How Will Third Generation Blockchain Change Online Casinos?
Posted by Harry Kane on Friday, March 5, 2021
We’d wager that only have you heard of blockchain, but that your life has been impacted by this incredible innovation over the course of the last few years.
This technology also underpins a highly lucrative and fast-growing marketplace, and one that was worth approximately $3 billion at the end of 2020. This number could increase to $39.7 billion by 2025, with the market set to expand at an impressive CAGR of 67.3% during the next four years.
However, you may not know that this year will see the third generation of blockchain technology come to fruition. But how will this impact on virtual casinos, and what will change in relation to second generation blockchain technology?
What is Third Generation Blockchain?
The term ‘third generation’ in this context refers directly to the blockchain protocols themselves, and how the latest innovations have evolved in relation to previous iterations.
For example, Bitcoin is known as the archetypal first generation blockchain, with this offering a basic payment system based on proof of work consensus. Conversely, Ethereum is the best-known second generation blockchain, with this evolving the existing infrastructure by creating the functionality to run smart contracts on the same proof of work mechanism.
However, third generation blockchains such as Cardano and Polkadot are designed to use delegated proof of stake consensus mechanisms, which creates the scope for far greater scale, increased transaction speeds and more intuitive smart contracts.
These networks also create a larger number of applications for blockchain, while bringing the technology’s governance into a third (and potentially glorious) age.
In more general terms, third generation blockchains have also been designed to resolve existing issues with the technology. An example of this is provided by the Cardano network, which launched an off-chain stability protocol called Ouroboros Hydra last March after five years of development.
This protocol was found to vastly increase scalability, while simultaneously lowering latency for the Cardano blockchain and using little storage on the network’s nodes.
More specifically, simulations made by the University of Edinburgh during testing showed that each Hydra head could handle around 1,000 transactions per second, while there remains enough scale to increase this capacity to one million transactions per second over time.
Incredibly, this would be comfortably in excess of existing global payment systems such as VISA, while it also extends the capacity of blockchain to efficiently handle micropayments, insurance contracts and voting alongside a range of other applications.
This provides a direct solution to the challenges faced by Bitcoin as it has scaled, with huge increases in demand increasing transaction times markedly and seeing higher fees introduced.
As we can see, third generation blockchains tackle key issues with existing technologies and networks such as Bitcoin, while introducing some much-needed scalability (and functionality) to digital payment systems and smart contracts.
The Key Challenges Facing Online Casinos in 2021 (and Beyond)
There’s no doubt that third generation blockchain is a capacious and problem-solving technology, and one that has huge potential to revolutionise the iGaming marketplace.
Before we explore this in further detail, however, it’s important to look at the key challenges that plague online casinos and how they impact on individual players.
One of the biggest challenges deterring online casino players revolves around the house edge and transaction fees, which combine to reduce the probability of winning and eat into individual bankrolls respectively.
In terms of the house edge, this obviously varies from one vertical to another, while individual iterations and rule changes also impact on the average return-to-player (RTP) rate associated with certain games.
Take online slots, for example, which include low, mid and high-variance titles and feature average RTP rates of between 90% and 97%. These translate into a variable house edge of between 10% and 3%, meaning that players should only expect to recoup £0.97 for every £1 wagered on average in the latter case.
This will be a deterrent to some, as the fact that the house always retains a clear edge is reminiscent of the challenges posed by brick-and-mortar casinos.
Not only this, but some casinos continue to charge transaction fees to players, either in relation to deposits or withdrawals (or, in some cases, both). This type of commission may also be compounded by additional fees charged by the payment processor, which gradually diminish both modest and expansive bankrolls alike.
Operator fees can even be applied to withdrawals as low as £10, with a flat rate of £2.50 meaning that players only actually receive £7.50 of their hard-earned winnings.
This is despite the best efforts of the UK regulator to curb this particular practice, which can be particularly damaging to regular or casual players who only maintain a modest bankroll and minimal resources.
This also ties into another challenge facing online casinos, namely the issue of transparency. The primary problem here is that some operators and their games’ libraries aren’t as demonstrably fair as they claim, thanks to subtle tweaks to their PRNG algorithm that incrementally reduces the probability of winning in relation to particular games.
Not all casinos are proactive in allowing third parties to scrutinise or review their gambling algorithm and advertised RTP rates over an extended period of time, for example, creating significant issues of transparency and trust that players may not be immediately aware of.
Once again, this remains a key focus for the UK Gambling Commission (UKGC), who are trying to create a far greater sense of trust between brands and consumers.
It’s also likely to make commitment to greater transparency and fairness a key licensing requirement going forward, particularly if the UK government asks the regulator to conduct a comprehensive licensing review in the near-term.
The issue of fully rogue casinos is another plague on the iGaming industry, with these entities also known to decline payments to players who attempt to make legitimate withdrawals in line with the promoted rules and regulations.
