Author’s Note: BookiePro, the first sports betting exchange in the world built entirely on a blockchain, was released for public testing on June 7th, 2018. You can download the beta release of BookiePro and be among the first to take it for a spin. For now, the app supports betting only with “BitFun” tokens, but real-money betting with bitcoins is scheduled arrive later this year.

Introduction 

After you login to BookiePro, the first thing you are likely to notice is the basic, streamlined layout. In the left hand column you can search for betting events categorized by sport, in the center you can view a specific market and scroll through the order book, and the right column contains your bet slip with standard back & lay options. Simple, functional, and familiar. It almost hearkens back to the early days of betting exchanges, when dashboards were less cluttered.

Beneath the simplified exterior, however, is one of the most advanced peer-to-peer betting technologies ever created. If that statement sounds hyperbolic to you, just consider some of the features that BookiePro has made available to users:

• Unrestricted worldwide access to betting markets (no VPN required)
• No requirement to disclose your real-world identity
• No daily limits on deposits, withdrawals, or bets
• Unrestricted in-play betting
• 1% commission on net winnings
• Cooperative ownership model, with 100% of commissions distributed to stakeholders
• Real-time, public data transparency of all betting activity on the platform
• Automated settlement of every betting market
• Unrestricted worldwide access to API servers
• Peer-to-peer transfer of funds

If you are familiar with online sports betting platforms like betfair.com and matchbook.com, then you might be wondering how BookiePro can operate so far outside the conventional (not to mention legal) boundaries of these traditional platforms. For example, how can BookiePro allow people to bet without sharing their personal identity? Why doesn’t BookiePro block access to betting from any country in the world? And who are the people in charge of regulating and managing such a permissive platform? The answer can be found by looking at the underlying blockchain technology upon which BookiePro is built.

While the app itself may be simple enough for users to navigate, the blockchain is actually quite complex. This article will break apart the complexity, in order to give you a peek “under the hood” at the various cooperative relationships which operate in the background allowing BookiePro to bypass most of the restrictions that betting exchanges like betfair.com and matchbook.com are required to enforce on their users.

In Part 1 of this article, we begin by describing a fictional company called Bet Dinosaur inc., which is modeled after a typical betting exchange startup company. By examining the business and technology standards of Bet Dinosaur, you will be provided with a foundation of data points by which to compare the business and technology standards of BookiePro.

In Part 2 we analyze BookiePro, which is built upon a decentralized blockchain ecosystem called Peerplays. Launched in the summer of 2017, the Peerplays blockchain is managed by a group of specialized software operators called “witnesses”, who are elected by digital shareholders who hold a token called “PPY”. In this section, you will learn how the network is secured, who is responsible for the upkeep and management of the betting platform, and where your betting commissions are sent. 

Before each section, you will find a flowchart to help you visualize the system from a 1,000 foot view. The flowcharts can be used as a reference to the written material, and you can also contrast them against one another to gain insight into how Bookie Pro and Bet Dinosaur are similar and how they are different.

By the time you finish reading this you should have a better understanding of the disruptive technology behind BookiePro, and how it gains its competitive edge over establishment players.

Part 1 - The Dinosaur Model

In this section, you will learn how a traditional online sports betting business operates. This discussion will highlight the various players, obstacles, and challenges faced by a startup company we have nicknamed “Bet Dinosaur inc.”  By the end of this section, you should begin to understand why a radical new business model is necessary for the betting industry. Then in section 2, we will describe the brand new business model and how it was integrated into BookiePro.

Who’s in charge around here?

Bet Dinosaur inc. is a private corporation registered on the Island of Malta. It’s primary purpose is to manage and promote BetDinosaur.com, an online sports betting exchange. Each year, company shareholders meet to elect their board of directors. The directors then meet once a month to discuss and vote on assorted business matters. For example, last month the board voted to hire a new product specialist to work with the IT department to create and manage new betting markets for the customers of BetDinosaur.com. This month, the board voted on whether or not to issue a quarterly stock dividend. Next month, the directors will vote on whether or not to give themselves a raise.

The power to make decisions in the Bet Dinosaur company flows through a typical corporate hierarchy. Shareholders can hire and fire directors according to each individual’s share percentage (also called “stake-weighted” voting). The directors are thus authorized to take a variety of actions or make decisions on behalf of the corporation, limited only by the rules or bylaws agreed upon ahead of time. These actions may include the hiring and firing of employees, the appointment of officers and department heads to manage daily operations, and the signing of contracts, loans, deeds and other counterparty arrangements.

