Fourteen years ago, Malta made waves with the enactment of its remote gaming regulations, resulting in it being recognised as a world-class jurisdiction for regulated online betting and gaming operations. Now, Malta has set its eyes on the blockchain and cryptocurrency industry, seeking to repeat the gaming industry’s success story.
The nature of iGaming lends itself to a rapid adoption of digital ledger technology (DLT) and virtual currencies (VCs). Online gaming operators tend to be tech-savvy entities who already have experience with the issuance of what may be considered digital assets, such as in-game tokens or credits. For gaming companies, making the shift to cryptocurrencies should be an easy one.
Blockchain as a solution for gaming operators: A gaming platform built on blockchain technology could provide players, operators and regulators increased trust and transparency. The application of DLTs will create an immutable record of the transactions, plays and bets placed by the player. In this manner, claims that online operators take advantage of their position vis-à-vis players would be tackled in a transparent manner.
Moreover, the use of a blockchain for gambling operations would reduce the risk of fraud and money laundering from players with nefarious intentions. DLTs would adopt identity verification mechanisms and validation of transactions through proof of stake, which would facilitate the fulfilment of operators’ obligations under money laundering rules and data protection regulations, amongst others.
DLTs would grant operators and players greater liberty in transactions on the gambling platform through the deployment of cryptocurrencies to carry out bets. The use of VCs has proven to be cheaper, eliminating the intervention of third parties such as banks and doing away with credit card transaction fees and other international fees implemented by banks whilst providing holders with real-time results.
A major issue that would be faced by operators and players is the high volatility of the value of cryptocurrencies. Issues may arise between players and operators as to which exchange rate would be applicable: that at the time of deposit, placing of the bet or winning?
A gaming platform built on blockchain technology could provide players, operators and regulators increased trust and transparency
Another issue is scalability (transactions per second [tps] limit) of transactions on a blockchain, which are slower than conventional payment methods (2tps on Bitcoin Blockchain and 20tps for Ethereum as opposed to 450tps for PayPal and 56,000tps for Visa). This problem may be an obstacle for high-traffic gaming operators and players who generally require instantaneous deposits and withdrawals.
Player benefits in iGaming blockchain: Smart contracts could increase transparency and efficiency in player pay-outs through additional means of verification to ensure that winnings are fairly determined. Through smart contracts, bets and subsequent winnings are recorded instantly, and payment is triggered immediately. The deployment of smart contracts on such a DLT would ensure that all parties involved are aware of the way pay-outs are carried out, their basis and the systems on which such results are determined.
Blockchain will verify each transaction through a proof of work carried out by several nodes within the blockchain. Any changes to the information on the blockchain would be impossible (or exceedingly expensive) to carry out, as the majority of nodes would need to approve such changes. This will eliminate instances of manipulation, creating an immutable record of transactions.
Regulation: The potential use of blockchain technology in iGaming has given rise to various regulatory challenges. For blockchain to function in a regulated sector such as gaming, where ultimately the licensed gaming operator is responsible for legal obligations, a distributed ledger system, rather than a decentralised ledger, would need to be applied. Additionally, observer nodes would need to be created for regulatory authorities to access the systems of the licensee.
The Malta Gaming Authority (MGA) published a consultation document in March to commence the discussion among stakeholders for the introduction of DLTs and VCs in gaming. No specific regulation has been enacted yet, however, the new gaming laws cater to the adoption of regulations concerning VCs and DLTs – making Malta one of the first jurisdictions to regulate this area.
The future of gaming: Despite the difficulties, regulatory authorities like the MGA seem keen to embrace the technology that is disrupting commerce and industries. The MGA recognises the inevitable rise of blockchain and, subsequently, the need for it to remain at the forefront of innovation.
As part of a concerted effort for Malta to create the first European blockchain hub, initiatives show that the Malta Digital Innovation Authority and the MGA are working closely to provide a regulatory framework for the next generation. It is expected that as was the aim of the iGaming regulations years ago, new legislation will focus on protecting investors and players, whilst allowing operators to flourish within a dynamic environment.
As the blockchain industry develops, its application in various businesses expands. For gaming developers and operators, the adoption of blockchain may not be an option but may become a necessity.
Steve Muscat Azzopardi is head of corporate and financial services at Chetcuti Cauchi Advocates. Silvana Zammit is partner for global property, yachting, aircraft and gaming at Chetcuti Cauchi Advocates.
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