One of the earliest applications of cryptocurrency was in online gaming. The earliest one I remember was SatoshiDICE, which came out in 2012 only a few years after Bitcoin was invented. You can imagine some of the benefits:
- Stateless – By using the internet, you can operate a business and reach customers in jurisdictions where your product or service is illegal.
- Obscured capital gains – Anonymity ensures that a taxing authority cannot audit your gains (or losses!) and you can either report them in earnest or avoid them altogether.
- Non-fiat currency – You do not need to accommodate currency exchange, credit cards, or banking regulations.
But one of the benefits which might not be intuitive is that the gaming is provably fair. For example, SatoshiDICE’s system was described as follows:
To determine if a wager is a winner or loser, the site uses a method to produce a number between 0 and 65,535, similar to how a random number generator (RNG) would be used. The service uses a combination of the transaction hash from the wager transaction from the blockchain and performs a 512-bit SHA2 hash for that transaction hash using a secret unknown to the player. The first four bytes of that hash become the lucky number in determining winner or loser.Bitcoin Wiki
You don’t have to worry about how the deck has been mixed, whether the player next to you is about to get the Ace you need, or if the slot machine has a very low payout ratio… all of these things are irrelevant. This is pure chance. The distillation of gambling into its purest essence of numerical probability, but with a facade of dice rolls.
The House Always Wins
You’ve probably heard of some of the casino stocks in the graphs above–MGM Resorts (MGM), Wynn Resorts (WYNN), Penn National Gaming (PENN), and Las Vegas Sands (LVS). But these are multifaceted businesses which are reliant on tourism, local economy, favorable regulation, etc.
Thanks to cryptocurrency, you can now directly invest in a casino bankroll and share in the house winnings. How does this work? You deposit cryptocurrency at a gambling site and you will receive a dividend as the site makes money. Most sites have a 1% house edge, but the precise division of profit is different for each site and can get nuanced and convoluted. Suffice to say that in many cases it comes out to about 1% return per week (~50% APY) in my personal experience.
It is not my intention to promote a specific platform, but I have previously invested in several and I’ll provide one as an example.
This site is a provably fair dice gambling platform and uses several cryptocurrencies such as Bitcoin and Etherium. The house edge is 1% and the pooled investments in the bankroll are entitled to half of that. I encourage you to read the investment FAQ.
I have questions…
Of course you do, and so I’ve answered every conceivable question you would ever have about this:
- Why would they do this?
- I think the primary reason is to increase bankroll size without increasing risk to the site’s creators. But this also serves as a form of marketing as people who invest in the site will naturally want more traffic to increase their earnings.
- Is my money available for withdrawal at any time?
- Yes. All the sites I have used do try to reward long-term investment or punish early withdrawal, but your investment is not ‘locked-up.’
- Is this legal in the US?
- I am not a lawyer. But I spoke to a couple and they assured me that investing and receiving dividends should be legal–gambling and owning/operating the platform would be more problematic in some jurisdictions. You will usually need to use a VPN though as many of these sites restrict IP addresses from the US and other countries. I use Private Internet Access.
- ~50% APY?
- Remember high-gains are paid for with risk. These platform are run in non-US jurisdictions by typically unknown entities, the legal status of these platforms and cryptocurrency is always a risk, and the underlying asset can appreciate or depreciate–most cryptocurrency is highly volatile compared to fiat.
- How do I pay the taxes on this?
If you have no idea how to transact in cryptocurrency, I will be writing an introduction article soon for those that need a crash course. There is plenty already out there, but I’ll give you my take from an investment and utility standpoint as well as talk about the exciting things happening recently like crypto credit cards and decentralized finance.