Last month, a revered U.S. publication ran a story bearing the headline, “Crypto-Averse Man Would Prefer Investing In Traditional Stock Market He Also Doesn’t Understand.”
“Call me old-fashioned, but I’d much rather trust my life savings with a more tried-and-true confusing and opaque system that can drastically increase or decrease in value according to forces that are way beyond my comprehension,” Fort Worth resident Tim Blankenship was quoted as saying. “I know crypto is supposed to be the big new disruptive thing, but this is my future retirement we’re talking about, and I’m not going to leave that up to some new thing I don’t grasp the first thing about when I can rest easy knowing that my money is tied up in some old thing I also don’t grasp the first thing about.”
The publication was The Onion and the article was satirical. The general sentiment, however, rings very true.
The best way to try and understand cryptocurrency is to not try and understand cryptocurrency. Unless you’re steeped in financial know-how, attempting to fully comprehend crypto will make your brain hurt, cause you to contemplate cutting up all your credit and debit cards, get out the old shoebox, and turn back the clock to an era when cash — or even the barter system — was king.
But do know this: Crypto is big business, and it’s here to stay — in sports betting and in life.
Or, as Sina Nader, head of partnerships for the athlete-friendly crypto company FTX, recently put it during an online seminar hosted by Front Office Sports, “One of the observations we’ve heard is, ‘We don’t know exactly how the future is going to look, but we know crypto will be a part of it.’”
Then, unwittingly lending credence to The Onion’s spoof, the former Morgan Stanley trader added, “So it’s sort of like a call option.”
DraftKings, Dune, and gambling roots
In the sports world, crypto is now everywhere, albeit in an often nebulous manner.
Aaron Rodgers, Tom Brady, Trevor Lawrence, and Steph Curry have all become crypto-evangelists, and FTX recently announced that it had purchased an ad that will air during the Super Bowl. The NBA’s Miami Heat play in a venue called FTX Arena, and the company’s partnership with Major League Baseball was evident when its logo was emblazoned on the shirts of umpires during the most recent World Series.
NFTs are, in spite of some hiccups, all the rage, with the Philadelphia 76ers and Crypto.com teaming up to offer the NBA’s first collectible tokens. A casino in Mississippi now has an ATM that converts crypto into cash. Meanwhile, University of Oregon football star Kayvan Thibodeaux has launched his own crypto coin, and the UFC and drone racing have crypto partnerships.
And in language that is emblematic of how little the crypto community is trying to translate its lexicon into layman’s terms, DraftKings, which recently offered a Tom Brady NFT, announced last month that it was “going all-in on the Ethereum layer-2 solution with a partnership that could make it one of the blockchain’s largest governors,” as Yahoo! Finance put it.
No word yet on whether DraftKings is formally seeking licensure on the planet Arrakis, but it sure sounds like it.
DraftKings' initial NFT drops have been a bit of a struggle. @jeffedelstein has followed along every step of the way and was kind enough to review his recent reporting.
— US Bets (@US_Bets) August 27, 2021
Just how deeply the crypto craze will come to impact America’s legal sports betting industry remains to be seen, but betting on sports with digital currency is hardly a new thing. In fact, as Seattle-based crypto enthusiast Reid Tymcio notes, crypto is rooted in gambling.
“A lot of people don’t know how important betting is to cryptocurrency,” Tymcio told US Bets. “There was an app called Satoshi Dice (named after Bitcoin’s presumed founder, Satoshi Nakamoto). This was a random number generator game. For the first several years, the majority of the block space was Satoshi Dice, people using it to bet. Why? It was because the app was open source, and a software developer could look at the code and tell it truly was random, whereas if you went to some shady sports betting site, you don’t know. The only useful thing you could do with Bitcoin for three or four years was bet with Satoshi Dice.”
As for sports betting, Tymcio added, “There was this program with Ethereum called Augur. That’s where the sports betting is done. You can’t access it in the U.S. They have a VPN blocker. But I’m sure people do.”
Referring to a less illicit realm, Tymcio continued, “There’s this new thing that’s an influencer token. For example, a lot of soccer clubs will create this fan token that their fans can buy and they’ll periodically have a vote about the team. What should we do to the jerseys this year? It’s not betting, per se, but this is the perfect thing to get your fans engaged. It’s not the outcome of the game that you’re betting on, but you are tangentially betting on sports.”
Then there’s the notion that obsessively exchanging crypto is, in and of itself, a form of gambling addiction. The Economic Times recently took this tack, describing reckless crypto trading as “a modern-day epidemic” and comparing it to “Wall Street traders whose investments have spun out of control.”
