What is Peer-to-Peer Gambling? An Overview of Its Background History, Benefits, and Drawbacks.
Updated: Mar 24
Introduction
Peer-to-peer gambling refers to individuals wagering against each other. Proponents view it as a fairer way to bet. This article provides an in-depth discussion of peer-to-peer betting systems, including their background history, benefits, drawbacks, and related topics. Keep reading to learn more.
By Dr. Michael Williams
What Is Peer-to-Peer Gambling?
Peer-to-peer gambling systems provide individuals with the opportunity to compete against each other in various ways. One popular type is the betting exchange model, which enables individuals to trade on sporting events like a stock market. However, other forms of peer-to-peer gambling also exist, such as lotteries, where individuals purchase tickets to compete against others for jackpot prizes. Parimutuel wagering is another type where individuals bet against each other on the outcome of horse races.
Daily fantasy sports have gained in recent years as a form of peer-to-peer gambling. Participants draft a virtual team of athletes and compete against others based on the athletes' real-life performance.
The rise of esports has led to the emergence of video game betting as another form of peer-to-peer gambling. Participants place wagers against their opponents on the outcome of one-on-one video game contests.
The X-League gambling system, developed by PeerGaming, is a new form of peer-to-peer gambling. It allows players to create betting slips and compete against opponents to determine which slip has the best correct odds accumulation.
The Background History
Peer-to-peer betting has a fascinating and complex history, influenced by regulators, bookmakers, and reformers. In 1866, Joseph Oller invented parimutuel wagering, a betting system that enabled people to bet against each other on the outcome of horse races. Initially, bettors purchased tickets for randomly assigned horses. If their horse won, they received a portion of the prize money after Oller's fee was deducted.
However, due to the random horse assignment, Oller's initial system was criticized as an illegal lottery. He adjusted the system to allow bettors to choose their horses to address this issue. Despite this change, Oller's method faced opposition in every market where it was introduced and often encountered lengthy legal barriers before succeeding.
At the turn of the twentieth century, a progressive movement emerged to make traditional bookmaking practices obsolete. These reformers saw parimutuel wagering design, which Oller's adjustment turned into a skill-based activity, as a fairer alternative and believed it could replace bookmaking. This created a subtle rivalry between the two forms of gambling.
After years of completely dominating the parimutuel method, traditional bookmakers faced a new threat from a young startup in London called Betfair. Founded in 2000 by Andrew Black and Ed Wray, the company introduced the betting exchange model. Its controversial launch party was aptly titled "Death to the Bookmakers," reigniting the flames of an old battle.
The campaign was highly successful. Word quickly spread about the new peer-to-peer betting model that challenged traditional practices. As a result, Betfair gained reformers' support and incurred incumbent operators' wrath. By positioning itself as the means for the reformer movement's desire for change, Betfair rapidly gained fame.
In an ironic twist, Betfair merged with the traditional bookmaker Paddy Power on September 8th, 2015, to form the behemoth Flutter Entertainment. Betfair's executives realized that consolidating their betting exchange operations with traditional bookmakers was necessary to sustain their business expansion.
Although Betfair has abandoned its goal of surpassing traditional bookmakers, the concept of a betting exchange or peer-to-peer gambling replacing traditional bookmakers has persisted. This idea gained even more popularity with the advent of the US gambling industry.
Peer-to-Peer vs. Traditional Gambling
Although both peer-to-peer and traditional gambling products can be classified as games of skill or chance, several differences set them apart.
By Richard Owoyemi
In peer-to-peer gambling, the house does not compete against players. Instead, it provides various ways for players to compete against each other and takes a commission. The winners of the contests then share the remaining prize money.
Three Forms of Peer-to-Peer Gambling
Pool betting: This popular format enables individuals to compete against multiple players with equal stakes. It has been used in various peer-to-peer gambling methods, such as lotteries, parimutuel betting, daily fantasy sports, and X-League sports.
Multi-player betting: This structure is commonly used in betting exchange designs. It involves splitting high-stake amounts and matching them against several smaller opposing bets. This structure benefits high rollers and those who prefer to place smaller bets.
Head-to-head betting: This is the basic form of peer-to-peer gambling, where two individuals often compete against each other, and the winner takes all. PeerGaming's tournament design is the most advanced form of head-to-head betting.
Benefits Of Peer-to-Peer Gambling
They can offer exciting contests: Whether it's a sports betting tournament or a private league among friends and colleagues, participants can experience the thrill of competition and the satisfaction of victory against their peers.
They cater to a wide variety of people: Peer-to-peer gambling appeals to a wide range of people, from those who enjoy playing for free to those who participate in contests with real money. Additionally, it is not limited to sports fans but to video game players.
They are known to improve brand loyalty: Brands such as Flutter Entertainment and DraftKings have gained immense brand loyalty by providing customers with platforms for gambling against each other.
Drawbacks of Peer-to-Peer Gambling
Lack of global regulatory clarity: While some peer-to-peer gambling methods have established regulations, others still seek clarification on regulatory matters in different countries. This creates uncertainty and delays innovation in peer-to-peer gambling.
Heavy reliance on network effects: In an industry where standalone operations are the norm, a peer-to-peer gambling model becomes more valuable as more individuals and operators use it. This creates a virtuous cycle that leads to lucrative contest prizes, which attract more users.
Rivalry with traditional bookmakers: This is a significant setback for peer-to-peer gambling manufacturers, as they require the support of many bookmakers to reach their full potential. However, some bookmakers perceive these manufacturers as a threat.
Conclusion
Peer-to-peer gambling has been a topic of discussion for many years, yet it remains widely misunderstood. While there are benefits to peer-to-peer gambling, such as improving customer loyalty for gaming operators, there are also drawbacks, such as heavy reliance on network effects. Whether you decide to participate in the future of peer-to-peer gambling or not, it's essential to understand the risks and benefits of this form of betting.
Sources
The History that Preceded Historical Gaming: How Parimutuel Wagering Won its Place in America, as Typified by Kentucky by Alex Gardner
A Short History of the Betting Exchange Industry by Niall O’Connor