The problem here is that the decision and process of paying out winnings is the sole responsibility of operators at present, and they reserve the power to refuse or ignore payment requests on their platforms.
As such entities may not be licensed or choose to operate outside of UKGC governance, this type of activity is incredibly difficult to prevent in real-time, while it should be noted that payment disputes can also arise as a result of poorly worded T&Cs and misunderstandings on legitimised platforms.
On a final note, most online casinos are also thought to store their players’ profile data in a centralised location that may be lost or manipulated at any given time.
This means that various items of player information are vulnerable to technological issues or data breaches over time, even in an age of increasingly secure casino platforms and 128-bit SSL encryption protocols.
These challenges are omni-present in the iGaming marketplace, while existing technologies show little promise of offering a viable resolution in the near-term.
Can Third Generation Blockchain Provide the Answers?
Just as third generation blockchain can solve the technological issues associated with second generation iterations such as Ethereum, they may also provide answers to the key challenges facing modern casino platforms.
To explore this in further detail, let’s cast our eyes over the Wunbit casino, which is based on third generation blockchain technology and has sought to create a completely transparent, anonymous and immutable experience for gamblers in the digital age.
Here’s a breakdown of how it solves the existing online casino issues referenced above, before we look at whether this offers a viable model for the iGaming industry of tomorrow.
1. Minimising Entry and Exit Fees
Like most crypto protocols, Wunbit is built around a native token (WUN) and proprietary blockchain technology.
The WUN token is seminal to the functionality of the casinos, as these coins are used to drive all the games featured in its library. In this respect, they serve as poker chips, which have a fixed value and can be bought or redeemed for cash prizes.
Still available for a finite period after the launch, WUN tokens can be procured from several exchanges and stored in completely independent and secure wallets. This means that your bankroll is kept separate to the gambling platform, creating an additional layer of security when wagering online.
Instead, you can connect and transfer from your crypto wallets through trusted browser plugins such as MetaMask, creating a secure link with the individual game’s smart contract agreements. Winnings are automatically deposited through these contracts into your wallet, also negating the need for any entry or exit fees at all.
Sure, users may be charged a gas-fee as accustomed for moving tokens through the Ethereum network, but this is a small and single commission that will have little impact on your gambling experience.
2. Creating a Greater Sense of Transparency
Interestingly, Wunbit also display each of its game’s individual smart contracts publicly on the Ethereum network, with this documentation providing a comprehensive breakdown of probability statistics and the RTP rate that players can expect in relation to their spend.
Not only is the information delivered through such contracts detailed and publicly accessible at all times, but it’s also decentralised, immutable and immune from any kind of third-party manipulation that may alter your chances of winning.
By being able to determine your precise probability of winning and an accurate RTP rate in real-time, you can make informed and reliable decisions about the games that you choose to play when online.
This guarantees a high level of transparency and fairness across the board, creating significant trust between all parties and ensuring that no disputes emerge about whether or not game outcomes are fully randomised.
3. Accessing Your Winnings at Any Time
We’ve already touched on the financial structure of the Wunbit casino platform, which creates a significant degree of separation between your gaming account and hard-earned bankroll.
This has significant connotations with regards to withdrawals, as the platform doesn’t hold or store player tokens at any time and therefore has no control over this capital. It also bears no responsibility for the tokens unless they’re being wagered directly on the site, with all transactions governed by fully transparent and algorithm-based smart contracts.
These increasingly intuitive digital agreements automatically send your winnings to your registered wallet, without any kind of demonstrable waiting time.
Not only this, but the structure ensures that the tokens remain perennially in your control, negating the risk of lost or reduced winnings completely.
4. Storing Profile Information and Data on the Blockchain
All generations of blockchain are renowned for their transparent and immutable record keeping, with Wunbit maintaining (and arguably improving) this reputation as a third generation blockchain.
Certainly, all gaming activity and behaviour is recorded directly on the affiliated blockchain, although this doesn’t include your personal data, financial information or wallet details.
Each data set is stored as a transaction on the blockchain, and in some cases you may be required to pay a nominal transaction fee in this instance.
Interestingly, this also allows game and experience-focused players to upload their score and performance data directly onto the blockchain, while this may also offer significant value for poker players who want to learn as they continue to play.
This is highly promising for the iGaming space, with the prospect of third generation blockchain casinos seemingly resolving many of the issues facing online casinos in 2021.
The Last Word
Clearly, online casinos of the future will evolve to rely on third generation blockchain protocols, improving the virtual gambling experience whole eliminating many of the inefficiencies that have plagued operators and players for years.
Key to this is increased fairness and transparency, which will also help the UKGC to fulfil one of its core strategic objectives (improving the perception of online casinos) through 2021.
Most importantly, third generation blockchain casinos will use APIs to connect different casino games to the blockchain via smart contracts, introducing a new level of fairness and potentially eliminating the so-called “house edge” over time.