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Using crypto for online gambling is increasing in popularity, although even with widespread uptake, many players don’t have a full understanding of the risks involved in this process, and we’re not talking about the games of chance themselves. A major blind spot here is whether the game or platform operates on a custodial basis or is non-custodial. That sounds complex, but it’s simple enough to grasp with a little explanation, giving you a means of making the right choices for your assets and your risk tolerance.
The Custodial Conundrum
A typical custodial arrangement for games of chance funded with crypto assets works like any equivalent fiat-based online casino setup. You’ll deposit crypto post-account-creation directly with the operator, and they’ll be responsible for protecting and managing this, meaning it’s out of your control.
The main upside is, of course, that the risk sits with the operator. So, if you’re playing at a reputable online slot machine site that accepts crypto deposits, they’re the ones in charge of handling your funds until the point you choose to make a withdrawal.
The risk for the end user is multifaceted. If a custodial operator goes bust or gets hit with regulatory sanctions, it might leave your funds frozen for an indeterminate period, or inaccessible for good. Similarly, custodial sites tend to impose withdrawal restrictions on player accounts, meaning there may be caps on how much you can take out and how often, as well as waiting periods to factor in.
Moreover, custodial platforms may effectively convert your crypto assets into another currency, whether operator-specific or fiat, before wagering can commence. Withdrawals in your preferred crypto coin might not be supported. So in short, reading the small print and only signing up to trusted sites makes the most sense.
The Non-Custodial Question
Plenty of web3-specific casinos and platforms that provide decentralized lotteries are explicitly non-custodial, requiring only that users connect their wallets to them and commit to transactions as and when desired. This means the crypto rests with you, remaining private until the point at which you make a wager.
For some, this level of privacy and personal responsibility will seem a lot less risky than the custodial approach. However, you’re still putting your trust in third-party code for the actual games of chance and the transactions supporting them. And there are all the attendant risks of crypto transactions involved here, such as erroneously sending funds to the wrong address or being targeted by malware that compromises your wallets.
Likewise, games of chance in the web3 sphere are not always as sophisticated as those found in mainstream online casinos, at least from an RNG perspective, because there’s less regulation and oversight of the algorithms used. That’s a risk you’re taking as an end user, and once again the issue of how much you trust a platform provider comes to the forefront.
In terms of managing risks outside of pure trust, you should never connect a primary savings wallet to a gambling dApp. Instead, use a dedicated burner non-custodial wallet funded only with the exact amount you plan to wager. Also, if you’re using a centralized casino for liquid play, treat your account balance like a chips stack on a table. Deposit to play, and withdraw winnings to a self-custodial wallet immediately after your session ends for complete peace of mind.
