Last week, I wrote about LTO Network is moving into the online casino space. In the post I wrote about DID technology and how LTO Network's did technology differs from other blockchain solutions. And how this technology could be used in a crypto casino. At that point, no details were known, so I was just guessing how the technology could apply. In part, I was correct, that it relates to KYC processes (Know Your Customer). However, a day or two later I came across some messages in the official LTO telegram chat where Maarten Boender outlined some details about the project. Mr Boender is an expert in decentralized identifier (DID), blockchain API, and related processes. He works with Sphereon which is affiliated with LTO Network and is someone with insights to the LTO Network organization. In this article I will aim to complement my initial post with factual details about this new crypto casino project.
Below you can read the excerpts from the chat with some running commentary from my side. At the bottom there are snapshots of the conversation from LTO Network's Telegram chat.
"The casino project focuses on KYC/AML."
KYC = Know Your Customer. A process carried out by casinos per requirements of licenses and regulations. The goal of KYC is to prevent online casinos from being used by criminal elements for money laundering activities, or fraud.
AML = Anti-Money Laundering. What it sounds like, AML measurements are taken to combat money laundering activities carried out by criminal- and terrorist organizations.
In both these cases, regulators within the online casino industry establish a series of procedures and processes to achieve the goal of preventing criminal activities.
He goes on to describe it in simple terms:
"When a player goes to that whole process with one casino (and get approved) he/she does not have to do that at another casino again."
A casino operator needs to do a KYC check on players. I outlined this process in greater detail in my previous post. Again, this process is necessary from a legal point of view and takes a lot of resources from the casino. It also requires considerable effort from the players to provide all the details that is asked for. If you are not familiar with online casinos, you might instead be familiar with DEX's (Decentralized Exchanges) such as Binance. In Binance and other exchanges and fintech services, KYC checks are carried out for the same purposes.
"The first casino provides the player with a (verifiable) credential. The next casino can validate that credential and accept the player."
The verifiable credential here is the permissionless certificate issued through LTO Network's DID technology. I wrote about DID technology and the flow of certificates in my previous post. But this is a great idea in theory, the tricky part is getting buy-in from several online casino operators and then scale the solution. Another hurdle is regulations. Different countries, or jurisdictions, often have different regulations and requirements. Ideally, for this to work, several legislators in different countries should recognize and accept this technology and processes. The problem is that these legislators are far from efficient, often operating in silos. Plus, it is bureaucracy and policymaking on the highest level. Big headaches to push innovation driven by new technologies such as blockchain, however superior it may be over existing legacy solutions. But it is a great idea.
"If the player wins an amount at the first casino, he gets a (verifiable) credential for that amount (like a cheque) that he can take to the next casino. The next casino can validate that and he can use those winnings in the next casino."
This is an interesting concept. Because, if the player only uses this cheque for winnings when he plays in the next casino, there is no need to do KYC relating to his source of income. It would already be known, the money was one fair and square in the previous casino, who also did the extensive KYC checks needed per regulatory requirements. Again, great idea but will be difficult to push through for the reasons outlined earlier.
Someone mentioned that this first online casino provides an opportunity to act like a test case. Boender replied and provided a simple example of use case:
"Yes, this is a very generic case: party A does the KYC and if the other parties trust party A, they don't have to do the KYC again."
He then continued to describe the initial plan of this project at a high-level:
"It's just for one casino now, but they want to lead by example. Rather than just talking about it, they put up the money to actually build this and then show this to the other casinos. They are convinced that other casinos will follow, because the whole KYC/AML process is always a pain in the ass for them as well. They want as smooth as possible process to get players into the casino and playing."
This is probably the best approach, at least to build an MVP (Minimum Viable Product) to get buyin from other casinos. However, implementing this because this casino and 25 other casinos wants it is not enough. Boender fails to mention how this plays with regulators. Such processes and technology would be subject to scrutiny and audits, and remain unusable (legally) pending approval from regulators.
Great idea, that could bring innovation in an area where there are pain points for both players, online casino operators. I love blockchain use cases that solves real-world problems. However, there are some caveats. First, getting traction in enough casinos will be difficult. Secondly, getting the technology approved by regulators will be difficult. I don't see how they could implement such processes without approval.
Also, so far the communication has been "LTO Network landed a new deal", but in this case it seems that LTO Network and Sphereon landed a new deal, and it will be a joint effort in realizing this project.