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Are blockchain casino sites required to comply with the same regulations as their fiat counterparts?
In broad terms, the answer is yes. However, due to the still-emerging phenomenon of DeFi casino software and the slow pace regulators often respond to new technology, the legal landscape is far from clear.
Despite the lack of clarity in certain areas, however, blockchain casino technology is becoming increasingly popular among both start-ups and already established gambling operators.
Therefore, with the industry evolving rapidly, understanding the basics of DeFi casino software and legislation regulating it becomes essential.
What Is a DeFi Casino and How Does It Work?
On the surface, DeFi casino sites are identical to their fiat counterparts. However, it’s only until you look under the hood. What initially seemed equal proves to be completely different upon closer inspection, raising questions about the relevance of existing iGaming regulation.
Here are the three main ways DeFi gambling sites, including casinos, poker rooms, and sportsbooks, differ from fiat-based platforms:
1. Peer-to-Peer Payments
The rise of cryptocurrency and blockchain casino sites largely comes from the way payments are made. Before smart contracts and tokenization features were introduced, the first cryptocurrency gambling sites made their mark by offering decentralized deposits and withdrawals.
The peer-to-peer nature of blockchain transactions speeds up the payment process, making crypto casino withdrawals faster than fiat ones, while also adding a layer of anonymity and the ability to play from anywhere in the world that didn’t exist before.
2. Smart Contracts
The evolution of DeFi gambling technology brought smart contracts into the mix. The immutable nature of smart contracts means that random number algorithms can be written into a contract. This allows casino operators to run their games via smart contracts instead of traditional random number generator (RNG) technology.
Because smart contracts are built on public ledgers, the results of any game can be verified in real-time. This removes the need for third-party oversight from companies that test and certify RNGs as fair.
3. Tokenization
The final feature a casino with DeFi technology can harness is tokenization. Tokens are typically used to support the casino’s ecosystem. Essentially, token holders are adding to the liquidity of the platform. In reward, they receive exclusive perks above and beyond the standard bonuses all users can get.
These tokens are typically built on the Ethereum blockchain, and a lot of developers are also starting to use Solana.
Users can stake these tokens, use them to play exclusive games, and earn special rewards.
Blockchain Casinos Explained: Technology, Trust, and Regulation
Fiat online casinos must be licensed to operate legally in whatever jurisdiction they’re active. Part of the licensing process involves proving the proof of software that ensures fair play by holding certificates from third parties such as iTech Labs.
Online casino blockchain technology removes the need for this, as platforms are built on top of a public ledger. Everything from payments, operating terms, and game results can be programmed into a blockchain.
Therefore, in practice, there’s almost no need for third-party approval. That’s slightly oversimplifying the situation, but autoregulation is an argument that’s common among those who develop casinos on blockchain technology.
Legal Challenges for Decentralized Crypto Casino Sites
The fundamental legal challenge decentralized crypto casino and gambling sites face is the lack of tailored regulation. As previously noted, a benefit of gambling on blockchain platforms is that payments, terms, and games are programmed into smart contracts.
In such a case, a decentralized casino operators often decide there is no need to seek approval from a gambling regulator. The problem, however, is that countries often have their own gambling laws that go beyond the pure mechanics of betting.
Blockchain Casino Game Development and Legal Risk
Based on the facts raised within this article, one may assume that current gambling laws don’t apply to blockchain and DeFi casino sites. In practice, however, national laws still apply; gambling regulations are part of a larger set of national laws that companies must adhere to.
Subsequently, when it comes to Gambling law, it governs all aspects of the industry, including who can use gambling sites, the services operators can offer, and the way products are advertised.
The UK is a great example of a jurisdiction with a comprehensive set of gambling regulations. The Gambling Commission has clear guidelines that govern how gambling is offered and advertised, with KYC and other requirements in place.
How do these apply to decentralized gambling transactions, which are anonymous? Given the rapid evolution and complexity of the market, getting blockchain gambling advice from experienced legal professionals is essential for developers.
Regulating DeFi Sports Betting Platforms
Those running DeFi sports betting sites have additional considerations beyond those applicable to casinos. Namely, there are potential issues with peer-to-peer betting exchanges and token pools.
In the case where a DeFi sports betting operator is running an exchange, they’re simply acting as an intermediary between two parties, rather than accepting bets. The fact that people are exchanging bets with each other, rather than directly with a bookmaker, may require careful consideration with regard to anti-money laundering laws covered with the help of blockchain legal experts.
Why Legal Advice is Crucial for Blockchain Gambling Ventures
The rapid advancement of blockchain and DeFi-powered casino technologies is unlocking novel opportunities across the iGaming sector, with key benefits including seamless transactions and heightened transparency.
However, developers can’t assume these qualities overrule the existing iGaming law, which mandates operators to comply with the KYC requirements and anti-money laundering rules. That said, proactive legal structuring, with the help of experts in blockchain services, is simply necessary to stay ahead of the curve.
