We know Asia is a massive target for online gambling companies because of the potential revenue to be earned and we also know Bitcoin is a great fit for online gambling, so these two things together must be a winning combination.

Turns out the opportunities for Bitcoin in Asia are huge and the gambling operators are just now starting to learn exactly how accepting the currency at the casinos will benefit their business.

Jiten Melwani of Bitgame Labs recently spoke at iGaming Asia Congress and is an expert on the opportunities for Bitcoin in Asia. He is familiar with the challenges and benefits that come along with accepting the currency as a gambling operator and he was happy to share his deep knowledge in our interview below.

Becky Liggero: Jiten, thank you so much for joining me, its an honor to have an expert like yourself to talk on opportunities for Bitcoin and gaming in Asia. To start, can you tell us what Asian countries are particularly Bitcoin-friendly how their regulators plan to deal with the currency?

Jiten Melwani: Regulators in Asia have only recently begun to explore digital currencies and very few in Asia have yet published an opinion or a position. To my knowledge, no jurisdiction in Asia is yet regulating digital currency businesses specifically, but several are applying the existing financial services regulations.

China’s central bank has restricted financial institutions from conducting bitcoin transactions, but BTC-China and OKcoin – two Chinese bitcoin exchanges – remain the two largest bitcoin exchanges in the world by volume. Australia, Hong Kong, India, Indonesia, Japan, NZ, Singapore, South Korea, Taiwan and Thailand are all home to bitcoin businesses, and some require licences or permits from a financial services regulator which are not specific to bitcoin.

In general, regulators are trying to apply existing regulations to bitcoin business, rather than creating new regulations specific to digital currency. This is a positive approach, as innovation in technology is always going to outpace regulation and a considered, studied approach is far more positive than hurried or reactive regulation.

BL: I love your comment on innovation in technology always outpacing regulation- such a good point. In what countries do you predict we will see the most growth of Bitcoin in Asia and why is Bitcoin such a good fit for these countries?

JM: The benefits of bitcoin for an operator or merchant are very clear – transactions are instant, extremely low cost, minuscule in size or very very large, and fraud free.

That said, adoption will be driven by end users. There are several scenarios where bitcoin is a huge improvement on incumbent systems.

Bitcoin is a great fit for economies with poor or underdeveloped payment infrastructure, unbanked, and currency limitations. It allows end users to transact seamlessly, globally, without a bank account or a credit card, so is most interesting to parties in places where they can’t easily transact online with existing facilities. I anticipate Vietnam, Cambodia, Laos, Philippines, Indonesia and Malaysia to be big growth markets in the next 18 months.

Bitcoin also offers advantages for extremely large transactions to due to it’s anti-fraud qualities. Online merchants will be able to take payments of tens of thousands of dollars – or much greater – without any risk of fraud. That will appeal to customers in even the most developed of economies.

BL: Yes, I would imagine the movement of large transactions must be quite appealing for the land based casinos…can you elaborate on how the land-based casinos in Asia can take advantage of Bitcoin?

JM: Bitcoin is a great way to move funds to and from a land based casino property, especially in Asia, with an amount of discretion and very securely. Presently junket operators go through some ordeal to move funds, and high rollers rely heavily on junket operators to facilitate money movement for them. With bitcoin, they would be able to deposit funds directly with the casino, and withdraw directly, from anywhere in the world. Similarly, junket operators could use bitcoin as an alternative to their existing methods of payment.

Additionally, casinos often make thousands of outgoing payments each month to their agents and junkets and bitcoin can facilitate this in an automated, extremely low cost way.

BL: Sounds like a no-brainer to me, but lets examine the other side of the coin. What are some of the biggest challenges an iGaming operator in Asia could potentially face if they take Bitcoin on board and what can they to do mitigate these challenges?

