Are Web3 Casinos going to dominate Web3 Gaming?
The history and future of Web3 Casinos
Written by WolvesDAO member Sinjin (twitter.com/SinjinDavid….
There are so many similarities with the online gambling market to that of the crypto market, but as web3 gambling has become the next big thing.
Allow me to provide some background to what the realities of gambling are as a product.
First off, if you're actually in the online real money gambling industry, we refer to it as 'igaming', it was rebranded by the industry in 2010. The industry started with offshore entities in Costa Rico that eventually moved to jurisdictions that were willing to issue a gaming license for overseas use.
The most highly regarded of these is the Iicense issued by the
- Isle of Man
- Alderney
- Malta
Other jurisdictions that have been around long enough to be accepted as valid are Curacao, and the Philippines. There is a clear distinction between land-based casino licenses like that of Macau or Las Vegas, while the Philippines does offer both.
Crypto casinos really kicked off with Erik Voorhees, when he launched Bitcoin Dice, the main value proposition was being able to wager directly in BTC as well as the transparency of the odds and the bets.
Crypto poker was launched with Seals with Clubs until the feds kicked down the door of the founder Micon and forcibly arrested him in front of his family and if you know Micon, he is and looks like a guy who 'couldn't hurt a fly'. But let's leave poker for another time.
Back in 2018 crypto casinos really took off with original crypto-centric games like
- the crash rocket ship game,
- dice
- last-to-bid winner-take-all auctions
but these were usually wagered in the same crypto you deposited with.
The existing online casino industry was weary to adopt crypto because of the increased regulatory uncertainty, but many allow for crypto to be deposited and then spot exchanged into a USD or EUR equivalent.
Crypto casinos took the same model as Bitcoin Dice and showed every bet and you could see the betting win/loss history on-chain (to various degrees).
With the arrival of Stake and other brands, the change was they introduced crypto bettors to traditional online gaming content from Microgaming, Playtech, and Evolution.
Casino people are not game developers, whatever site you go to, if you play Black Jack or Roulette, it is the exact same game.
Rather casino people curate existing content (games) that match the tastes of their market. Live casino people are more like bankers, trying to run a tight regulated controlled operation.
The innovation in casino products is more of a process of endless A/B testing with a multitude of UX/UI tweaks. But where any casino makes the most amount of cash is when there is either they are the first entrants to a new market or there is genuinely a new product.
For land-based casinos, there is a limited number of licenses, for online, the space gets crowded within 3 years of the first noted success, and within 5 years it’s competitive hell.
On the product side, why there are so few games launched is that casino games are 'fixed odd' games, meaning that the game is designed that over time the win rate is fixed towards the house.
In casinos, the term 'monetization' doesn't exist, as the players as they play will be automatically monetized over time.
You can absolutely get lucky and win as the odds to win are variable when playing a short session, but as you increase the time played and number of sessions, in aggregate the house always wins.
This means that, unlike play2earn where the supply moves towards the players and secondary market, the supply will always move towards the house.
The issue with web3 ‘igaming’ will be the exact same as the traditional market, it's just that most individuals in web3 think they have stumbled on to something new. And what's not to love?
Gambling is the product market fit, these games and formats have been designed over the last 100 years to provide a platform that lets you think there is a chance to win, but the longer you try to figure it out, the more the player ends up conforming to the product's design to screw you, and humans, have been addicted to gambling since the beginning of time.
It's why traditionally casinos don’t need VC money, the banks are happy enough to provide the best rates on loans and you don't need the cabal to approve or vet it because the games are known.
There is a saying in the casino business, 'We aren't trying to convert players to being gamblers, we are just trying to find out who is one'. Meaning that as long as the acquisition costs work, you want to get as many people to just try the games and the ones that have that innate addiction will be hooked. But herein lies the issue.
When you're a physical casino, there are only a limited amount of licenses given out, so as long as you have the right location and transportation logistics with a proper facility, your acquisition costs will eventually plateau.
But in online casinos, as soon as a new market opens up, there is no limit to the number of casinos that can come into the space, and then the marketing for acquisition continues to increase. But unlike normal non-gambling games, retention has a major cost.
Because as soon as the player loses all their funds, they need to re-deposit, and if you're the only game in town, you don't need to really pay anything for this, but if you're not, you're going to have to increase in-game retention promotions so that the player will automatically redeposit, or pay for a promotion for a 'deposit bonus'. But the problem is, now you've got an educated gambler and they know their business is worth something, so then they look for the best promotions.
The result is that besides the first acquisition cost, now you have three major costs for a player who is no longer as profitable to have on your site. In this case, the cost of acquiring a brand new player is cheaper and more profitable than retaining a player past their third re-deposit!
As someone who left the ‘igaming space in 2014 as a regulator and business strategist, I would like to share some stark warnings about this space, web3 or otherwise.
#1. When you get called out by the authorities here, it isn't a civil charge, it’s criminal and these laws are very clear.
#2 If you're doing gambling as an operator, no amount of obfuscation will save you, because the act of gambling is very clear, whether you think you're protected because it's on-chain or whatever (it’s why Erik sold out, he ain't no dummy).
#3. you can't be sure of the source of funds, so it is rightly assumed that those source of funds are dubious at some level from untaxed funds to the outright basis of criminal activity,
#4. gambling is an evil enterprise, there is no net societal benefit - yes people will gamble, but the way casinos have evolved in their knowhow and the product design is extremely deliberate that the house doesn't just win, it complete pawns you, your life and your family and possibly entire communities. If you want to go to hell, go for it.
There is of course a lot of money in all forms of ‘igaming’, but will web3 be dominated by crypto web3 casinos,?
Talk to me in 5 years when there are 100 brands on every chain and some of you are reading this from your jail cell. Thanks, have a great day!
Oh and blockchain as a record will absolutely work, to totally present a full accounting of how screwed you are.
If you think VPN geoblocking will save you or getting an overseas license, again, whatever you guys think will save you, it has been done 100 times more so already and yes, there are a lot of people who have made their fortune from online gaming and some have eeked out some level of sustainability, but it is a lot fewer than you think.