As governments and international payment institutions across the globe announce plans to research, develop or pilot digital currencies, know as Central Bank Digital Currencies (CBDCs) payment industry leaders must evaluate their potential implications. In the world of iGambling, which has thrived on the rise of cryptocurrencies, the potential for safe and secure state-backed transactions battles against concerns over privacy and other challenges represented by CBDCs.
India and Pakistan are the latest two major world powers to announce plans to pilot state-issued digital currencies, following successful launches in the Bahamas, Nigeria and 7 other countries. A Central Bank Digital Currency (CBDC) is an electronic form of a country’s fiat-currency.
CBDCs have the potential to reduce payment costs and settlement times, especially for cross-border transactions. But how might their implementation affect iGambling? You’d be forgiven for thinking that iGambling is not an obvious use case for CBDCs, but you’d also be wrong.
Firstly, CBDCs could increase participation rates by incentivizing the involvement of players who might otherwise be reluctant to dabble in the world of cryptocurrencies, whose reputation has taken some significant blows in recent weeks.
Using a state-backed digital currency – which in theory will be more stable and secure than privately issued crypto – will be reassuring for this demographic, especially in jurisdictions which do not recognize most cryptocurrencies as being legal tender, while in turn helping to make the industry less dependent on volatile tokens. Such a trend would help provide greater legitimacy to the iGambling world.
Prevalent use of CBDCs would also increase efficiencies for the industry, enabling iGambling firms to transact seamlessly and securely with their customers, eliminating the involvement of third-party intermediaries such as cryptocurrency exchanges. Not only would the ongoing gambling experience be simplified, but its costs could be radically reduced.
Most CBDCs are being developed with interoperability at their core, meaning that users will be able to exchange them against regulated stablecoins such as Tether. Gambling with USDT at Tether casinos has never been more popular. As one of the few stablecoins on the market that has not defied its namesake in recent months, increased use of Tether in tandem with CBDCs can only be a good thing for the industry as users seek assets that retain their value over time.
There is also the benefit of increased transparency. As CBDCs are directly issued and regulated by central banks, authorities will have increased oversight of transactions where necessary, helping to reduce the risks of fraud and scamming.
In markets where gambling is presently banned or heavily restricted, the implementation of CBDCs could result in more lenient gambling restrictions as the market becomes safer for general users.
Governments will more easily be able to enforce regulations, stronger protections and closely monitor the industry, helping to mitigate against the adverse risks of increased gamification of iGambling platforms.
In countries like China and Singapore, where gambling is largely banned outright, the government could easily block CBDC payments or transactions that are deemed undesirable, helping pave the way for an environment more conducive to legalization.
However from a users’ perspective there will also be some obvious pitfalls to CBDCs. Users’ identities would no longer remain entirely anonymous, as an individual’s personal details would be attached to their CBDC transaction. Realistically, traceable payments and a lack of anonymity would be likely to deter many existing users.
Indeed, cryptocurrencies like Bitcoin have become a key feature of the iGambling industry precisely because of the privacy and anonymity offered (though the transactions themselves are of course visible on the Bitcoin blockchain).
By comparison, CBDCs are not predicted to offer the same level of privacy or anonymity which has been critical to building trust and confidence in iGambling from the users’ perspective.
But all of this will depend on their design. In the end, the forces of best-in-class technology will prevail. Those jurisdictions are able to design the most cost-efficient CBDCs which simultaneously cater to privacy requirements, will win-out.
The arrival of CBDCs on a global scale feels somewhat inevitable, with over 105 countries (representing over 95% of GDP) currently experimenting with their development. Their impact will therefore come to be felt across every industry, and their benefits are likely to outweigh their costs when in comes to industries that have been embattled by the comparatively larger challenges of the crypto sphere of late.
Getting CBDCs to the point where they could feasibly be used for online gambling will be a huge logistical challenge; governments and central banks will need to establish comprehensive regulatory frameworks to facilitate safe and reliable transactions.
Thankfully this is already being done, with major powers across the globe, including the US and Brazil, recently unveiling plans for digital asset regulation that will harness the potential of distributed ledger technology while mitigating the risks of the technologies built on top of it. And I’d be willing to bet everything on red that iGambling will come out stronger for it.