Bitcoin, Bookie and Blockchain

Continuing on from yesterday's Bitcoin themed post, I should mention an article that appeared in the Racing Post earlier this month on the same topic. It's worth a read if you haven't seen it already:

Technology that could revolutionise gambling and change the world - by Tom Kerr

New bookmakers spring up all the time and rarely elicit much interest from the betting public, just another name with the same old product. But later this year a new service is set to launch that it is really worth paying attention to – because it could herald the beginning of a revolutionary new era in betting.

Simply called Bookie, it will be the first true betting exchange run on blockchain technology and utilising digital cryptocurrencies such as Bitcoin as payment method. Readers of this column may be familiar with blockchain from an article I wrote two years ago about Augur, a prediction market. While the technology has moved on considerably in the intervening period, the enormous implications of this technology remain the same.

For those not familiar with the concept, a blockchain is a distributed database that runs concurrently on a vast array of servers around the world. To understand how this works in practice, consider how your bank operates. Right now, whenever you interact with your savings –withdrawing, transferring or spending money – the bank updates its central database to log the transaction, the digital equivalent of the old clerk's ledger. This digital ledger is the fulcrum of every transaction.

Blockchain takes the place of the bank's central server, facilitating and recording the same transactions the bank used to. Every time a transaction takes place, it is automatically replicated to every participant in the blockchain network, meaning the database of transactions exists in potentially millions of places at once. This means that a blockchain-based platform cannot be easily shut down, controlled or manipulated by any outside party, including governments and regulators.

Developed and supported by the Peerplays Blockchain Standards Association, a non-profit organisation founded in December, Bookie will be the world's first blockchain-based betting exchange, with no central database and no established business behind it. Users will bet using Bitcoin, the most widely known cryptocurrency, which also runs on blockchain technology and provides a significant degree of anonymity to users.

The Bookie application, currently slated for a November launch, will be what users interact with but the true star of the show is the Peerplays blockchain, a peer-to-peer betting platform (think of Bookie as equivalent to the Betfair iPhone app and Peerplays as equivalent to the Betfair database).

In as far as anyone runs the platform, it is a worldwide network of 'voters', who might be considered the digital equivalent of shareholders – those who have invested in the platform's crowdfunded development. But, in practice, because of the way blockchains work, Peerplays is largely automated and self-sustaining. No one owns it, no single person or organisation is responsible for it and no one is able to stop it.

If you're not sure whether to be appalled or amazed at this prospect, you're starting to grasp the magnitude of the disruption this technology could wreak.

In a white paper on its website, Peerplays co-founders and PBSA directors Jonathan Baha'i and Michael Maloney write that "blockchain-based companies may be among the first organizations in history to enjoy complete global autonomy". Taxes, regulation and local laws all become virtually irrelevant when weighed against a globe-girding, fully decentralised platform.

I spoke to Baha'i and Maloney about their plans for Bookie for this column. They see themselves as at the vanguard of a technological revolution that has sweeping implications for the world around us.

There is undoubtedly an ideological side to what they are doing. It is rooted in the belief that users are entitled to anonymity, that middle men take an unwarranted share and depress economic activity, that regulators and governments have no right to your information or to interfere in your affairs.

These developers and entrepreneurs believe they are going to change the world for the better. And if they get rich quick doing it, that wouldn't hurt either.

"The betting exchange is only one thing that blockchain is going to disrupt in this world, in fact it is one of the smaller things when all is said and done," Baha'i told me.

"We have the internet and see the implications of that, but the blockchain is certainly another evolutionary step and when historians look back they will see the significance of it.

"Right now, not everyone sees what is happening, much like back in '92 when the internet was first introduced – lots of geeks got it and likewise a lot of us geeks know what is happening and it's just going to take a bit of time for the rest of the world to catch up."

Blockchain technology has implications for currencies, the nation state and dozens of industries. For betting, its effect could be particularly pronounced.

Most obviously it will sweep aside local restrictions on betting, providing a nigh-on invulnerable global betting market. User anonymity will make attempts to police the integrity of sports enormously troublesome and offer cheats the perfect place to bet.

In racing's worst case scenario, where blockchain-based exchanges won a significant share of traditional bookmakers' business, the sport's financial model, based upon taking a cut of a betting operator's profit, would be crippled.

There is, however, little reason to suspect Bookie will prove an overnight success, at least in countries like Britain already boasting a well-developed and competitive betting sector.

Digital currencies such as Bitcoin may have rapidly accrued value – if you had invested £100 five years ago you would now be sitting on about £48,500 – but they are deeply unstable, making their appeal to value-motivated punters limited.

Traditional bookmakers, with their ability to invest extravagantly in user-experience, bet offers and perks such as pay-to-view streaming, also have significant advantages over a decentralised startup like Bookie. And on a parochial level, the uniquely intense data demands of providing racing markets and results in a decentralised network means the sport is not slated to become available on the platform for 12 to 18 months after launch.

Bookie could however see rapid adoption, particularly in those countries where legal betting is restricted or takeout is high, with the US being one obvious example.

Peerplays also promises a rigorously fair and secure betting environment, underpinned by the transparency of the platform –every transaction is publicly auditable – meaning it is illegal gambling operators, their fly-by-night services plagued by fraud, who have most to lose.

But if the exchange grows more popular so its effect could begin to be felt even in those nations with a liberal approach to gambling; the opportunities presented by a worldwide betting exchange, to "provide liquidity to a virgin market" as Baha'i put it, are considerable.

Blockchain technology is not going to change betting overnight. Yet the underlying message that should be digested is that from later this year gamblers around the world will have the option to bet using an unregulated, ungovernable and supranational betting exchange that pays no tax or levy, is answerable to no government and is all but immune to attempts to control it.

That is what the blockchain could mean for betting. Welcome to the future.