Lately a number of technology startups including some internet gaming companies have been taking advantage of a new euphoria that has not been experienced since the early days of the internet. These entities have been raising capital using a new instrument called cryptocurrencies through a practice called Initial Coin Offering, which essentially is a crowdfunding process. There are now over one thousand cryptocurrencies already issued and numerous cryptocurrency exchanges trading digital assets. What is even more astonishing is that the total market cap of just the top four cryptocurrencies is much larger than the total market cap of the top 100 casinos in the world that have invested hundreds of billions of dollars in land, buildings and other infrastructures.
Despite their speculative nature, cryptocurrencies have been widely accepted by the millennials especially those trying to get rich quickly looking to buy the next Bitcoin in its early stage. The recent popularity of cryptocurrencies and its underlying Blockchain technology has prompted the Gaming Standard Association to commission a technical committee to develop standards for the use of Blockchain technology in the industry.
Also the large market cap and transaction volume of cryptocurrencies has compelled the financial and governmental agencies to scramble in understanding these assets and to determine as to how they fall into the existing regulatory and financial structures. The current consensus by financial institutions is that cryptocurrencies are new asset classes. And the SEC has determined that, depending on their structure, cryptocurrencies either classify as securities or classify as currencies.
Setting aside all the hype, Blockchain, the underlying technology behind cryptocurrencies is real and the sooner we understand it, the sooner we can capitalize on its efficacies in the gaming industry. Overall, cryptocurrencies fall into two types of categories i.e. utility tokens and coins. Utility token are essentially securities i.e. they represent an element of ownership interest in a business or a process, and coins such as Bitcoin and Ethereum are digital currencies that have no intrinsic values of their own. Generally, the price of a token or a coin is determined by supply and demand and the distinction between the two can get murky. The simplest way to distinguish a utility token from a coin is to compare them with securities and cash.
Bitcoin was the first decentralized digital currency introduced during the last financial crisis, and received immediate worldwide acceptance by people with anti-establishment views and by bad actors as a stored value and as a currency for illicit transactions. Despite its technology flaws, Bitcoin has been very popular with those looking for a solution to anonymously make a peer-to-peer transfer of funds and bypass governmental authorities and the traditional financial systems. Since the price of coins such as Bitcoin and Ethereum fluctuates and does not process in real time, it makes them unsuitable as a cash substitute for day-to-day transactions and online gaming.
The technology behind cryptocurrencies is now advanced enough to compete with cash and since casinos already have the regulations, the accounting and the reporting requirements to offer their own currencies such as chips and TITO, they are well positioned as a regulated industry to take advantage of Blockchain technology by offering a general-purpose cryptocurrency that can also be used for non-gaming transactions inside and outside of a casino’s resort.
Other than offering lower transaction costs, cryptocurrencies are essentially secure smart contracts generated by computer codes that can carry any instruction and information about a transaction and a wager than just processing monetary values, making them ideal in commerce and in online gaming and wagering. Overall, Blockchain technology and cryptocurrencies create new possibilities and add more security and transparency than cash and can be used both for gaming and non-gaming transactions.
