Satoshi’s golden canary in the crypto coal mine
After a bit of a hiatus due to onboarding a new team member and the associated re-work of much of our marketing-related material (much more on those things in an upcoming piece), I took some time to compare and contrast Satoshi and others’ early thoughts with all of the recent news and shenanigans of the crypto world through fresh eyes and with a clear, somewhat meditative state of mind. I was largely left feeling like what the hell happened to our collective priorities, and more in general, the initial cypherpunk spirit that Satoshi and his predecessors helped to catapult into the more mainstream internet culture. Get ready for a bit of a deep dive, and maybe perhaps a few surprising bits of info dredged up from the depths.
I will try to keep this in my wheelhouse of online gambling, but I will say that there are other legitimate crypto use-cases that are also being neglected by too much of the so-called crypto community these days. The hubris of so many, particularly influencers, feels almost laughable and quite absurd, as we’re all standing on the shoulders of giants – just as Satoshi and the cypherpunk heroes did on the contributors to ARPANET, Usenet, and others. And those who sowed the seeds of the internet and modern communication in general were themselves enabled by the previous breakthroughs made by the researchers and engineers at places like Bell Labs and elsewhere, which I highly recommend reading this piece to learn more about the problem solving process behind the breakthroughs and how we can still apply it today.
Fast-forward back to the genesis of bitcoin – Satoshi himself recognized the massive value and potential of online gambling as one of the primary use-cases of crypto, so much so that he had planned to include an online poker client to go along with bitcoin. Online gamblers are practically the perfect demographic after all, they consistently need to quickly move money around globally and they’re not exactly risk-averse. But once he realized just how much work would be required, especially with bitcoin in its infancy, Satoshi wisely chose to focus his efforts on getting bitcoin to a more stable and usable state.
Satoshi’s uncanny intuition was quickly proven correct though, as online gamblers were among the first regular users of cryptocurrencies, with operators and their payment processors quickly following suit – which was rocket fuel for the upcoming crypto boom. Innovation didn’t keep up with demand however, and many were pushing for a truly decentralized blockchain-based solution that can do more than just payment processing. Instead, we had early investors and developers of general-purpose networks like Ethereum heavily incentivized to push for solutions on these types of networks. Yet even with massive resources fueling their efforts, they were not able to overcome all of the inherent disadvantages and obstacles on that route.
A side effect of these failures was that the crypto world became extremely demoralized and disillusioned about the online gambling use-case. Also around this time the US struck down PASPA and opened the way for states to legalize and regulate online gambling. Companies who had previously been skirting the law through offering fantasy sports were now given a much more direct path to their goal. They partnered with land-based casinos and regulated online betting operations in the UK, EU, and elsewhere to become a massive force. But they are still dwarfed by the unregulated gray-area operations that are primarily enabled by crypto and greatly fuel its value.
This has all set the stage for a battle over a market that sees trillions (yes, with a T) of dollars bet each and every year, and still growing rapidly. On one side we have a tightly-coordinated cartel consisting of a few massive corporations and some minor players. On the other side we have a shadowy, loosely-connected, group of operations that rely on nebulous international laws and then on crypto to bypass the global financial system where necessary. It’s quite telling, and a brutally honest indictment, that the actual bettors have overwhelmingly chosen the latter up to this point. Yet instead of improving their service and giving all bettors a fair value and an equal playing field on a global scale, they feel it is better to just force their competition out of business and gain what is effectively a monopoly. The regulators don’t seem to mind either – in the AGA’s big 2023 presentation covered here, they proudly brag that users are paying ever-increasing margins even as tech advances lower overhead and state it is a top priority to put unregulated operations out of business.
The crypto world has hardly even paid attention to this ongoing battle, outside of some influencers promoting various gray-area operators for a piece of the affiliate pie. I suppose it is to be expected though, since that is one of the only few ways to benefit directly from this whole mess. However, the indirect benefits to the overall crypto ecosystem are absolutely massive and significantly affect its total value. This is why crypto has huge collective incentives to address this whole problem as efficiently as possible. And while on the surface it may seem like a binary decision, let’s go a bit deeper to see why this isn’t exactly the case. So bear with me a bit here.
First off we’ll start with something easy, the regulated cartel. Even on the surface it’s pretty clear they’re bad for crypto, but it gets so much worse. DraftKings CEO Jason Robins did an interview with Decrypt about a year ago where he made a pitch to the crypto world, talking about how he owns crypto and NFTs. Just one of us right? Well he goes on to try and convince us that crypto could use more centralization, which is the very antithesis to Satoshi’s message and the core concept of crypto. Then digs himself much deeper, saying “he is content to let the likes of Coinbase’s Brian Armstrong and FTX’s Sam Bankman-Fried take the lead when it comes to regulation”. Yeah that strategy sure turned out well, and check the date (May 24 2022) which was only a few months before SHTF. And in the immortal, vintage-meme words of Ron Popeil – “But wait, there’s more!”.
Let’s not forget that this is the guy leading the cartel’s charge against crypto, as DraftKings partnered with their supposed rival FanDuel to take down gray-area networks. The article continues with more of his brown-nosing – “Sam is a smart guy, I’m sure that he knows what he’s doing,” said Robins. “And Brian Armstrong at Coinbase, they’ve really just been pioneers. And I know they get critiqued for a lot of things, and I get that, but people don’t give them enough credit. They they were by far, more than anyone, the largest force in creating the industry in the United States.” No mention of Satoshi at all though, which is quite telling. As an aside, I’m not sure how the Decrypt writer and editor(s) seemingly missed such a glaring typo in such a high-profile interview. But I suppose it would be quite fitting, given how little the crypto world seems to care about the online gambling use-case in general these days.