To summarize, authority inside Bet Dinosaur inc. flows like this:
Shareholders > Board of Directors > Officers & Department Heads > Employees

And how does the product work?

The users of BetDinosaur.com do not bet against the house, but instead they bet against each other. This means they can choose their own odds, and post those odds along with their money (called “stake”), in attempt to connect with other bettors who want to accept their bet. This activity happens through an online betting interface (much like the example given in the introduction of this article) or through a direct API connection.

The employees of Bet Dinosaur manage a betting server, with software that enables the users of BetDinosaur.com to back or lay their favorite sports teams in a variety of betting markets. The employees of Bet Dinosaur decide which markets to offer, and they make sure each market is resolved with correct data about which team won or lost the game. The server keeps track of how much money is owed to each user, and users can deposit and withdraw their money through a payment processor.

Ok that all makes sense, but how about telling us who’s really in charge?

Although the control of Bet Dinosaur inc. rests with the board of directors, there’s also a number of outside agencies that influence and limit the board’s decisions. For example, when the board applied to the Malta Gaming Authority for a license to operate an online sports betting exchange, the Gaming Authority required Bet Dinosaur inc. to undergo a compliance review, including an examination of their marketing strategies, distribution strategies and growth targets, and human resource management plans, as well as a technical audit of their gaming systems. After the audit, several changes had to be made at Bet Dinosaur’s expense, in order to suit the Gaming Authority’s requests. And when the license was finally granted, it only applied to customers who live in pre-approved geographical locations. Furthermore, Bet Dinosaur would owe compliance fees to the Gaming Authority that amount to almost 5% of annual earnings for the duration of the license.

Next, the board decided to partner with a payment processor called RaptorPay, because they needed a way for customers to deposit and withdraw funds. RaptorPay would request a copy of a government-issued ID from every customer in order to comply with anti-money laundering laws, and this information would also help Bet Dinosaur to refuse service to people who live in restricted locations. Daily withdrawal and deposit limits would also be imposed on customers in some countries due to banking regulations.

A few months after opening, BetDinosaur.com began to experience volume spikes in certain horse race markets. The British Horseracing Authority noticed these spikes and suspected illicit betting activities might be taking place, so they contacted the Malta Gambling Authority to pressure Bet Dinosaur inc. into publishing a weekly report on the statistical records betting activities on the platform, and also to disclose to law enforcement the identity of any customer who the Horseracing Authority suspected of illicit activities. The Horseracing Authority also asked Bet Dinosaur inc. to pay them a monthly “integrity fee” to help pay for the service of investigating illegal betting activities in horse racing.

With global legal sports betting revenues ranging somewhere north of $100 billion annually, it’s no surprise that everyone wants a piece of the pie. And while the fees charged by regulators can be steep, without regulation it would be easy for gaming operators to take advantage of customers and for dishonest insiders to profit from their influence over players or coaches. Nevertheless, small startup companies are given very little choice in the matter because if they do not cooperate with regulators they will lose their license and ability to conduct business.

And what about the competition?

Markets with the best regulatory oversight are usually the first to become saturated with product offerings, and this creates another unique hardship for betting exchange startups. Since betting exchanges need customers to bet against each other (rather than a house), startups often suffer from a situation known as the “the chicken or the egg” problem. In a nutshell, what this means is that most bettors prefer to use an exchange which already has a high volume of activity (for more betting choices), but the only way to gain that volume of activity is to attract new bettors.

So how fierce is the competition for customers? Well, it's probably safe to say that along with hundreds of online sportsbook operators, Bet Dinosaur will inevitably find itself competing against a certain older, more successful betting exchange called “Bet Mammoth”. Bet Mammoth operates out of the UK, and has been in business for close to 20 years and employs over 7,000 people. The marketing budget for Bet Mammoth is north of US$400 million annually, and it holds licenses from at least seven different independent gaming authorities. To support an aggressive growth strategy, Bet Mammoth has even started charging their customers extravagant fees for “winning too much”, which has caused anger and backlash driving some customers to look elsewhere. But even so, with multiple licenses and massive budget Bet Mammoth continues to succeed in growing its pool of customers which has further increased exchange volume and further multiplied Bet Mammoth’s attractiveness to future users.

