Fourteen years ago, Malta made waves with the promulgation of its remote gaming regulations, resulting in it being recognized as a world-class jurisdiction for regulated bets and online gaming activities. Now, Malta has set its sights on the blockchain and cryptocurrency industry, trying to repeat the success story of the gaming industry.
The nature of iGaming lends itself to a rapid adoption of digital ledger technology (DLT) and virtual currencies (VC). Online gaming operators tend to be entities with technical experience that already have experience with the issue of what may be considered digital resources, such as gaming tokens or credits. For gaming companies, switching to cryptocurrencies should be simple.
Blockchain as a solution for gaming operators: a gaming platform based on blockchain technology could provide players, operators and regulators with greater confidence and transparency. The application of the DLT will create an immutable record of transactions, bets and bets placed by the player. In this way, the claims that online operators take advantage of their position vis-à-vis players would be dealt with transparently.
In addition, the use of a blockchain for gaming operations would reduce the risk of fraud and money laundering by players with bad intentions. The DLT would adopt mechanisms for verification of identity and validation of transactions through participation tests, which would facilitate the fulfillment of the obligations of operators according to the rules on money laundering and data protection rules, among others.
The DLTs would guarantee operators and players more freedom in transactions on the gaming platform by deploying cryptocurrencies to place bets. The use of VC has proved to be cheaper, eliminating the intervention of third parties such as banks and abolishing commissions on credit card transactions and other international commissions implemented by banks while providing the holders with the results in real time.
would be faced by operators and players is the high volatility of the value of cryptocurrencies. Problems may arise between players and traders regarding the applicable exchange rate: at the time of deposit, bet or winnings
A game platform based on blockchain technology could provide players, operators and regulators have increased trust and transparency
Another problem is the scalability (transaction limit per second [tps]) of transactions on a blockchain, which are slower than conventional payment methods (2tps on Bitcoin's Blockchain and 20tps for Ethereum compared to 450tps for PayPal and 56,000tps for Visa). This problem can be an obstacle for high-traffic gaming operators and for players who generally require instant deposits and withdrawals.
Players benefit from the iGaming blockchain: Smart contracts could increase transparency and player payment efficiency through additional verification tools to ensure that winnings are fairly determined. Through smart contracts, bets and subsequent winnings are recorded instantly and the payment is activated immediately. The implementation of smart contracts on this DLT would ensure that all parties involved are aware of the way in which payments are made, their base and the systems on which these results are determined.
Blockchain will check each transaction through a test of work done by different nodes inside the blockchain. Any change to the blockchain information would be impossible (or overly expensive) to do, as most nodes would need to approve these changes. This will eliminate the manipulation cases, creating an immutable record of transactions.
Regulation: The potential use of blockchain technology in iGaming has given rise to various regulatory challenges. In order for the blockchain to function in a regulated area such as gaming, where ultimately the authorized gaming operator is responsible for legal obligations, a distributed register system should be applied, rather than a decentralized ledger. Furthermore, observer nodes should be created to allow regulators to access Licensee's systems.
The Malta Gaming Authority (MGA) has published a consultation paper in March to start discussion among stakeholders on the introduction of DLT and VC in gaming. No specific regulation has yet been issued, however, the new gaming laws provide for the adoption of regulations concerning VC and DLT – making Malta one of the first jurisdictions to regulate this area.
The future of the game: despite the difficulties, authorities like the MGA seem to want to embrace the technology that is destroying trade and industry. The MGA recognizes the inevitable increase in the blockchain and, consequently, the need for it to remain at the forefront of innovation.
As part of a concerted effort for Malta to create Europe's first blockchain hub, the initiatives demonstrate that Malta Digital Innovation The Authority and the MGA are working closely to provide a regulatory framework for the next generation. It is expected that, as was the goal of iGaming regulations years ago, new legislation will focus on protecting investors and players, allowing traders to thrive in a dynamic environment.
As the blockchain industry develops, its application in various companies expands. For developers and game operators, blockchain adoption may not be an option but could become a necessity.
Steve Muscat Azzopardi is head of corporate and financial services at Chetcuti Cauchi Advocates. Silvana Zammit is a partner for global ownership, sailing, aircraft and games from Chetcuti Cauchi Advocates.