We are in the infancy of the 4th evolution of sports betting. This short article will look at the history of organised sports betting from on-course, to in shop, to online, to onchain from the perspective of bettor rights, protections, and options.
Gambling on the outcome of an event has likely existed since man could successfully communicate reasonably complex ideas. There is evidence of gambling on dice in the Palaeolithic period, before written history, with organised betting houses in ancient China in the first millennium BCE. In the interest of my time and retaining your Tiktok attention span, we will use the UK as a case study and skip forward to the 1500s when the first formal bets on horse racing were wagered. From here, we will look at the evolution of sports betting and how each stage has improved the experience for the bettor.
From the 1500s, horse racing grew through self-funding from gambling and the growth of the rail network in the UK. Horses and punters could travel to big events and bet with bookmakers at the race courses. The racing was far from free of corruption thanks to the incentives of gambling. On top of this, there was little protection for punters. Bookmakers could only pay out winnings from the funds they had on-hand. If they had a bad day and lost money, the only thing which forced them to pay the winnings they owed was their word and reputation. The only people who could bet on the races were people at the race course.
As the telegraph network – and later the telephone system – expanded across the country in the 19th Century, the near-real time broadcasting of odds, information, and race results was possible and off-track venues were established. These were usually controlled by established bookmakers who would relay their on-course odds to employees at the venue. (As a side note, this setup led to this great story: https://en.wikipedia.org/wiki/Yellow_Sam_betting_coup.) This allowed bettors who were not at the race courses to get in on the action. Until 1960, off-course betting was illegal and took place in pubs and other community venues. Any winnings were paid out in good faith and any disputes had no legal standing.
With the introduction of the Betting and Gaming Act of 1960 and subsequent Acts through the 60s, off-course betting was legalised and smokey pubs were replaced with betting shops. These shops and bookmakers became more regulated and increased the protection for bettors. In the current era, UK bookmakers are under the control of the UK Gambling Commission which is supposed to ensure that bookmakers are following their rules and protecting bettors. Anyone who places a bet in a shop today has a reasonable expectation that if they win, the bookmaker will pay them their winnings. Any disputes can be settled by arbitrators or the courts. However, with these increased protections, there have been more restrictions. Anyone who bets in a shop and is successful can be identified and put on a list which means their bets will no longer be accepted, or can only be accepted after clearance from the head office and usually for very low stakes or worse odds than the general public. These lists are enforced by CCTV surveillance and are distributed to all shops in the area. Overall, regulated betting shops improved the situation for the average bettor, but successful bettors can find it difficult to get their bets on. The obvious downside is that one must travel to the shop to place a bet.
There was a period where telephone betting became popular. This involved creating an account with a local bookmaker and making a call to place a bet, with winnings and losses modifying your balance or credit line which had to be settled regularly. With the growth of home internet access in the early 2000s, online gambling became more popular. Gambling regulation was updated in 2005 to reflect this new method. The law has been updated over time, at first to tackle money laundering, underage gambling, and match fixing, and more recently to “protect” users from problem gambling. Online gambling also allowed a much wider selection of sports and markets to be offered. From only national horse racing and top flight football, to live betting on Russian volleyball and U19 Colombian basketball. The advent of online gambling undoubtedly improved the experience for the bettor: it can be accessed anytime from almost anywhere; there are many regulated bookmakers who should pay out all winnings; and the betting selection is abundant.
However, it is not all upside. Bookmakers now have much more detailed profiles of each individual user and can use this to quickly ban winning bettors. There is no regulation regarding fair access to betting. Any bookmaker can ban (or limit) anyone at any time with no need to give a reason. This usually means a winning bettor will see their maximum allowed stake cut to a handful of GBP on any bet after just a few good bets. This tends not to affect the average person who usually bets on their favourite team or puts on a weekend accumulator (parlay) but any bettor who puts in some time to understand their favourite sport or league will quickly lose their ability to place the bets they want. Because bookmakers now offer a much wider variety of events and markets, the law allows them to make mistakes: called palpable errors. These should be clear and obvious mistakes in the odds or lines set (for example offering +100.5 instead of +10.5). However, like most trust extended to bookmakers, it is taken far beyond what was intended. They regularly cancel markets under this rule simply because odds moved against them and they made a loss. There is essentially no recourse for customers who had winning bets cancelled, and of course no way for customers to be compensated for being on the other side of an error.
Online bookmakers are trusted to hold customer funds at all times, and are trusted to process deposits and withdrawals from user accounts. Combined with selective enforcement of KYC (Know Your Customer) rules, this puts bookmakers in a very powerful position. Losing bettors or casual punters are free to deposit and withdraw and bet as they wish. Winning bettors are regularly asked for extreme “proof” they are who they say they are, just to be allowed to get their money back. Bookmakers have been known to ask for copies of passports, notarized by a lawyer, multiple official letters proving the address on the account is where the customer actually lives, months worth of bank account transactions and wage slips to prove where the money came from – the money that has already been deposited and bet with and is now requested to be withdrawn. The UK Gambling Commission has rules against this type of selective KYC process, yet never enforces them.
Overall, online betting has improved the experience massively for most bettors, but it has handed more control to bookmakers and skewed the power massively in their favour. At least back in the day you and some friends could hunt down your local bookmaker and have a quiet word if he owed you money!
Blockchains allow self-custody and cryptographically-secured, synchronous, instantaneous, and programmed financial communication which is why we use them to send funds to online bookmaker accounts– wait, what?