The market dominance of Bet Mammoth has made it very difficult for Bet Dinosaur to grow and gain a foothold in the betting exchange marketplace. They might get lucky fighting Bet Mammoth for table scraps, or they might even achieve a measure of success by attracting customers in smaller markets where Bet Mammoth has yet to sink its tusks, but overall the odds are not in Bet Dinosaur’s favor. Unless they can offer a service that Bet Mammoth is unable to match, their operation will continue to struggle and may eventually even “go the way of the dinosaur”... 

So what's the alternative?

Part 2 - Decentralized Peer-to-Peer Betting

Decentralized? What the heck does that mean?

Unlike Bet Dinosaur, BookiePro has no corporate authority operating the platform, and no legal jurisdiction from which to register with any gaming authority. BookiePro is a downloadable software application that runs on your desktop computer, and connects you directly to the Peerplays blockchain network. On the Peerplays network, all betting events are created and managed by an international group of independent operators, and all betting activity and funding takes place directly between bettors in a peer-to-peer environment. In this section, we will explore how all of these activities are managed and organized.

To begin, imagine the blockchain is like a betting server, but rather than operating from a single location (like the offices of Bet Dinosaur), all the betting activity on BookiePro is executed across a worldwide network of servers run by independent parties. These parties are called “witness node operators” or “witnesses”, and they are in charge of validating the activity - in other words they make sure all valid bets are securely recorded in the blockchain database.

The Peerplays network has dozens of witnesses scattered across the globe, and all betting activity is recorded across the entire network at the same time. Because of this decentralization of power, there is no single entity who can be forced to shut the network down. You may be familiar with the concept that bitcoin cannot simply be “turned off” by any government or regulatory agency…. well the Peerplays network operates in much the same way.

Each witness provides the network with a public API node (an access point for the BookiePro app to communicate with the blockchain), and the app then monitors traffic on all the nodes and connects the user to whatever one is most readily available. After each bet is placed, automated software on the blockchain then collects the funds (bitcoin) from each bettor, holds the funds in escrow, and then releases them to the winner according to the result of the sporting event. The payment processing happens on the bitcoin blockchain, so witness node operators do not hold or control any of the users' funds.

Who keeps an eye on the witnesses?

In order to determine who gets to operate the witness nodes, a stake-weighted election must take place between a group of people who hold a digital share token called “PPY”. Each PPY token counts as a single unit of voting power, and PPY can be bought and sold on cryptocurrency exchanges like www.livecoin.net and www.openledger.info. PPY holders can utilize their voting power to vote for individual witnesses, much like a company shareholder would exercise her voting power to vote for directors, except the process on Peerplays is automated through the software. And while a regular company might hold elections on a yearly basis, the Peerplays network tallies votes every 2 hours.

After a witness node operator is elected, he takes turns validating the betting activity with other witnesses on the network in 3 second intervals, which allows bets to be confirmed fast enough to support in-game betting. The process is randomized, but in general it means if 15 witnesses are elected, each witness is responsible for validating a group or “block” of bets roughly every 45 seconds. The validation process happens automatically with the specialized software that a witness node operator runs on his server. This software is transparent and open-source, which means a witness cannot deny any valid bets without the entire network knowing about it. In other words, witnesses can either tell the truth, or lie and risk being held accountable.

How are they held accountable? For starters, if a single witness lies about which network activity is valid, that alone is not enough to censor activity. All the elected witnesses must come to consensus as a group about all network activity, which means over 50% of the witnesses must agree for an invalid bet to be censored or for betting markets to be created or updated. This is known as the 51% participation rule, and is a foundational principle of every blockchain in the world. Additionally, bad witnesses can be voted out almost instantly because shareholder voting preferences are updated and enforced every 2 hours. But perhaps the biggest reason why witnesses are incentivized to tell the truth, is because they get paid to do so.

How do witnesses and PPY holders get paid?

Naturally there is a big upside to being a witness. Each witness receives a regular allocation of newly created PPY tokens in return for validating blocks of betting activity and creating and managing betting events. The Peerplays network automatically creates these new tokens and distributes them at a fixed rate to witnesses who do the job correctly. In a traditional company, this process is akin to paying the salaries of your executives and employees with newly minted shares of company stock. This is actually quite an effective method of handling the "payroll" for the network, because PPY tokens have real monetary value so they can be traded for dollars, euro, or other digital currency tokens on several cryptocurrency exchanges.

