Quick Recap of the Problem: Scaling

For a full recap of the scaling issues facing Ethereum and other censorship-resistant blockchains, see The State of Scaling Ethereum. Elevator pitch? Theoretically, blockchains can only choose two of the following: security, decentralization, and scalability. Ethereum was developed with security and decentralization as core features, and now developers around the world are tackling scaling solutions. Many of these solutions focus on the separation between Layer 1 and Layer 2 on the Ethereum blockchain. Layer 1 refers to the core infrastructure of Ethereum: PoW (eventually PoS) consensus mechanism, radical trustlessness, and complete immutability. Layer 2 solutions are built on top of Layer 1 and can iterate on preferred qualities (i.e. prioritizing speed over security for low-trust activities like social media) while still relying on core tenets of Layer 1.

FunFair and “Fate Channels” as a Scaling Solution

FunFair is a B2B company providing blockchain-based services and solutions to the $47B a year online regulated gambling and gaming industry. The platform is designed to cater for the requirements of various unique game genres, providing game developers and casino operators with the opportunity to seamlessly provide production-level casino gaming on the blockchain.

FunFair is entering the expansive online gambling business, specifically addressing some key points of friction in the current industry that harms user experience and impedes customer acquisition. Specifically, FunFair’s platform addresses three overarching issues that exist in both legacy online gambling sites and newer blockchain-based games:

Provably Fair and Reliable

Online gambling sites do not garner high trust among general users. Individuals are typically skeptical if games are truly fair or if the operators can manipulate game outcomes. Not only does this uncertainty lower consumer experience and satisfaction, it is also a barrier to entry that stops many potential users from ever engaging with online gambling. FunFair addresses this issue with provably-fair random number generation (RNG). At the beginning of each gaming session, both the player and the house generate a seed of the randomness. The numbers are random, but the sequence is standard, allowing the player to see that all the activity within the games played during a session were fair. All of this activity occurs within smart contract linked to the game session’s Fate Channel. (discussed in more detail below). Latency and Cost

Among current blockchain-based gambling platforms, transaction speed and cost have been major impediments to performance and user experience. High, volatile gas fees and slow game speeds have been a major hurdle for blockchain-based platforms trying to break into the world of online gambling. This detriment to user experience is caused primarily because of scalability restrictions on platforms like Ethereum. Current blockchain-based games struggle with maintaining decentralization and security (paramount for users who want to engage with a trustless platform) while also providing a fast, cheap, enjoyable gaming experience. FunFair’s proprietary Fate Channels technology (discussed in more detail below) addresses both latency and cost. Know Your Customer (KYC)

Legacy online gambling platforms require users to go through a complicated and expensive process to prove identity, ensure payment, and protect against liability. The effort of onboarding an individual to an online gambling platform has been a detriment to consumer acquisition and cost to the operator. FunFair ameliorates this customer experience issue by integrating a blockchain-based identity construct on which any new or returning users’ identity can be (re)affirmed instantly and without friction, allowing them to play seamlessly at any FunFair-powered casino.

FunFair’s game Fate of Thrones

FunFair’s Solution: State & Fate Channels

“Fate Channels” is the proprietary technology behind FunFair’s platform. Fate Channels are an iteration of State Channels, a scaling solution for Ethereum that is being tested and implemented by many dapps, projects, and platforms in the ecosystem.

State Channels

State Channels is a scaling solution that processes transactions “off-chain,” i.e. not on the core (root) Ethereum blockchain. The method allows nodes to maintain a record between them without requiring the root chain to verify every transaction. Two nodes can open up a “state channel” between them, which is a two-way channel between users. “Messages” — in the form of transactions — occur between the two nodes and are signed by each party to ensure immutability. State Channels in their most basic form are particularly useful for payments that are frequent and expected — i.e. a user that knows they will pay a company $10 a week for a service, or a user who knows they will spend money at their local grocery store regularly. With transactions recorded and verified between these two nodes instead of on each block, the root chain is freed of an immense amount of traffic. At any time, either participant in a state channel can choose to close the transaction, and the net result of all the transactions is exported to the root blockchain and included in the next block. That means that the Ethereum blockchain would only ever process one transaction (the net) instead of every transaction that occurred between those two nodes.

The state channel solution comes with one primary caveat and one primary benefit. The caveat is that most early applications of state channels only process transactions in the form of token or asset transfers — i.e. monetary transfers. We will see how FunFair’s Fate Channels have expanded that limitation. As the primary benefit besides scalability, state channels also drastically reduce gas prices for each transaction. Transactions that happen off-chain between nodes require no gas to process, unlike transactions occuring on the root chain.