Chances are you’ve played the lottery before, or at least thought about it. The fantasy of becoming an overnight millionaire for just a few bucks has been luring players for thousands of years. However, lotteries around the world are plagued with problems. Rigged jackpots and large-scale fraud scandals have made many of us skeptical, and fairness is difficult to demonstrate even for genuine lotteries. Blockchain technology is opening the door for fairer, safer, and more transparent lottery platforms that could revolutionize the industry. We’re quickly entering a time where lottery players can know their true odds of winning before the numbers are even drawn.
- 1 The Lottery Market
- 2 The Blockchain is Playing Face Up
- 3 Have You Seen the Latest Tickets?
- 4 Conclusion
The Lottery Market
The odds of winning a Powerball lottery are around one in 300 million. About the same chance of one individual being picked randomly from the entire US population. However, it turns out that for many, the hope of winning a life-changing jackpot outweighs the overwhelming odds. Players are buying tickets like crazy, and the industry is booming.
Who’s watching the numbers?
There are three main stakeholders in every lottery drawing. The ticket buyers who fund the whole thing, the lottery suppliers who set up and manage the lottery, and the lottery staff.
The economic model is simple enough. People buy lottery tickets and the money goes to the lottery organizers who decide how to distribute the funds. The organizers and all parties along the way take their cut, and the rest of the money, usually less than 50%, goes to the jackpot. For the US multi-state lottery, the percentage that goes to the jackpot is only about 34%. That means the “house edge” is about 66%. In other words, 66 cents of every dollar you spend on those lottery tickets goes somewhere else. On a roulette table, the house edge is about 5%. The ticket buyers have nothing to say in how the funds are distributed.
[bctt tweet=”As a lottery ticket buyer, you have nothing to say in how the funds are distributed. Or have you? #blockchain”]
What if you lose?
When you buy a ticket and lose, it’s natural to start questioning the fairness of the game. With lotteries, this doubt is well justified. Whenever hundreds of millions of dollars are on the line, people will inevitably snatch it up in any way they can. Huge scandals involving fraud have emerged all over the world by both the lottery organizers and the staff running the lottery. The Pennsylvania Lottery was famously rigged by its organizers by weighting the some of the balls to skew the odds. These kinds of actions cast doubt into the minds of everyone that plays the lottery, and they can stop you from wanting to play again, forcing you to ask all sorts of questions such as
- Is my ticket real?
- Is the whole thing rigged?
- Is the money being distributed properly?
- Will I get all of my prize money?
- Is this even legal?
These questions echo even louder in the fastest growing lottery sector – online lotteries.
Buying tickets online?
Lotteries are tightly controlled, being restricted or at least regulated in most places. You usually have to buy the ticket in the country or state that the lottery is drawn, and it’s usually illegal to resell tickets. There are only a few lotteries, mostly in the US and Europe, where the jackpots become truly massive. Other economies are too small for a big jackpot, the main attraction for lotteries in the first place. People in these places don’t have access to it, but still want a chance to win big.
The Internet has stepped in to try and fill this gap. Some lotteries have added online components to make it easier to play. In other cases, third party service providers such as Giantlottos are available to buy tickets on your behalf or act as a betting service, allowing you to effectively bet on the outcome of the lottery. This adds another middleman between players and their jackpot, cutting into the winnings even more. It also opens up considerably more room for complications, legal issues, delayed payments, and fraud.
Purely online lotteries
Then there is the pure online gambling scene. Online casinos and gambling operators offer all kinds of gambling products, including lottery jackpot prizes. Unclear online gambling laws and international companies put these firmly in the untrustworthy category for many people. Online gambling is almost completely illegal in the US, meaning the market is dominated by black-market style operators.
Online lotteries have their own set of fraud challenges. Draws are done with random number generators, which have been rigged before, even in high profile lotteries. The Hot Lotto fraud scandal saw a random number generator rigged by the organizer’s own head of security.
The economic model for online lotteries is different. There is nothing stopping unregulated online casinos from taking whatever cut they like, presenting odds that are heavily stacked in their favor.
Online lotteries solve some of the problems of accessibility, but they don’t answer the important questions of trust at all. Hundred million dollar jackpots are just too tempting, and nobody can be trusted.
The whole industry is in need of technology that can address these problems.
The Blockchain is Playing Face Up
The blockchain is a completely new way of doing financial transactions. It makes the fast, safe transactions of huge sums possible, all without the need for a third party operator or bank involved in the process. What’s more, smart contracts built on platforms like Ethereum can even guarantee the fairness of future transactions. These smart contracts automatically execute themselves. Nobody can change the outcome of the contract once it’s been signed. Because of these incredible features, Ethereum has bagged the interest of massive financial companies like JPMorgan Chase and Credit Suisse.
It seems like the perfect technological match for online lotteries who want to offer and guarantee fair draws for their players. In fact, there is some evidence that Bitcoin may have been originally developed with gambling in mind. Online gambling companies are already using the technology to offer more transparent gaming.
Can you trust them now?
With blockchain transactions and smart contracts, players can actually know and trust the probability and revenue distribution before a game is even played. You can prove your odds of winning and your method of payment before the game even begins. This adds a whole new dimension of trust that’s even better than accountability or reputation.
[bctt tweet=”With blockchain transactions and smart contracts, players can actually know and trust the probability and revenue distribution before a game is even played!”]
What do the new prizes look like?
Players are loving this newfound trust. Gambling-related ICOs are already among the most popular in the industry. Transparency will lead to more ticket sales and bigger jackpots, leading to even more ticket sales. The snowball effect will begin.
