If there’s one thing we’ve learned about Bitcoin since the online crypto-currency was first introduced in 2009, it’s that the people who use it certainly love to gamble.
Indeed, one of the earliest Bitcoin-supported online betting sites, SatoshiDice – named after the currency creator’s mysterious pseudonym, Satoshi Nakamoto – was at one point responsible for half of the transactions on the entire Bitcoin Network.
This fact was certainly not lost on some high-profile gambling companies, and now, in 2016, there are a plethora of Bitcoin-supported online casinos for players to choose from.
The poker world, however, has been significantly slower to adopt the digital currency – and in this blog, we’ll take a closer look at why this may be the case while also providing a bit more background on Bitcoin.
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The Beginnings of Bitcoin
Nakamoto first introduced the concept of Bitcoin to a cryptography mailing list in October 2008, but it wasn’t until the following year that the currency was released as open-source software.
Designed as a reward for payment processing work in which users offered their computing power to verify and record payments in a public ledger, Bitcoins were distributed to those who pioneered the system.
Known as “mining”, this process allowed early adopters of the currency to accrue a steady supply of Bitcoins, but as the number of transactions using Bitcoin increased, so too did the value of the units themselves and the amount of work required to mine them.
These days, Bitcoins can be exchanged for other currencies, products and services, with an optional transaction fee going to the miners.
So, What Is a “Bitcoin”?
As explained above, a “Bitcoin” is a unit of digital currency that can be used to make peer-to-peer transactions between users without the use of an intermediary.
These transactions are verified by network nodes and recorded in a publicly distributed ledger known as the “blockchain”. As only a finite number of Bitcoins will ever be made, their value will continue to rise as the market evolves.
Users are able to store their Bitcoins in a handy digital wallet, which they can then use to pay for goods and services or trade for cash in other currencies.
As the blockchain is a publicly maintained ledger, all Bitcoin transactions are made anonymously, with those who are approved to edit the blockchain merely confirming that an exchange has taken place and updating the record accordingly.
Bitcoins and Online Poker
Although online poker sites have generally been fairly slow to adopt Bitcoin, there are a number of online casinos that currently support the currency.
Here are some of the advantages this provides to users:
- Anonymity: The use of Bitcoin provides an extra level of security to users as they will never have to submit any of their personal details when processing a transaction. This factor naturally alleviates concerns over poker site security as sensitive user information is never put at risk.
- Safety/Low Fees: In addition, any Bitcoin transactions have to be approved by both parties before they can be updated in the blockchain. This means that the fairness of all exchanges is guaranteed, and the lack of an intermediary results in little to no transaction fees for sites.
- Increasing Value: To preserve the value of the Bitcoin economy, only a finite number of units will ever be produced. This fact ensures that over time, existing Bitcoins will steadily increase in value and aren’t prone to the same market crashes as other forms of currency.
Generally speaking, a Bitcoin will increase in value as the amount of computer processing required to mine one also becomes steadily more prohibitive.
That said, the strength of other currencies does have a bearing on Bitcoin conversions, as you are then pitching units against an independent currency market.
Bitcoin Values Over the Years
Since its inception, the value of a Bitcoin has (generally) remained on a steady upswing. From a value of $0.01 in 2010, when the first transaction was made (for a pizza, obviously), the value has gone up to hit a high of $1,250 in 2013.
The price soon slumped to around half that and again in 2014 when online exchange Flexcoin was breached. It hit a low of $200 last year but has rebounded to around $750 in 2016.
The Problems with Bitcoin Poker
Of course, while Bitcoin certainly seems a viable method of future payment processing at online poker sites, there are still a number of concerns that could prevent it from taking off.
- Low Acceptance: Bitcoin is not currently a widely-supported payment processing option at online poker sites. For as long as this remains the status quo, the digital currency’s use will be limited as players won’t be able to move sites as they can with other payment methods.
- Competition: There is nothing to prevent another form of online cryptocurrency being released that is in direct competition with Bitcoin. This scenario could divide the online marketplace and potentially lower the value of Bitcoin as users try to stockpile the new format instead.
- Dangers Of Being Hacked: Although Bitcoin and the blockchain itself are incredibly secure, whenever Bitcoin is hosted on a centralised network such as a poker or casino site, hackers have the opportunity to take advantage of any flaws in that network’s own security system.
In 2011, the value of Bitcoin slumped to an all-time low when online exchange Bitomat lost 17,000 coins. It wouldn't be the only security face-palm to affect the currency's value.
Bitfloor was hacked in 2012, with 24,000 coins valued at around a quarter of a million dollars hacked and stolen. Instawallet was hacked a year later, losing 35,000 coins, while a Hong Kong-based Bitcoin trading firm took off with $5 million from a group of investors in 2013.
Bitcoin investors hoping for some good news were disappointed in 2014 when Flexcoin exchange was hacked. It soon closed to avoid any further losses to traders.
- Processing Times: As the blockchain has to be updated manually for any Bitcoin transactions, payment processing times can be exceptionally slow. At present, Bitcoin is limited to around seven transactions per second, and this must be increased if it is to scale.
- Paperwork: While payment processing options such as PayPal are handled by an intermediary for a set fee, the use of Bitcoin involves poker sites turning over money management to other users. As such, it is a complicated process in terms of book-keeping.
The Future of Bitcoin
In order for Bitcoin to flourish at online poker sites in the future, there are a number of basic issues that must first be overcome.
While the use of the cryptocurrency could open the door to grey markets like the US – where it is the processing of poker transactions by banks rather than the game itself that is illegal – the current transaction process is not as convenient as it is for other currencies.
For one, as a single Bitcoin is worth so much, it must be divided into smaller units when completing most regular transactions. This process can lead to considerable confusion when converting the currency into USD or GBP as these fractions can be worth seemingly arbitrary amounts.
Secondly, the more successful Bitcoin gets, the more tempting Bitcoin-hosting companies become to cyber criminals, with hacks on MtGox, Flexcoin and Poloniex proving that the industry remains a vulnerable target.
For the time being at least, the use of Bitcoin remains a stark contrast between ideals and realities. True, it has the potential to be a democratic currency that is decentralised and not influenced or controlled by a central bank or organisation.
Unfortunately, in order to handle the demand imposed on it by processing thousands of poker transactions each day, larger blocks will need to be processed simultaneously. That will require more computation and potentially turn Bitcoin over to a powerful elite.
But for now, the currency remains the preserve of some hardcore speculators, and some very trustworthy online poker players burned by too many years of online scandals. Who, in the end, needs another Ultimate Bet?
Last year, poker pro and businessman behind Bitcoin site SealsWithClubs, Bryan Micon said that: “We are once again observing a small, unregulated market which is completely driven by human supply-demand.”
For now, as long as there is demand and a questionable handle on security, poker players will continue using their plastic.