By this point you’re likely thinking the gray-area networks are the good guys in this conflict. However, a more accurate description would be the less-bad guys. These networks and their associated third-party service providers are practically all centralized and are only interested in using crypto as just a payment processor. They bring value to crypto in the form of transaction fees and in more indirect ways, such as through converting users who wouldn’t otherwise use crypto. But most of these networks use much of the same unfair practices as their cartel counterparts, such as limiting/banning winners and predatory marketing practices. Many even outright steal user deposits, as they have no real accountability. Not to mention how vulnerable these networks are, both from a network security and legal/regulatory standpoint.
Which takes us to the issue of regulation and image in general. The gray-area networks make it all the more difficult for the crypto world to come to an acceptable compromise with regulators, without making sacrifices that would go too far against many of the core beliefs that Satoshi and other pioneers laid out. Namely in the areas of privacy, fungibility, and freedom in general. Essentially they bring a lot of extra heat and negativity on crypto and pass as much risk onto their users as possible, but have structured things in a way that they keep practically all of the profits and charge rates that are much higher than what they should be. An easy, but perhaps overly simplistic way to look at it, is that they are a lot like the unregulated centralized crypto exchanges. And we’ve all seen where that route usually leads to.
This leads into the next point, that there is a potential third side. Just as we are seeing the rise (and sheer need) of decentralized crypto exchanges, the crypto community should look to decentralized betting solutions. But instead of being demoralized, pessimistic, derisive, and succumbing to all of the other negative emotions associated with the Eth-based betting failures…it needs to be seen for what it really is – an expensive set of lessons that must be learned from, before real progress can be made. Of course the influencers who mock it for some easy likes while it’s unpopular will conveniently flip once it starts to succeed and claim they were early supporters all along, while they shill their referral links and coins that paid them off. Some things will never change, of course. Satoshi went through something similar when developing bitcoin, people were extremely pessimistic on the concept of digital money and alternative currencies because of the many previous failures. Combined with his thoughts on online gambling, I think Satoshi would be quite sympathetic to the cause.
Perhaps the largest of the lessons learned during this time is that general-purpose networks are not a very efficient solution to this specific problem, nor can they allow for the full-featured experience that actual bettors are looking for. Layer-2 solutions may help with some of this but in many regards they’re just kicking the can down the road, extending the chain of dependencies, and creating extra friction where we can least afford it. “Ok you have to download and configure this, this, and this, and finally this…but don’t do that or you may lose your funds” isn’t really a great pitch to the average bettor. Just having to interact with crypto at all is already pushing it, and has required some hefty incentives just to get to that point. But if someone can finally get an Eth-based solution to work, then great. But we shouldn’t have all of our eggs in one basket, especially with its absolutely dismal track record.
We should have the same mentality when it comes to legal/regulatory issues. Gray-area networks are an absolute non-starter for most major jurisdictions, and many have rules that specifically prohibit them from ever obtaining a license. So going the Wild West route would give the cartel the de facto support of regulators. Probably not the best move, especially considering there are some major inherent advantages of blockchain-based solutions that regulators should find very appealing. Namely transparency, accessibility, and compatibility. Current regulated solutions are largely a black box, and this leads to a reliance on trust and the inevitable time-consuming headaches for regulators. We will cover this more in an upcoming piece, suffice to say that we can be very competitive in this regard to negotiate much better terms through acceptable compromises.
The crypto world collectively has to pick itself up, dust itself off, and get back on the proverbial horse when it comes to online gambling. To lose this use-case would leave the entire ecosystem at a major disadvantage indefinitely. Yet if you poll the average crypto investor, they would vastly underestimate how much value it has contributed over the years – especially in the earliest and most crucial time for crypto. And they would overestimate the more highly visible use-cases, such as NFTs. I mean NFTs are great and all…but we’re literally getting distracted by pretty pictures and a steady stream of manufactured media nonsense while the regulated gambling cartel is taking away one of our primary sources of value, and then making it even worse by using those resources to further attack and undermine the very core of crypto.
There is some good news however. The lack of focus and priorities by most of crypto has created significant opportunities for the few who do get it. And thankfully the poor performance and sheer unbridled greed by both the regulated and gray-area networks, combined with their ongoing battle to dominate the space, has extended this window of opportunity far beyond what it should have honestly been. Crypto tech has greatly improved in recent years too, especially in key areas for enabling legitimate decentralized online gambling solutions – such as oracles, cross-chain compatibility, and both the speed and amount of transactions. Zooming out, it’s fairly obvious that the overall risk/reward is becoming much more favorable due to all of this, we should be fielding many different solutions in parallel on this alone.
If you made it this far, then congrats, I’ll leave you with this final thought and then a question to dwell on afterwards. Online gambling is a largely self-contained financial ecosystem which is primarily composed of transactions at its very core. In almost no other industry would the concept of digitally-native and programmable money be as directly applicable and just plain useful, as it would be to online gambling. Satoshi clearly understood this from very early on. If crypto cannot thrive here in a nearly ideal and extremely high-value environment, then how much long-term success do you realistically think it will have in all of these other less-favorable situations?