Since bitcoin had a market price, it was used to fund accounts at offshore casinos and bookmakers (and this is still one of the biggest uses of crypto outside of trading with Stake.com deposits and withdrawals making up 6% of all BTC transactions). These bookmakers are no different to traditional online bookmakers – except they are usually completely or essentially unregulated and can (and will) just steal your money. Fortunately L2s and low cost blockchains have allowed for a new breed of betting venue over the last few years: onchain bookmakers and exchanges. These are more like computer programs than bookmaker trading desks. They can only execute bets and pay out winnings as dictated by their code. The advantages for bettors over online bookmakers are huge:
- Funds are held in the custody of bettors at all times – there are no deposit delays and no refused withdrawals. Winnings are usually sent directly back to user wallets or can be claimed from a smart contract.
- Since all action takes place on a blockchain with a single source of funds and transparency, there can be no money laundering.
- Because placing bets are blockchains transactions and blockchain transactions are beyond the scope of government authority, users are free to bet without being forced to supply KYC data which is regularly stolen by threat actors (hackers) and used for identity fraud or phishing.
- Since there is no KYC or withheld withdrawals, bookmakers cannot prevent users from betting from multiple wallets or onchain identities. This means protocols are forced to design a system which is resilient to successful bettors as they can’t rely on closing accounts and limiting stakes like traditional bookmakers.
- Onchain exchanges are fully transparent as all orders are posted and recorded openly, so you have a full picture of the market and any irregular flow can be identified and avoided by sufficiently skilled users. This contrasts with traditional betting exchange which are regularly used for washing funds by two accounts controlled by the same individual matching each others’ bets to give the illusion of clean gambling profits, or market manipulation to create enhanced volume or skewed odds to influence the behaviour of others, or used for profiting from match fixing, since all funds flow through a black box system.
- Some protocols have a liquidity provider or house fund, which anyone can add their money to and profit from losing bettors and platform edge. This means a user can both provide liquidity to earn fees, and enjoy betting, knowing any losses are offset.
- Additionally, some protocols will choose to have a token which represents ownership of the protocol and offer the users a say in governance of the protocol they use, a cut of protocol fees earned, and/or lower fees paid. Again, this is in contrast to traditional venues which increase fees for good bettors, and keep 100% of their massive profits.
The advent of onchain betting fundamentally changes the power-dynamic of sports betting from bookmakers being in complete control of users and bets, to users having complete control of their funds and bets, knowing that the protocol is acting in a way that will settle the markets exactly as expected. It also gives users the opportunity to be on the other side and profit from losing bettors and fees, and potentially own a slice of the underlying bookmaker itself.
Since onchain bookmakers must make a system which cannot ban successful bettors, there are many novel designs which exist and many more which will exist in the future. Each venue will be forced to improve their offerings to keep their users, and each new venue needs to design a protocol which is even better than the existing competition. Existing sports betting protocols range in age from just a few weeks to just over 1 year (with exchanges about 4 years old). In this time we have seen protocol designs which would blow the tiny minds of online bookmakers, from Pool Props’s 0% margin token AMM betting (PLEASE come back), to Azuro’s liquidity tree design; Overtime’s fully collateralised parlays to SX Bet’s offchain managed but onchain settled exchange and Monaco’s equally impressive fully onchain exchange.
Besides exchanges which purely lock in matched orders on opposing sides of a bet, there are a variety of mechanisms used by onchain betting venues. Usually they involve a (virtual) automated market maker system which automatically adjusts the odds as users place bets, in order to attempt to balance the book. Others will have fixed execution odds, but employ global risk limits. Odds are sometimes set by an oracle which pulls from offchain source and left to move by market forces, others will have oracles which regularly adjust the odds of the market. There will likely be future designs where all odds are controlled offchain but bets are recorded and settled onchain (someone please work with me to build this).
Another element of onchain betting which is different from traditional bookmakers and improves the user experience is the way different teams can permissionless build on top of different protocols. For example, Azuro is just a set of smart contracts and oracles on the blockchain. To interact with it, you need to write and send blockchain transactions. This is well beyond the ability of the average person in crypto, never mind the average sports bettor. There are multiple teams building a website which pulls the markets which Azuro offers and places user bets for them. However, at no point are these websites in control of user funds: the user signs the blockchain transaction and the funds go from their wallet to the Azuro smart contracts. Due to the composability of these protocols, the interaction is not limited to websites. There are Telegram and Discord bots which quickly place bets with the sending of a message, or users can build simple API-like systems which interface directly between the protocol and their sports betting algorithm. This unrestricted interaction is what allows Purebet to be the first onchain sports betting aggregator to always offer the best odds and deepest liquidity, allowing user bets to be directly placed at the venue with the best odds, regardless of the betting currency or blockchain. There is a way for interacting with onchain bookmakers to suit everyones’ preferences.
Unfortunately, we cannot yet say onchain bookmakers are full scale replacements for online bookmakers. The events and market types offered by onchain venues are more limited than online bookmakers, with the main focus being major leagues and sports, and the main markets (win, over/under, handicaps). You cannot bet over 10.5 corners on the Norwegian U19 football league…yet. As protocols mature and newer protocols come to market, there is no doubt this will change.
While onchain betting is undoubtedly in its infancy, the change between online and onchain betting is at least on par with the change between in shop and online betting. Over the next 5 years, expect more, bigger, better, cleverer onchain betting protocols to appear and eat into the overall betting market share, especially as account abstraction and smoother general crypto UX is developed.
In the second part of this series, we will look at a number of onchain bookmakers and attempt to develop a framework for evaluating their decentralisation and result-neutrality.
Purebet is the first onchain sports betting aggregator. It aggregates odds and liquidity from 8 protocols across 6 blockchains ensuring Purebet users always get the best odds for their bet, and best execution for their size. Bets on placed at Purebet are settled seamlessly on Solana through our onchain exchange architecture and winnings are paid direct to wallets automatically.
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