Isle of Man turns to blockchain to protect egaming sector from fraud

© iStock/Roelf Odendaal
© iStock/Roelf Odendaal

The Isle of Man has granted the world’s first reputable license for a blockchain lottery

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Blockchain is often described as a problem in search of a solution, but egaming on the Isle of Man has provided a clear application for the technology.

In August 2017, the British Crown dependency granted the world's first reputable licence for a blockchain lottery.

The Qanta lottery is developed on Ethereum technology and drawn autonomously by a decentralised random number generator. It uses smart contracts to sell tickets, select winners and pay out prizes in cryptocurrency. 

"Essentially, we have our first very solid use case of how blockchain can enhance a business," Brian Donegan, the head of e-business operations for the Isle of Man Government, tells Computerworld UK.

"But much more than that, as a government we recognise that it's a whole new ball game that has the ability to transform the sector, and we're leading that sector."

Read next: How could blockchain be used in the enterprise?

The licence was provided by the Isle of Man's Gambling Supervision Commission, as the regulator believes blockchain provides a transparent system that can reduce the risk of fraud.

The time between winning money and getting your hands on the cash gives thieves numerous opportunities to get there first. A blockchain lottery reduces the risks in traditional currencies by cryptographically storing data on a decentralised structure and picking winning numbers in an autonomous system that is extremely difficult to manipulate.

"The immutability and the censorship-resistance that is offered by blockchain technology is such that we can use blockchain to keep crime out and protect the consumer," says Donegan.

It could also be big business. According to TechNavio's Global Lottery Market Report, the value of the global lottery market in 2014 is expected to reach $376.87 billion (£267.54 billion) by 2019. A blockchain lottery is open to anyone who owns cryptocurrency, giving it access to a borderless market.

Isle of Man's move from financial services to egaming

The Isle of Man is known as a financial services centre, but the government has sought to diversify the economy in recent years.

In 2001, it introduced legislation to benefit gambling and egaming, which brought big companies in the sector such as Poker Stars to the island.

Egaming is now responsible for 20 percent of the Isle of Man's economy.

The growing sector has attracted the attention from the cryptocurrency community, which recognised the potential convergence of their business with egaming.

The Isle of Man responded to their interest by developing a registration and oversight environment specifically for cryptocurrencies, which has helped draw more than 20 blockchain businesses to its shores.

Read next: How can governments use blockchain to build better public services?

Any blockchain businesses that want to set up shop on the island is referred to the regulator, which interviews them and assesses their business case before deciding whether to authorise them to operate under its jurisdictions.

If the business is granted authorisation, it receives a registration that ties it to a code of conduct by which it must abide or face sanctions and potentially be shut down.

The Gambling Supervision Commission has indicated that it's open to supporting the use of digital currencies in egaming, provided that they're used for both deposits and withdrawals.

"What that does is it prevents any wrongdoing in terms of people trying to use digital currencies to gamble and then take cash back," explains Donegan. "We're not doing that. We're doing digital currencies in both directions."

Blockchain could also transform the Isle of Man's long-established financial services sector, although Donegan believes the incumbent financial companies will be slower to embrace the disruption.

He compares the development of the technology to that of the internet.

"If the internet was the ability to transmit and transfer data, blockchain is the ability to transmit value," he says.

"I think that's now been proven. Things like scaling and speed are suboptimal still, but that is changing, and I think the next couple of years will make a huge difference in terms of the level of speed and ease of operating this technology."

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