'Scam Free' Gambling on Ethereum? Regulators Might Not Be Ready

A world without gambling scams – that's just the latest big idea being tested on the ethereum blockchain.

While much of the news lately has been on the platform's increasing enterprise use, the project is still a predominantly open-source community, one fueled by the ideas and hard work of entrepreneurs the world over.

Take DAO.Casino, a project based in Russia that's building a decentralized platform for gambling games. The DAO.Casino ecosystem seeks to reward users for participating in the platform (whether they're developers or players), and ethereum distributes funds depending on the value they bring to the ecosystem.

The developers claim the platform will help protect users from gambling scams by ensuring that those running are operating accordingly.

Yet, even while the platform has laudable intentions, DAO.Casino must be licensed, and that means it must seek approval from regulators.

This raises questions around online gambling regulation, and it seems regulators are only in the early stages of thinking about blockchains and how they might mitigate scams.

A spokesperson for the European Commission told CoinDesk that it does not have a position on using blockchain technology as a way to regulate online gambling.

Gambling legislation remains a matter for member countries in the EU, she said.

The UK Gambling Commission (UKGC), likewise, warns gamblers and operators about the use of digital currency, but has no specific comments on the blockchain.

Tim Miller, the UKGC's executive director, told CoinDesk:

"We think that by far the best way for consumers in Britain to protect themselves from scams is to check they're gambling with an operator licensed by us."

In this context, an interesting disagreement seems to emerge. Namely, who should users trust, cryptography or authority?

New authority

Still, it remains unclear how much of a problem gambling scams are.

Stats from the UK, for example, show that 29% of the gambling market share is now online. Yet, concrete figures on the amount of people affected by online gambling scams and fraud are hard to come by.

The founders of DAO.Casino describe the traditional gambling infrastructure as being far too closed off and opaque.

For example, this month, bookmakers in the UK and Ireland are seeing a boost in online bets placed thanks to the Cheltenham races, but there have been allegations around the use of software to restrict gamblers and curtail their winnings.

In DAO.Casino's blockchain alternative, developers need to create games on smart contracts on the platform, yet after that, there is a more democratic review.

"After that, somebody from the community or from the foundation makes an audit of your logic of your game," explained Ilya Tarutov, CEO of DAO.Casino.

He believes this creates greater trust among the community and encourages more users to play and gamble.

Waiting game

Faced with this prospect, regulators seem to suggest that there's little evidence that gambling scams are a pervasive problem.

The European Commission stressed that it makes recommendations on common principles for protecting consumers online, and that an expert group regularly discusses new technologies. Blockchain, it said, may be a future issue.

The spokesperson did however raise questions around how DAO.Casino presents itself.

"We are certainly aware that there are many rogue websites out there and we know that regulators are facing huge challenges ... but the suggestion that all of ‘traditional’ gambling is unfair is not one we have come across before," she said.

She added:

"Conversely, I am sure the proposed platform will raise regulatory questions for the relevant national authorities."

For now, though, DAO.Casino is moving ahead, with about 1,000 test users.

Tarutov is seeking approval from the government of Curaçao to operate the games. The Caribbean island has granted licenses to bitcoin gambling site MegaDice for example.

Because of this, he stressed that the platform only in "testing mode" so far:

"When we have a license we will start promoting it."

For now, it seems, this means larger questions implied by blockchain may go unanswered.

Slot machine image via Shutterstock