How crypto could work in U.S. sports betting
So far, the only state to authorize betting on sports with crypto is Wyoming. Operators have yet to take advantage of this unique provision, but if and when ZenSports gets licensed in the state, it will, the company’s CEO, Mark Thomas, told TN Bets back in September.
Thomas, who hopes to introduce crypto and peer-to-peer wagering to other markets (including Nevada and Tennessee) as well, is as good a person as any to describe how crypto could work in the American sports betting marketplace, having recently given a presentation on this intersection at the G2E conference in Las Vegas, where discussion of cashless transactions was fervent.
“If I send you $100 of Bitcoin, how that money gets from me to you is through smart contracts and algorithms — or a blockchain,” he explained. “Within that, you can send money, NFTs, other things that sit on the blockchain. They won’t know it’s me, but they can see my wallet address.
“On the gaming side, there’s no charge-back risk. If I use a credit card and deposit $100 at DraftKings and I get mad, I can call my bank and ask for a charge-back. With crypto, if I deposit the funds, that’s it. There’s no customer support for blockchain. But traditional financial institutions decline betting transactions all the time — not because it’s illegal, but because they just don’t want to transact in this industry. Cryptocurrencies get rid of all that. The fees are negligible and the settlement times are near instant.”
If there’s one thing most people know about crypto, it’s that it’s extremely volatile compared to most currencies. But Thomas and others have come up with a solution: immediately converting the crypto to fiat, or government-issued money.
“A lot of places, [crypto is] acceptable as a deposit method, but you have to immediately convert it to fiat,” said Steven Salz, co-founder and CEO of Rivalry, which is currently seeking to become a sports betting operator in Canada. “That’s what we currently do. When people think of crypto betting, almost all of them do it that way. Crypto is just the way in and the way out.”
“We show you the dollar equivalent in parentheses,” said Thomas of his app’s crypto-conversion capabilities. “That being said, not all cryptocurrencies are volatile. There are stable coins — paid to the dollar, one to one. We have people betting on our app that don’t want the volatility, but value the convenience. At some point, the U.S. government is going to come out with a stable coin.”
Salz does raise one potential red flag for the usage of crypto in sports betting, however.
“If you were an offshore sportsbook before and were already running some sketchy credit card transactions, you just made your life a lot easier [by accepting crypto],” he said. “Running an offshore sportsbook illegally just got easier, which is a frustrating challenge.”
That said, he added, “Money laundering is not any better or easier with cash. A guy depositing with a credit card method or prepaid card, you have no idea where they got their cash from. Crypto, in terms of validating a source of wealth, is potentially easier. You can see if the crypto is coming from a more suspect wallet. Cash, in many ways, makes it worse, because cash is easy to move around and get onto a betting site relative to crypto. Crypto, you can follow it around, see if it came from a weird wallet.”
Will crypto exchanges bypass traditional operators?
Salz and Thomas make this all sound relatively easy, but David Ealy’s experience in West Virginia has been anything but. Before PASPA’s repeal, he started his crypto-friendly peer-to-peer app, PropMe, in the social gaming space, and has been trying to get it licensed for sports betting in the Mountaineer State ever since.
Yet despite established partnerships with several local mom-and-pop restaurants and bars, his company has failed to make the requisite legislative headway.
“When West Virginians hear the words NFT or smart contract, that’s like stopping the needle — they’re not gonna understand that,” Ealy explained. “The legislature in West Virginia is not focused on peer-to-peer betting right now. It’s an older group, it’s a new concept, and it’s competing priorities. There’s a foster care crisis and an opioid crisis. We’re a West Virginia company and we can’t get a seat at the damn table.”
But what if, one day, it wasn’t necessary for crypto exchanges to partner with existing operators to offer legal sports betting? What if they could figure out an above-board way to just go it alone?
“I think a lot of operators would be smart to look at crypto as another potential customer acquisition avenue,” said Jeff Ifrah, an attorney who specializes in sports betting issues. “It’s not so much that sports bettors want to use crypto to place their bets, it’s that people who hold crypto intersect with the demographic of classic sports bettors. Companies like FTX have not just liquid crypto exchanges that obviously include hundreds of thousands of would-be sports bettors, those companies also have their own types of trading engines. So crypto exchanges can also have technology on their platform that’s very similar to a Sporttrade or some sort of peer-to-peer exchange.
“The type of trading engine that powers a company like FTX, that could itself be interesting to deploy in a sports betting context,” he went on. “So they are natural partners for more than one reason. They really dovetail and overlap nicely with sports betting operators because they’re used to affiliate partnerships to generate traffic, they’re used to that age group, etc. So I do think that you will either see a pairing of crypto exchanges with sports betting operators or you’ll just see crypto expanding into sports betting.”