Bitcoin or bust?

In 2013, bitcoin, a little-known digital currency that had been anonymously created four years prior, began to surge in value. The world’s first cryptocurrency had previously been little more than a plaything for a small group of cryptography enthusiasts, traded for pennies on a handful of exchanges.

But by 2011, its value had hit parity with the US dollar, and two years later, things began to get interesting. By November 2013, a single bitcoin was trading for more than $1,000.

One onlooker during bitcoin’s 2013 bull run was Tim Heath, today the CEO of the Coingaming Group, who had been operating a poker affiliate from his base in Tallinn, Estonia. “At the time, bitcoin had little recognition beyond a small but passionate group of techies and early adopters. The community was, however, growing quickly,” Heath tells EGR. “Gambling was one of its first use-cases, but the quality of products available was patently poor.”

Bitcoin was most widely associated during this period with darknet marketplace Silk Road, which was shut down by the FBI (for the first time) in 2013. The early bitcoin casinos were similarly dubious; Heath recalls that it was not uncommon for them to disappear overnight – along with players’ funds. But frustrated by the lack of reliable payment options while running his poker affiliates, Heath nonetheless saw an opportunity.

“As soon as we heard about bitcoin, we thought this would make the perfect digital gambling chip. The aim was to create a bitcoin casino that offered the same quality of user experience that players expected from traditional online casinos, except the gaming unit would be a bitcoin or a fraction of a bitcoin.” Within a few months, Bitcasino.io was launched, joining a wave of new bitcoin casinos and sportsbooks, which, for the first time, saw the disruptive potential of cryptocurrency gambling.

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New kids on the blockchain

Bitcoin’s price surge in 2013 introduced a new generation of enthusiasts to blockchain technology. Soon a slew of alternative cryptocurrencies – known as altcoins – began to launch. One of the most successful was ethereum, first minted in 2015. Bitcoin’s genius was to create a decentralised, peer-to-peer network which allowed the secure exchange of digital assets without the need for an intermediary.

In short, bankless banking. Ethereum looked to push this concept further, creating a platform upon which other functions could be decentralised. Smart contracts would execute agreements automatically across the network, meaning no party could renege on an agreement to, say, pay out on a winning hand of blackjack.

The technology had interesting implications for online gaming, particularly in situations where players had reasons not to trust the fairness of games. As crypto fever began to heat up in 2017 (the price of a single bitcoin would hit an all-time high of almost $20,000 by the end of the year), countless new cryptocurrencies held fundraisers, or initial coin offerings (ICOs),  for the development of products and platforms.

Many focused on gambling, including FunFair, led by tech entrepreneur Jez San OBE, which raised $26m in just four hours in June 2017 to build a decentralised gaming platform upon the ethereum blockchain.

“When we started there was much fanfare around ICOs and crypto was getting serious column inches. Even people’s grandparents were talking about bitcoin,” says Lloyd Purser, COO of FunFair Technologies.

“This was mirrored by many in the gaming industry; blockchain was in some areas viewed as the next big thing. Many people in the igaming world wanted to learn and understand more about the tech.” But Purser concedes it was a challenge to capitalise. “The reality for most operators was that blockchain was not close to being mature enough for them to take advantage of it there and then.”

At the same time, 2017’s wave of enthusiasm began to wane. By December 2018, a year on from its all-time high, a single bitcoin was trading at around $3,300 – more than an 80% depreciation in value. Purser calls it the “crypto winter”. The swings in value brought their own challenges. For operator Cloudbet, the key was good treasury management. “When you see a price change of 60% in a day, you need your treasury automated so that you don’t take any risk that you don’t want,” says Cloudbet’s Leandro Rossi.

FunFair’s Lloyd Purser

Growing a global bitcoin brand

In Estonia, the Coingaming Group had eschewed blockchain gaming and the temptation of an ICO to focus on its Bitcasino.io brand. “Bitcoin was already widely used, prevalent and decentralised by nature. We didn’t believe it made good business sense to reinvent the wheel and create a new ‘decentralised yet controlled centrally’ token for blockchain-based gaming,” says Heath.

Instead, Bitcasino utilised the advantages conferred by bitcoin to grow its brand. This meant offering faster withdrawals than fiat competitors, while also saving considerably on chargebacks. “Before Bitcasino.io, playing with pennies simply didn’t exist. Put simply, it was impossible for a customer to deposit $1 and play for $0.01 spins in a slot machine. Bitcoin solved this problem by catering for micro transactions as well as huge value transactions, in a safe environment for both parties. This proved hugely popular among the crypto community,” says Heath.

By the 2017 bitcoin bull run, the Coingaming Group had already launched a sportsbook brand, Sportsbet.io. “During 2017, we were faced with the choice of continuing to run a relatively low-risk tier two operation or start a new challenge by reinvesting heavily into our people, platform and technology to significantly scale our business.”