Blockchain projects are trying to disrupt many industries by removing middlemen. The same is possible with the lottery. That woeful 66% house edge that we talked about can be cut down considerably, putting more money into players’ pockets. The current projects in the industry aim to cut this down to 5-30%, leaving a vast majority for the jackpot. Anyone with an internet connection will also be able to play blockchain lotteries directly, cutting out the ticket buying services too.
With trustless blockchain protocols, audits will become much easier. And in some cases, even unnecessary.
The odds aren’t always on your side
Inevitably, some new challenges arise when using blockchain. One of them is that users will have to manage their own tokens. This includes their ticket tokens as well as their winnings. There are no financial safeguards with cryptocurrencies right now, so the danger of phishing scams or other user targeting attacks are present.
With the code for the smart contracts publicly available, hackers will be able to go through them with a fine tooth comb. Smart contracts are notoriously difficult to write well. Even the DAO (Decentralized Autonomous Organization) was hacked with tens millions of dollars worth of Ether stolen. It’s impossible to prove that a smart contract is completely safe. Even minuscule errors that professional security auditors miss can drain a smart contract of its funds immediately. This is dangerous with lotteries, as a huge jackpot of hundreds of millions of dollars will be a prime target for professional thieves. Any lottery project will have to come up with some bulletproof ways of securing their code.
These problems don’t have easy solutions. So, who’s trying to solve them and how?
Have You Seen the Latest Tickets?
There are already a few blockchain lottery projects up and running. The general idea behind them is much the same. The ones that get the details right will be the winners. Here are three of the frontrunners in the industry so far.
FireLotto is an international, decentralized lottery using Ethereum smart contracts. The pitch is quite similar to the other projects we’ve looked at, but with a couple of differences.
The basics of FireLotto are a prize pool of at least a million dollars (paid out in cryptocurrencies of course), three kinds of lotteries with draws every 6 hours including an interesting “Roger’s Wheel” instant lottery, anonymity and transparency, and an easy interface that models traditional lotteries with a mobile option. Seventy percent of the ticket funds are distributed to the prize pool, 15% to advertising, 10% commission to the token holders, and 5% for technical costs. That’s double the token holder commission of Smart Billions which is presented below.
FireLotto already has a working, launched product, giving them major points before their ICO and an edge over some of the competition. FireLotto has a large and strong public team backing the project. A key focus of their marketing is its ease of use.
One of the downsides of FireLotto is the fact that to you need to keep buying lottery tickets yourself to get your referral commissions. They also took a hit to their reputation when they asked users for their private keys when paying for tickets in an earlier version of their product. These kinds of situations can happen in the beginning, but for now you shouldn’t be afraid because the problem has since been fixed.
Kibo is one of the projects attempting to make the above ideas a reality. It claims to be the first decentralized lottery that uses smart contracts. It aims for “complete transparency” of its processes and zero space for fraud.
Important actions such as buying tickets, generating random numbers, awarding affiliates, and paying out prize money are done using Ethereum smart contracts. Users can review the publicly available smart contracts that run the platform, and changes can even be made by controlling token holders. Current cryptocurrency lottery products like Satoshi Lottery lets players check if a game was fair after it had been played. Kibo aims for built-in fairness as a fundamental feature of their platform, making it possible for players to know that the outcome will be fair, even before the die had been rolled.
The idea of using smart contacts for gambling products isn’t new. The projects that succeed are the ones that get users engaged. A focus of the Kibo platform is its marketing ideas. A referral program is built into smart contracts, meaning you get 5% of your friend’s winnings if you bring them to the platform. Those that joined the platforms early will also share in the success of Kibo.
Kibo has some potential bottlenecks. First, only 70% of ticket funds go to the jackpot. That’s high compared with traditional lotteries, but much lower than some of the other projects below. Also, the marketing strategy has had a mixed reaction from users and it’s unclear if the community will support it yet. This could be a problem when combined with the fact that Kibo could be on shaky legal ground.
A million dollars isn’t as cool as it used to be. Everyone knows that billionaires are the new elite, and Smart Billions are using this as the basis for their multi-billion dollar decentralized lottery.
Smart Billion’s state in their white paper that their mission “is to provide a new, fully transparent economy to the lottery world, bringing incontestable freedom and equal chances of winning to all players around the world.” A transparent, global lottery with max winnings in the billions of dollars.
A transparent blockchain protocol is nothing new, and Smart Billions know that this market is going to be competitive. Their main innovation is in the size of the jackpots, with an insane max payout of 2.34 billion dollars. This is made possible with a flexible ticket value, meaning you can pay what you like for a ticket and your winnings will reflect the size of your bet.
With Ethereum smart contracts payouts are also instant, secure, and anonymous, and an innovative smart contract claims to cut the transaction costs to 0.003 USD on the Ethereum blockchain. All you need to register is an Ethereum wallet to buy your ticket.
Many people have been excited about this project, although there have been some problems. The project held a hackathon to test the security of their system, with 1,500 Eth up for grabs to the hacker that breaks their contract. Allegedly, a hacker did find a way past the contract and began withdrawing funds, only to have Smart Billions go back on their word and remove the rest of the prize money.
Blockchain technology seems like it was built for online gambling and betting. It solves many of the technical problems that the lottery industry have been wrestling with for decades and has the potential to do so in a way that benefits almost everyone (except for the scammers). If done well, non-blockchain options will have some serious competition.
[bctt tweet=”There are some fantastic blockchain-based projects underway racing to offer the next big jackpot to their players. #blockchain #lottery”]
Online gambling companies are already blazing the trail for using the blockchain in the industry, and there are some fantastic projects underway racing to offer the next big jackpot to players. Some even have a working product out on the market. However, lotteries come with their own unique challenges. Every lottery needs a big jackpot. The project that manages to quickly build its customer base while keeping attackers away from its enormous grand prize, could forever change the landscape of the lottery industry for the better.