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DAO Casino wants to use cryptocurrency to disrupt online gambling

Imagine an online gambling ecosystem that is decentralized, meaning that it cuts out the typical middleman between a game-maker or betting operator and the player or bettor. That’s the pitch of Russian company DAO.Casino, a decentralized platform for online gambling operators that runs on the Ethereum blockchain.

In its white paper on the developer site Github, DAO.Casino says it can solve common headaches of online gambling that afflict both game developers and game players, such as: fraud risk; hidden fees; high cost of entry for game developers; operational overhead; player access to funds; player withdrawal delays; and general lack of trust.

DAO.Casino prototype page
DAO.Casino prototype page

If that sounds like a mouthful, let’s take a step back. In the cryptocurrency world, much of the press and attention right now is around bitcoin, since the price of bitcoin is flying: it’s up 200% in 2017 so far.

But the price of a rival cryptocurrency, ether, has seen a bump as well: it’s up 174% in the past month, to $263. Ether is the currency of the Ethereum network, which is a blockchain for smart contracts.

Price of ether in 2017. (CoinMarketCap)
Price of ether in 2017. (CoinMarketCap)

Ethereum smart contracts

While bitcoin runs on the bitcoin blockchain, a decentralized, permissionless ledger—and blockchain technology originated with bitcoin in 2009—Ethereum runs on its own blockchain specifically designed for smart contracts.

Smart contracts are coded agreements that live in a permanent address on the Ethereum chain. These agreements can interact with other contracts to automatically enact functions.

In other words, “smart contracts” is a fancy way of saying “computer programs.” For example: on Ethereum, we could exchange the title deed to a car, directly from seller to buyer. In a recent Cognizant survey of 578 financial service firms, 78% of respondents said their firm is exploring multiple blockchain platforms—of those, 49% listed the bitcoin blockchain, 42% said Ethereum.

While bitcoin is soaring as a speculative investment, there aren’t yet obvious mainstream uses for the currency beyond trading and holding it; many in the industry await the “killer app” for bitcoin.

There is arguably more excitement right now around the uses of Ethereum, since it was created specifically for smart contracts (not for the currency, which is just an incentive token for developers). TechCrunch writes that Ethereum is “poised to overhaul open-source development.” And Ethereum founder Vitalik Buterin (just 23 years old) met with Vladimir Putin this week, who praised Ethereum.

DAO.Casino and initial coin offering

That brings us to DAO.Casino, one of the many startups that believes it can solve a problem using Ethereum. On June 29, DAO.Casino will launch an ICO (initial coin offering), a popular new way of raising money for cryptocurrency startups in which investors buy up the startup’s own coin and pay for it with a more established coin. Ethereum did its own ICO in 2014, in which investors bought ether using bitcoin. An ICO typically lasts for a month. Think of an ICO as the equivalent of a VC round for cryptocurrency startups. In DAO.Casino’s ICO, it will sell BET, its own token, in exchange for ether.

Just don’t associate DAO.Casino with The DAO, a leaderless, decentralized network that launched in May 2016 (via an ICO that exchanged tokens for ether) as a platform for Ethereum-based projects and was quickly hacked, one month later, to the tune of $50 million. The entire Ethereum blockchain had to perform a split known as a “fork” in order to restore all the funds stolen in The DAO hack.

DAO.Casino is not an actual casino itself, but an open protocol for online gambling companies (like an online casino, blackjack game operator, or sports betting site) to build on. (DAO.Casino will also build its own branded games.) It isn’t aimed at the end user—if an online betting site were to use it, the bettor wouldn’t have to know or see that they’re using a system built on Ethereum. (I could even develop my own gambling site on top of DAO.Casino’s protocol and pay out users in BET tokens, but rename them Dancoins.) The company’s hope is that online betting sites will integrate with its network to offer games without the casino, a middleman that takes a big cut and may not always be trustworthy.

No relation to The DAO hack

If you’re confused, don’t feel bad. In a blog post back in March, the company addressed the confusion its name creates. “Many people wonder why do we have DAO in our name, when the term has previously been associated with a ‘hacked’ investor-directed venture capital fund. They think — and we don’t blame them for it — that is somewhat an extension of an organization whose security loop could’ve cost them millions worth of ether.” The post goes on to acknowledge that using the DAO acronym is “somewhat giving us bad publicity.”

Nonetheless, the company embraced the DAO acronym because of what it stands for, a decentralized autonomous organization (which any blockchain-based project is), even if it now carries the stink of The DAO.

Potential causes for hesitation

Of course, online betting operators may be hesitant to jump on an Ethereum-based protocol for reasons that have nothing to do with DAO.Casino’s name.

For starters, the entire cryptocurrency space still has an air of distrust to it; blame the high-profile Silk Road drug market trial, or periodic hacks of bitcoin exchange sites, all of which stoke negative headlines. As one West Coast fintech attorney, who wishes to remain anonymous, tells Yahoo Finance, “I get clients all the time that say, ‘I want to take X and make it better by using cryptocurrency,’ and it’s always either a way to try to get around something illegal or it solves a problem that really didn’t exist.”

Keep in mind also that online gambling (or “iGaming”) is still illegal in most states in the US, even when the website taking a bet is based outside the US. But online gambling thrives outside America, and is a $46 billion market globally. DAO.Casino could face regulatory scrutiny in the US, even though the company would likely make the argument that it is just an Internet protocol, not the gambling operator.

Implementing randomness

As of January, nearly 25% of all smart contracts on Ethereum were game-related. That’s why DAO.Casino CEO Ilya Tarutov honed in on a gambling protocol. Traditional server-based online gambling sites don’t engender enough trust, he says, but using a decentralized network can add transparency.

Tarutov explained it to Coin Telegraph thusly: “Game outcomes are determined by equally unpredictable pseudorandom values, and anyone can audit this. Once the game software is audited and deployed, no one can fiddle with it and change it.”

To ensure fairness of games, DAO.Casino implements randomness through PRNGs (pseudorandom number generators), and incentivizes users who develop new games, fund the development of new games, operate casinos, and contribute random-number algorithms by rewarding them in BET tokens. The games built on DAO.Casino will operate in BET. (“Grossly simplified,” Tarutov explains, BET is a “security measure.”)

For now, DAO.Casino is in beta, and offers a simple dice game as an example of what it can do. More games are coming, Tarutov says, from online gambling operators ready to put their games on DAO.Casino’s testnet. In the next few days, the site will add a blackjack game.

You can register right now and you’ll get a free token to try these games. But their real purpose is to show developers, Tarutov says, “that it is possible to implement serverless and fast PRNG methods on Ethereum. It shows that there’s hope and direction. We’re confident that we can implement one more method before the end of this year which is suitable for multiplayer games. But this is just a start.”

Daniel Roberts closely covers bitcoin and blockchain at Yahoo Finance. Follow him on Twitter at @readDanwrite.

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