We at BetProtocol like to focus on the technology. Before all else, we are a technology firm that focuses on shipping solid code and useful technology that has real world use-case and application. Having said that, business development and marketing are almost as important as having good code. That’s why our strategy is to help as many people as possible understand our code and value proposition in an enlightening series of posts, this being one of them.
Many products, especially in the blockchain space, are difficult to describe simply and succinctly. We believe that is a systemic problem. If you can’t explain your blockchain project to a so-called “normie” you aren’t going to gain much traction outside the jargon-laden world of blockchain technologists and enthusiasts (where 99% of the people of this world still exist). So in this post, we will break down how BetProtocol works so that you’ll be able to easily explain it to others — which we hope you’ll do.
BetProtocol works in a 3 layer system defined as:
- Whitelabel Solution
- Brand / dApp / User Interface
With the Ethereum blockchain acting as “layer 0” where these three layers exist upon.
When speaking to Betting Related Companies we asked them what were the “hard problems” of setting up an online betting company. That started a long, winding series of conversations that we will not reproduce here for brevity. In summary, the hard problems to entering the online-betting game are:
Regulations (Protocol & Whitelabel & dApp)
KYC/AML/Combating Funding of Terrorism (Protocol & Whitelabel)
Player defined limits (Protocol)
Regulation defined limits (Protocol)
Operational Jurisdiction (Protocol & Whitelabel)
Age limits (Protocol & Whitelabel)
Wallet Structures (Protocol)
Tax Liability Reporting (Protocol & Whitelabel & dApp)
Gaming Licenses (Protocol & Whitelabel)
Odds Generation (Protocol & Whitelabel)
Event Resolution (Protocol & Whitelabel)
Disputes & Arbitration (Protocol)
Uptime (Public Blockchain & Protocol)
Security (Public Blockchain & Protocol)
Provable Fairness (Public Blockchain & Protocol & Whitelabel)
Auditing (Public Blockchain & Protocol)
That’s a long list, and we like to keep each of these blog posts bite-sized. You might have noticed that the items have “Protocol”, “Whitelabel” and/or “dApp” in parenthesis next to them. That means that these problems are solved at this level of the BetProtocol Ecosystem.
Getting back to the problems, we won’t dive into depth on all of these at once, but tackle one at a time, in series. How about one from the regulatory side to kick things off?
The Malta Gaming Authority (“MGA”) and the Maltese Government in general are the most forward thinking, advanced, and progressive regulatory bodies in the world when considering the intersection of blockchain “distributed ledger technologies” and remote gaming (online gambling). The MGA launched a DLT and remote gaming sandbox in March of 2018 following their Public Consultation that can be found here. In it, they state essentially that just because blockchain may allow circumvention of gaming regulations and controls on a technological level, that doesn’t mean that blockchain based betting apps are/should be exempt from such regulation and control. The MGA states firmly that all current standing regulation, and especially as it applies to KYC/AML/CFT, are equally applicable to blockchain based online/remote gaming systems. BetProtocol is designed to be fully compliant at the level of the codebase with KYC/AML/CFT regulations. In fact, we will supply more robust and difficult to circumvent KYC/AML/CFT services than the status quo, and these services will be required to be used by all dApps on BetProtocol. In other words, on BetProtocol, there is no such thing as unregulated gaming.
This is a great boon to regulators who are looking for a cost effective and efficient solution to problems such as under-age gambling, problem gambling, and enforcing KYC/AML/CFT. We acknowledge that there is a certain group of “crypto-anarchists” who basically give the middle-finger to regulations, citing blockchain’s ability to circumvent these regulations in certain instances. Although we appreciate their gusto, we do not follow their ethos.
We believe that BetProtocol can bring higher levels of safety for players, compliance for regulators, facilities for developers, and better transparency for all–This is the goal of BetProtocol.
So how do we actually enforce KYC/AML/CFT?
Players, before they are able to deposit and make a wager on a dApp running on BetProtocol, need to link their real world identity to an Ethereum wallet. They do this through an independent 3rd party service provider. Once this link is made, the standard checks are run to see if the player is on any banned persons list or reside in a country that is embargoed or sanctioned. Additional checks are made on the blockchain side to see if the wallet address in question has been blacklisted or linked to any known scams. If things are in order, the player is allowed to deposit and wager.
Question: On Ethereum, can’t anyone send ETH / Tokens to any address permissionlessly?
Answer: Why, yes of course.
Follow Up Question: Then how can BetProtocol prevent someone from depositing funds to an on-chain betting dApp?
Answer: Intermediate Wallet Structures.
Courtesy: Malta Gaming Authority: https://www.mga.org.mt/wp-content/uploads/MGA-Public-Consultation-Guidance-on-the-use-of-Distributed-Ledger-Technology-and-the-acceptance-of-Virtual-Currencies-through-the-implementation-of-a-Sandbox-Environment.pdf (Page 15)
Intermediate wallet structures allow the operators of dApps on BetProtocol to have a buffer between players’ funds and funds cleared for gaming. When a player makes a deposit to an operator’s intermediate wallet, BetProtocol’s services check whether or not that player and their wallet are correctly linked and passed KYC/AML/CFT checks. Then, if everything is OK, the protocol will check the current running deposit limit set by regulation and the player him/herself. If the deposit passes both of these checks, then the deposit is then allowed to be forwarded to the Player’s gaming wallet on the dApp. If the deposit fails either of these checks, the intermediate wallet will reverse the transaction. There is no possibility for players to deposit directly to their gaming wallet address on the dApp, as the wallet smart contracts are constructed as to only allow incoming transactions from the intermediate wallet; all other transactions are reversed.
The manner that BetProtocol has set up its wallet structures is not only compliant with the latest MGA guidelines, but also can prove in a transparent way that KYC/AML/CFT checks are done and enforced. Anyone, including regulators, can see on the blockchain explorer that these checks are done and passing, or are done and not passing therefore reversed.
Now think about it, how long does it take to look up one transaction on Etherscan? Less than a 30 seconds? Yep, you bet. How much does it cost? It’s free of course (Well, you pay for Internet). Do you need to be the in-country regulator to do that? Nope. You can be anyone in the world. That’s transparency.
Compare that with the status quo.
How long does it take to get a warrant, subpoena, or court order on a foreign private company to make sure KYC/AML/CFT checks are being done? And if you happen to not need warrants or subpoenas or court orders (lucky you, you’re the in-country regulator) how long does it take to go through normal channels? A lot longer than 30 seconds, and at considerably more cost than free.
At BetProtocol, we are radically blowing open the doors of transparency and regulatory compliance for the remote gaming industry. We believe blockchain and smart contracts will very soon power 100% of regulated online gambling for the simple reason that it saves operators a ton of money while offering regulators stronger compliance enforcement and easier & cheaper compliance verification.
Clapping for this article is good finger exercise, believe me!
Thanks for reading,
Justin, Co-Founder & CMO | BetProtocol