FEATURE
on Curaçao licences, KYC – know your
customer – checks are less stringent than
with licenses from the UK, Malta or
similar territories.
Figure 3: CS:GO pistol with a skin
Untapped markets
Since cryptocurrency is pseudo-anonymous,
in that you can see all the transactions
from any given individual but you don’t
necessarily know who that individual is,
it can be difficult to work out whether
players are from regulated jurisdictions
or not. A player might be in a country or
territory that is a grey or unlicensed market,
or where gambling is socially unacceptable.
Using cryptocurrency, they can gamble
while maintaining their privacy.
As the world gets richer, these developing
markets are opening up and producing
excellent revenues for crypto-gambling
businesses. For example, Japan is a huge,
untapped market that combines a love of
cryptocurrency and privacy with technical
ability; operators with good Japanese-
speaking customer-services teams have done
very well there. India is another interesting
market – a country that is getting wealthier
but where gambling remains socially
unacceptable. With the proliferation of
internet and mobile web, Indian crypto
gambling is picking up.
Africans have also embraced
cryptocurrency. If you live in sub-Saharan
Africa, you may not have a bank account but
if you have a mobile phone there’s a 15%
chance you’re using some kind of mobile
money account – that is, a virtual currency.
For perspective, only about 2% of the
population have cryptocurrency accounts
right now. But territories with internet access
and unstable, government-backed currencies
are primed for cryptocurrency growth.
When you’ve got such wide adoption and
acceptance for cryptocurrency in Africa,
gambling will follow.
Skin in the game
If online crypto gambling will potentially
achieve annual revenue of $8bn by 2022,
how is it that crypto gambling is likely to
become bigger than igaming? The answer
lies in the world of video games.
If you are a gamer playing the likes of
Counter Strike: Global Offensive (CS:GO),
PUBG, DOTA2, you’ll know about skins.
A skin is a graphic used to change the
appearance of the user interface, a game
character or an object used in the game –
a gun like the one in Figure 3, for example.
They don’t affect gameplay, they are just
cosmetic enhancements.
Source: RCGComix / Deviant art
Skins vary in popularity and rarity.
Some are worth tens of thousands of
dollars because they are rare and give the
owner major bragging rights. They are also,
effectively, a currency; you can exchange
them for other skins or other currencies,
such as US dollars or cryptocurrency.
2018, a case in the US Courts of Appeals
reversed a Western District of Washington
court decision against Big Fish Casino
concerning whether loot-box winnings
were a ‘thing of value’.
The appeals court ruled: “Big Fish Casino
is free to play and there is never a possibility
“Skins have value and are tradable: they are effectively
a currency. Put together these items of value with
an urge to gamble and you have skins gambling”
Valve, the company behind some of
the world’s biggest games, encourages the
adoption and trading of skins because it is
profitable. Halvetti, a blogger on hltv.org, put
sales of Valve’s CS:GO – a major game that
trades skins – at 21,352,159 as of May 2016,
generating revenue of about $310m. Valve
has something called a “Steam transaction
fee” of around 10%, which is applied to
every skins transaction it controls. Based
on csgobackpack calculations, the value of
all items was $211,713,935. If every person
traded on average one item a year, Valve
would gain an extra $21m in revenue.
Skins are big business.
So skins have value and are tradable: they
are effectively a currency. Put together these
items of value with an urge to gamble and
you have skins gambling.
‘Loot boxes’ or ‘prize crates’ are massive
gambling phenomenon. A player receives
a loot box within a game, when they hit a
certain level or by tra ding items for it (or
maybe they just bought it). When the player
opens the virtual box, they may or may
not get items that are more valuable than
its sticker price. Sounds like gambling? Of
course, loot-box designers can adjust the
probability of the value of each item given
away and so you get a gross-gaming margin
of a certain percentage.
One of the odd things about loot boxes
is how unclear governments are on whether
this is technically gambling. In March
of receiving real cash or merchandise, no
matter how many chips a user wins.” It
also noted that “extended gameplay cannot
result in any gain to the user, pecuniary or
otherwise, aside from the amusement that
accompanies continuing to play a game that
is already available to play for free”.
It seems that the case against Big Fish
Casino fell apart because its terms and
conditions prohibit the transfer or sale of
virtual chips, meaning anyone who sells
them on the secondary market is violating
the operator’s T&Cs. But… you can sell
these chips on secondary markets and –
from what I understand – Big Fish Casino
can’t find out if you have. The effect is a
huge loophole in gambling legislation in the
United States and globally.
In March 2018, Valve introduced a
seven-day trading ban to create friction
around gambling transactions and dissuade
players from using their skins to gamble.
Valve has also issued various cease-and-
desist notices to skins-gambling sites. And
this is where this story takes an interesting
turn in relation to cryptocurrency.
Skins are currency but with infinite
denominations: each skin has a unique
value and there are lots of them. Traditional
currency, on the other hand, has a series
of denominations: a $10 note, $100 note
and so on. In crypto circles we call cash –
dollars, pounds, Euro – fiat currency, which
is Latin for “Let it be done”. That’s because
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