Can Blockchain Technology Restore the Trust in Online Poker?
Online poker companies have a long history of breaching players’ trust. The first breach came way back in 2001, when one of the first online poker sites, PokerSpot, shut down and took $400,000 in player deposits with it.
But it was Black Friday in 2011 that made it clear to poker players how easily an online poker site could simply disappear with their money. Not long after the Department of Justice shut down all of the major poker sites in the US on April 15, 2011, Full Tilt Poker players learned that $360 million in player funds were gone. While industry best practices dictated that player funds and operational funds should never be commingled, Full Tilt Poker’s management used player funds like their personal ATMs. These funds were entrusted to them by their players; they breached that trust and made off with hundreds of millions; and yet today, online poker companies still act as custodians over player deposits.
In a sense, online poker sites are acting as banks. Players deposit money in the belief that their funds are safe. If they win, they depend on the site to process a withdrawal and send their funds. Unable to rely on government-backed failsafe systems like the Federal Deposit Insurance Corporation, these players have no choice but to act on faith. And they now know that there are good reasons to question that faith.
Enter Blockchain Technology
Cryptocurrencies have been the subject of intense media interest, especially in light of the meteoric rise in Bitcoin (BTC) and Ethereum (ETH) over the past year. But cryptocurrencies are simply the most popular use cases for the underlying radically disruptive technology called the blockchain. Blockchain technology has the potential to alter the way we treat anything of value.
This entire transaction takes place without a centralized third party like a bank.
At its core, the blockchain is simply a ledger of transactions. What makes it unique is that the ledger is published and there are thousands, or millions, of copies. Let’s say that Alice wants to transfer 1 ETH (one ‘ether,’ the cryptocurrency of the Ethereum network) to Bob. Alice submits the transaction to the network, which is able to verify that 1 ETH moved from Alice’s wallet to Bob’s. Once a transaction is verified, all of the computers in the network update their copy of the ledger to reflect this change. This means that Alice and Bob don’t have to worry about a bad guy posting a fraudulent transaction - the rest of the computers in the network will reject it.
Much more importantly, this entire transaction takes place without a centralized third party like a bank. Alice transfers funds to Bob, the network verifies the transaction, and they’re done. This not only provides much greater security of funds (since there is no vulnerable third party in the middle of the transaction), but it reduces costs since there is also no third party who needs to be paid for its services.
The Ethereum blockchain took this innovative technology one step further by developing a programming layer called a smart contract. A smart contract can be thought of as an intelligent agent that controls how a transaction is processed. For example, instead of just moving 1 ETH from Alice to Bob, Alice could specify in a smart contract that she wanted to send 0.25 ETH to Bob every Monday for the next 4 Mondays. The smart contract then does the work without further intervention.
How Does This Help Online Poker?
Instead of depositing money on an online poker site, smart contracts allow you to keep control of your own wallet. Let’s say you want to play in a tournament that costs 1 ETH. You move 1 ETH from your digital wallet to the smart contract for that tournament, which holds it in escrow for you. If you don’t make any money in the tournament, the smart contract distributes your 1 ETH to the tournament winners. If you win money, the smart contract moves your winnings into your wallet. At no time does that 1 ETH reside on the server of any third party - it goes from one player to another in a peer-to-peer network. Most importantly, the smart contract works just like other blockchain transactions - it’s audited by the entire community, so you know it’s safe.
An Example of a Simple Smart Contract
A smart contract on Virtue Poker functions as a short term escrow account. Alice, Bob, and Ted send 1 ETH each to this contract which holds the funds. Included in this contracts is the game and payout logic (3 person game; 70% 1st Place, 30% 2nd Place, 0% 3rd Place). The contract waits for the game of poker to be played, and the end result is sent to the contract which auto executes and sends the winners their ETH.
Where is This Technology?
Virtue Poker, a company born from the blockchain production studio ConsenSys, has been working for the past three years on a blockchain-based online poker platform built on Ethereum and utilizing smart contracts.
Using the power of the Ethereum blockchain, Virtue Poker never touches player funds.
On Virtue Poker, a poker table is represented by a smart contract. Included in that contract are the game parameters: the buy-in amount, the payout, the minimum bet size, game type and the maximum number of players (and more, as needed by the game). To play, you fund a digital wallet that is fully under your control. You enter tournaments or cash games by sending your buy-in to an Ethereum smart contract. That contract holds all player funds for the table or tournament and automatically distributes payouts based on the game outcome. When you leave a cash game table, or when your tournament ends, the smart contract knows to send all players’ payouts to their digital wallets.
Using the power of the Ethereum blockchain, Virtue Poker never touches player funds; funds are always under the control of the player. Smart contracts on the blockchain do all the work and are auditable and fully transparent. By removing the “trusted third party” that may not be deserving of trust, Virtue Poker ensures that every game you play is fair and your money is always safe.
The Virtue Poker system is being developed with significant input from its three key advisors, Phil Ivey, Brian Rast and Dan Colman, who together have won more than $70 million playing poker. The company expects to ship its first alpha version in mid-May, with the deployment of the full system expected in late 2018.
It’s time that control over your money returns to where it belongs - with you. Watch for Virtue Poker’s launch this fall, and click here if you’re interested in joining our token sale and upcoming alpha and beta programs.
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