Bitcoin Money

Bitcoin’s “Hockey Stick” Growth Attributed To Novel Gaming Service

Eleven months ago Bitcoin’s trajectory was nearly vertical as each day brought a higher price and the daily transaction volumes on the Bitcoin network were seeing new record levels each day as well.  But then suddenly the ascent stopped and what followed was a long slide back towards earth.

In the months that followed those June 2011 highs the exchange rate had dropped by more than 90% from the earlier highs and the transaction volumes had dropped as low as 68% from the peak.  While the exchange rate is still down considerably with bitcoins trading around $5 USD now the daily transaction volume has shot back up and is once again breaking new records.

While the daily transaction volume had been steadily growing at a casual pace since October, there’s been a development in the past weeks that has had a significant impact.  The ten-day-old service SatoshiDice.com has been growing at a blistering pace.

The daily totals with the exact numbers haven’t been compiled yet but extrapolations of hourly data show there to be nearly four thousand blockchain transactions resulting from Satoshi Dice for the most recent 24-hour period.

Each wager by a player causes a response from Satoshi Dice as even losing bets earn a payout (the service returns a fraction of what the house earns from each wager).  As a result each wager can be responsible for two transactions occurring on the Bitcoin blockchain.

The vast majority of Satishi Dice transactions are for just a single wager but a player can instead combine multiple wagers into a single transaction.  Thus there isn’t an exact 1:1 ratio between blockchain transactions sent to Satoshi Dice and the number sent in return.

Essentially, Satoshi Dice allows the Bitcoin wallet, whether it be the standard Bitcoin.org client or a hybrid Javascript-based browser wallet like My Wallet from Blockchain.info, to function as gaming terminal.  What sets Satoshi Dice apart from most other Bitcoin-based online gaming services is the ability to play in an instant and to receive winnings back within seconds.

Wagering on Satoshi Dice occurs without any account needed on any website — the service simply sends a new, return transaction with the full payout when the transaction was a winner or the fractional bit awarded for each losing bet.

Because the payouts include coin from the wager transaction that made the bet, the site can provide payouts immediately and doesn’t need to wait for payments to confirm which is a process that would otherwise take from twenty minutes to two hours, depending on various factors.

Another difference is Satoshi Dice’s novel approach towards determining the winners.  At a basic level, the concept of the game is that for each wager a “dice roll” occurs and a number from 0 to 65,535 is the result.  Each wager is evaluated to determine if the number rolled is below the wager’s threshold.  For instance the “less than 16,000” wager will payout if the roll is any number up to and including 15,999.  Other online wagering services would employ a random number generator (RNG) to ensure the roll values are unpredictable and statistically random.  PokerStars, for instance, uses a third party auditor to assure players that the output of the RNG used truly is “cryptographically random and truly unpredictable”.

Satoshi Dice’s method uses an alternate form of cryptography, where the cryptographic secret used for the roll is not revealed until a period (from 24 to 48 hours after the wager occurs).  To ensure that the secret was not altered, a hash of each secret is published in advance and as a result the integrity of each roll can be verified once the secret is revealed.

There has been a concern expressed that the particular method that Satoshi Dice uses in performing the roll appears to be an approach that is unique and possibly not one that has been verified to be a statistically true RNG.  The operator of a competing wagering service was asked about Satoshi Dice’s method and the response was: “It’s probably not equally distributed and worse than something designed to be a PRNG like Mersenne, and almost certainly less random than a real RNG.”

Another area of concern is with the amount of resultant activity on the Bitcoin blockchain.  Each of the thousands and thousands of nodes on the Bitcoin network receive and relay each of the transactions and store them on disk once they are included in a mined block.  A doubling in the transaction workload then will mean a near doubling in the amount of storage.  The Bitcoin blockchain and index is already over 1.7 GB in size.  If the blockchain growth rate accelerates, the priority for resolution of the known scalability issue might be raised by Bitcoin’s developers.

There are also levels at which the Bitcoin network maxes out though these are limits set arbitrarily and would likely be increased when the limits might start approaching which would restrict Bitcoin’s future growth.  If the use of Satoshi Dice grows much more than an order of magnitude greater than its current level that would likely trigger some attention on the topic. 

Even with Satoshi Dice being no threat to the Bitcoin network, there is the matter of transaction fees causing the payout amount to be misrepresented for a fairly decent portion of all wagers.  Though the Bitcoin network will pass along most transactions even without a fee, most players are using a client which will either require a transaction fee or will strongly encourage the player to include a fee.  When a fraction of a percent of odds can mean the difference between coming out ahead and losing money this transaction fee can become a significant drawback.  For the smallest wagers on Satoshi Dice, even the sub-penny transaction fees typical with Bitcoin can extract more from each wager than what the house earns on odds.  Additionally, every transaction sent by Satoshi Dice back to the player includes a fee as well, reducing the house’s take.  Asked about this topic, the operator of a competing online wagering service suggests that “in practice this is not efficient for large-scale betting where you have thousands of small bets [like this] taking place.”

Efficient or not, players appear to not mind.  Getting a payout in a matter of seconds after placing the wager provides the speedy reward that keeps the players in the zone.

Though the desire for a dopamine hit may be the main reason Satoshi Dice is seeing so much activity, there is another potential contributing factor.  One of the misconceptions about Bitcoin is that it is an anonymous currency.  Bitcoin can be used in an anonymous manner, but Bitcoin transactions are traceable.  For this reason, there has been interest in mixing services which help to improve anonymity.

What may be occurring then is that Satoshi Dice is seeing some level of participation by those intending to alter the makeup of the coins held in their wallets.  Satoshi Dice in its present form makes a poor solution for mixing however the operator of the service has indicated that some features such as alternate payout addresses and a time delay that might improve on this specific use are forthcoming.

Whatever the reasons for using Satoshi Dice’s service, the fact remain this is the fastest growing business to-date in Bitcoin’s short history.  In the past couple of hours while researching for and writing this post, the wagering activity has increased at an even greater level.  The level of wagers occuring during this 8am - 9am UTC hour caused there to be more transactions on the blockchain due to Satoshi Dice than there were for all other Bitcoin transactions, combined.

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