Online gambling is a massive industry, expected to grow to over $94 billion by 2024. The U.S. doesn't have any federal laws against online betting, although some states do. This means online casinos accepting crypto or using blockchain will need to carefully monitor customers to remain legally operating. This is where Know Your Transaction (KYT) and Know Your Customer (KYC) rules are most useful.
The rise of the internet and proliferation of smartphones fuelled interest in online gambling. Card games like poker and blackjack, sports betting, lotteries, slot machines, and more casino action can be found online these days. Although only legal in scattered places, these sites can operate and accept players from all over the world.
Online casino sites legally operating for U.S. customers include Cherry Jackpot, Bovada, and CryptoSlots Casino. Like physical casinos, they prefer players exchange cash for chips that make them more likely to place bets.
Many regulators (such as the U.K. Gaming Commission and Pennsylvania Gaming Control Board) require a license before operating even a virtual casino within their borders. Securing these licenses can be a costly and time-consuming affair, but it's necessary to avoid running afoul of the law.
Meanwhile, Japan, which only recently legalized physical casinos in July 2018. Prior to that, the country used a novel token and stuffed animal exchange system to enable gambling with a middleman. This culture, along with the collapse of cryptocurrency exchange Mt. Gox, gave Japanese regulators a distaste for crypto gambling.
Governments use IP addresses to regulate the internet within the geographic borders of their respective countries. Not only can cryptocurrency be used as a digital poker chip, but blockchain technology makes it harder to restrict a casino, because it can be coming from any IP address.
Both gamers and casino owners enjoy Bitcoin and other crypto tokens because they replace physical dollars, which are so hard to part with. There are two ways crypto is integrated into gambling - on-chain and off-chain.
On-chain gambling places all of the technical aspect of an online casino game into a smart contract. There are several ways to do it, but inevitably transactions are traced on a digital ledger as crypto tokens are exchanged.
Blockchain-based betting comes in a variety of forms, including the Augur (REP) prediction market on Ethereum. This platform lets users create bets for anything, from who will be the next president to who will win the next competition. Then there's Cubeia which lets online casinos white label a variety of traditional casino games.
Off-chain betting includes every pre-blockchain digital betting platform that accepts bitcoin and other cryptocurrencies as payment just like fiat.
Regardless of whether it's on-chain or off, the global gambling industry has even more regulations than a bank or stock exchange. This makes cryptocurrency gaming quite possibly the most heavily scrutinized subsection of the industry. Any company getting involved should understand the risks involved.