangeably and are treated as such by the public. For more on the differences between cryptocurrencies and blockchain, you can view our article here.
A differentiator for online casinos and sportsbooks who want to attract the next generation of bettors will quickly become on-chain wagering capabilities. Bettors who are familiar with blockchain technology will choose to play with operators who provide blockchain functionality in their offerings rather than merely accepting crypto as a payment rail. It facilitates new customer acquisition and customer experiences that help them stand out among the competition.
Ten years ago accepting cryptocurrency was a major differentiator for an online casino, but players today expect casinos to accept crypto. The benefits, for both player and operator, of using blockchain technology in your platform are immense and is the future of online gambling. For more information on why that is the case, we encourage you to read this article that breaks down on-chain wagering further. You can also refer to our Crypto Glossary for more terms and definitions related to cryptocurrency and blockchain to learn more.
At Lion Gaming, we are proud to offer the world’s only licensed on-chain casino and on-chain sportsbook software solutions in a white label or turnkey package. Our offerings do not require the use of blockchain or cryptocurrencies, and your players can choose to toggle on-chain wagering on or off depending on their preference, and of course can still play with fiat like they would on any other iGaming platform.
For a free consultation on transitioning to the next generation of iGaming technology using Lion Gaming’s Fer0x Engine, contact [email protected] today.