For Heath, a keen poker player, he already knew the answer. But the process was not simple. Heath recalls lobbying multiple slots providers to begin accepting bitcoin as a gaming unit currency, including a trip to Stockholm for NetEnt’s Innovation Week in 2017. The results were positive. “In 2017, we were a team of 30 based in a single office in Tallinn, offering casino and sports betting to the crypto community… three years later, we have a global team exceeding 320, with 12 offices across five countries.”

The group’s brands collectively turned over more than €7.5bn in 2019, while Sportsbet.io is the main sponsor of Premier League team Watford, and a shirt sponsor of Brazil and Copa Libertadores champions Flamengo.

Watford’s Gerard Deulofeu sporting Sportsbet branding

Education and expansion

Decentralised gaming also continues to grow. According to data from DappRadar, the top 10 blockchain-based casinos attract in excess of 30,000 users per week combined. Purser at FunFair says blockchain gambling delivered more than $8bn in transactions last year, accounting for around 70% of the total blockchain market. “Blockchain gambling is growing steadily, and more and more customers are understanding and seeking the benefits it provides,” he says.

But hurdles remain. Educating players, operators and regulators to the benefits has been a slow process. For the Coingaming Group, one way to grow its user base has been to add a range of different payment methods alongside bitcoin, including other cryptocurrencies and fiat currencies such as euros, Indian rupees, Japanese yen and Brazilian reals. The company also placed the bitcoin logo on Watford FC’s shirt sleeve to help boost global adoption of the cryptocurrency.

While FunFair is focused on providing its platform on a B2B basis, it has launched its own B2C brand, CasinoFair.com, to showcase the technology. Purser says FunFair works hard to highlight the benefits of the blockchain and ‘guaranteed fair’ gameplay to all stakeholders.

The company is also in dialogue with regulators. FunFair was the first blockchain licensee of Digital Isle of Man. Purser notes that Malta has also taken “significant strides”, but for others the process has been slow. “This will undoubtedly come with more traction and when they see the benefits and, of course, clear advantages in player protection that blockchain can bring.”

New use cases

Others are taking different approaches to the market. CasinoCoin, which re-launched in 2017 with a new team headed up by ex-PokerStars exec John Caldwell, has built a product, the Bankroll Manager, that looks to deliver upon online gaming’s elusive search for a single wallet solution.

“The idea is that once a player registers, they can deposit, play and withdraw at multiple operators without the need for further registration processes and checks,” says Caldwell. “This creates a superior customer journey for the large share of users who we know like to play with multiple operators and means they can switch effortlessly between casinos without the usual hurdles.”

A promotion recently organised and executed by CasinoCoin’s community of fans saw more than 2,000 users register for the product, completing KYC in the process. “We know these players are of a higher quality than an average casino acquisition. The fact that they have gone to the bother of registering before we have partnered with an operator shows just how eager they are to start gambling with CasinoCoin,” says Caldwell.

Elsewhere, CasinoCoin is finding a range of different use cases for its technology, spanning the fields of data collection, loyalty, bespoke tokens and transparency. “We are finding that operators are far more open to integrating blockchain technology into their operations than they were even two years ago,” he says.

Meanwhile, an increasing number of casinos and sportsbooks are also growing rapidly by using bitcoin as a payment method. Cloudbet, which has taken more than 10 million bets since launching in 2013, has recently migrated to a new platform. In a sign of bitcoin gambling’s growing maturity, its focus matches closely with the concerns of more well-established fiat currency operators.

“The crux of it is to boost performance and usability. There are also user interface and usability improvements that we’ve made, and process enhancements like bet with two clicks,” says Leandro Rossi, a spokesperson for Cloudbet.

“The other thing is personalisation. We can now build product for the customer in Japan and product for the customer in Brazil. At a minimum you can access the site in those languages. As a result, this new feature-set for the customer is now available in more than a dozen languages.”

The next question is how far can crypto and bitcoin-focused operations scale? For Rossi, the key is expanding from an audience of crypto evangelists – those wedded to the philosophical ideals of the blockchain – into the growing number of crypto pragmatists, who may just enjoy the benefits of faster withdrawals and low fees conferred by the technology.

For the Coingaming Group, it is about gaining greater control of the entire value chain. In many ways, it is a move informed by the company’s initial move towards bitcoin as an alternative payment method.

Heath now oversees a fast-growing range of businesses and departments, incorporating games developer OneTouch, content aggregator Hub88, an upcoming high-roller boutique land-based/live casino combination in Tallinn and the venture capital arm Vereeni Investments, which boasts more than $100m in assets under management.

But bitcoin remains central to the ethos. “While we have extended well beyond bitcoin, we still believe strongly in its fundamental decentralised philosophy and its ability to not only transform our industry, but also the economy in general,” says Heath.

“Bitcoin can bring hundreds of millions of people around the world who remain unbanked into the digital economy for the first time. Obviously, that presents a major opportunity for the online gaming sector and we want them to enjoy the experience in a safe and trusted environment.”