JM: 1. Currency risk

The value of bitcoin can fluctuate quite wildly. Intra-day movements of 20% are not uncommon, so the operator needs to be adept at dealing with volatile assets. There are several ways to mitigate this–the easiest is to sell bitcoin at the point it is received (and to buy at the point it is sent). This way, the operator never holds bitcoin, and are not exposed to any of it’s fluctuations in value. The currency risk is pushed totally onto the customer. That, however, may be an unattractive proposition for the customer, who may want to keep their purses denominated in BTC.

2. Treasury risk

If an operator wishes to accept a wager denominated in BTC, they will need to hold bitcoin to service any payouts including any winnings. That exposes them to currency risk. Therefore, they need a sound treasury management function to ensure they are holding enough coins to cover customer wagers but not so much that they are exposed irresponsibly to fluctuations in bitcoin value. A simple way to do this is set a ratio of BTC/non-BTC funds they wish to hold, in the same way they manage treasury for the purposes of FX.

3. Technical risk

Central to the way that bitcoin wallets work is key-pair encryption, which means the operator needs a private key in order to send funds. That means they need to a) securely store the keys online for “hot wallets”, which is from where they would send funds to a customer in an automated way, and b) securely store the keys offline for “cold wallets”, which is where they can securely store funds that require manual action to send.

If an operator were transacting through a bank or e-wallet service, the bank or e-wallet would be able to set transaction limits, and may have a method to recover funds in case they were sent erroneously or fraudulently. However that doesn’t exist in bitcoin – if a third party were to gain access to a private key, they could spend all funds in that wallet without any trace or method to recover them. Therefore they need to be extremely diligent in how they store keys.

Also – there is a component of employee risk, as if any one employee were in possession of a private key, they would be able to spend all funds associated with that key. The operator would need to employ a method to split keys such that any one individual could not spend all funds.

In the same way that an operator wouldn’t hold their own cash in bills in their own safe, they should enlist a specialist company – such as Bitgame Labs – to manage their bitcoin assets and payment processing.

4. Sports risk management

Most sportsbooks around the world manage their sports risk in one of several ways. High street books use a recreational model – the primary purpose being to minimise the amount they lose to sharp sports bettors, and maximise the amount they can win from their whales – whereby they cut a customer’s limits if they exhibit sharp tendencies, and increase their limits if they appear to be a high roller. This restricts the bet size an operator can take from an unknown customer.

In Asia, most sports wagers are placed in two-way markets (handicap or total markets) and the price is set by a pure market. The operator has limited liability as long as there is good liquidity in the market. This allows very large bets with little risk for the operator. This model works great in a bitcoin environment.

However, if the operator doesn’t have liquidity to sustain true two-way markets (such as smaller operators), they cannot employ a recreational model because they cannot easily and reliably control sharp exposure by cutting customer limits. Bitcoin means that customers can easily fund additional or new accounts, so the operator largely loses their ability to cut a customer’s limits.

Therefore, if they don’t have the ability to cut sharp players’ limits, and don’t have liquidity to sustain two-way markets, they have no choice but to employ a more sophisticated approach whereby they carefully grade their customers and accept sharp action but use it to sharpen their own prices. This means the operator takes liability on many events, but they need to ensure the position they take is on the same side as their sharpest action. There are a few sportsbooks in the world – such as Pinnacle Sports – that do this with great success.

BL: Ah, so Bitcoin is a particularly good fit for the Asian bookie model. Interesting. To finish off on a positive note, can you walk us through the biggest benefits of Bitcoin for Asian iGaming operators?

JM: This is an easy question. Operators can accept payment of any size – from fractions of a penny to millions of dollars in a single transaction, instantly, at extremely low cost, with no risk of fraud or chargeback, from anywhere in the world (as permitted by the laws in the jurisdictions in which they operate). They can hold all of their own funds. Every transaction every customer ever makes is available on the master ledge (the “blockchain”) so there is a clear audit trail visible to all parties. Bitcoin is the perfect digital casino chip.

BL: The perfect digital casino chip. I like it. Excellent Jiten, thank you so much for getting us up to speed on Bitcoin and Asia’s gambling marketplace.