For PPY holders, along with voting rights they are also rewarded with a share of the commissions paid by users of the BookiePro app. These rewards are distributed in a way similar to stock dividends. To begin, the BookiePro app charges users a 1% commission on net winnings. Then the Peerplays blockchain holds these commissions in a segregated account, and every 24 hours the contents of this account are distributed directly into the accounts of PPY token holders, based on the total percentage of PPY that they hold. Each shareholder is then able to claim his or her accumulated dividends once every 30 days.

So for example (we will use dollars rather than bitcoin, for the sake of simplicity), let’s say there are $3 million in bets settled on BookiePro today, which means $30k (1%) is withheld in commission fees. This $30k will be allocated to each Peerplays account according to what percentage of PPY it holds. So if you hold 110k PPY in your account, which is 2% of the total PPY in circulation (as of mid 2018), then for today’s distribution you will receive $600 (2% of $30k). This dividend (along with the dividends from the other 29 days in the period) will accumulate until the end of the period. Then at that time, you can withdraw your dividends to any bitcoin address you like.

This process can be compared to a traditional company stock with an ex-dividend date that renews every 24 hours, and a new payment release date that recurs every 30 days. In other words, if a PPY holder decides to sell some of her PPY in the middle of the 30 day period, she will still receive at the end of the period all the dividends allocated to her before the sell date. This system, which allocates 100% of “company revenues” to shareholders every 24 hours, is totally unprecedented in the modern business world and is only possible now thanks to new and sophisticated blockchain technologies built by the Peerplays developers.

So who are these mysterious witnesses and PPY holders?

Initially, PPY tokens were allocated to people who donated Bitcoins to PBSA (a non-profit organization based in Canada) in the spring of 2017. PBSA did not actually create or transfer the PPY tokens to donors, but instead they made available to the public an anonymous list of bitcoin donor addresses. Then in June of 2017, a group of about 50 independent witness node operators from around the world launched the Peerplays blockchain, and the blockchain contained a feature whereby each bitcoin donor could claim their allocated PPY tokens using their bitcoin address password or “private key” credentials. You can find a detailed explanation of the allocation procedure on pages 9-14 of this report. The Peerplays blockchain has been operating for just over a year, and already it contains over 9,000 individual accounts holding PPY tokens. 

Witness node operators can also remain anonymous if they like, although some may choose to reveal their identities. The choice is not mandatory, as the most important requirement is simply to earn the confidence and vote of PPY token holders. Several Peerplays witnesses have thus succeeded in building a reputation of trust and support from enough PPY token holders to become elected.

If everybody is anonymous, how can we trust the system?

Aside from rewards and punishments that incentivize good behavior (as described above), the Peerplays network operates entirely on open-source software code. This means that anyone can audit the system at any time. If the code is not doing what it should, or if any particular witness is not performing correctly, it becomes immediately apparent to everyone so that corrective measures can be taken.

For the past year, PBSA has offered the service of auditing the code and writing software patches when needed. Although PBSA does not operate any witness nodes, they occasionally make public statements and recommendations about specific updates. The witness node operators must then come to consensus amongst themselves if and when to implement PBSA’s recommendations, and PPY token holders in turn have the final word over hiring and firing witnesses. Since there is reasonable expectation that most players will act according to their own self-interest, the aforementioned checks and balances are in place to keep the majority of interests aligned while also ensuring that 51% must agree with any action taken that could affect the rules of the network.

BookiePro is also the first sports betting platform in history to make all the data about betting activity available to the public in real-time. This level of transparency is a major win for gambling authorities and sports regulatory bodies, because the real-time analysis of betting patterns should help to prove whether a particular event has been subjected to manipulation or insider influence. Plus, regulators don’t have to audit any private company servers (which can be changed or misrepresented), or wait for days or weeks after an event has concluded in order to see the data on betting activities.

Why aren’t there limits on deposits or withdrawals?

Bets on BookiePro are made using bitcoin, a digital currency with a stellar reputation for security. Most bitcoin hacks happen because people allow third parties to manage their bitcoins in unsafe ways - but with BookiePro each user is responsible for their own funds. Therefore the simplest rule to keep your funds safe on BookiePro is - don’t lose your BookiePro password or share it with anyone. As long as you follow this rule, your funds will be safe.

The Peerplays blockchain directly communicates with the Bitcoin blockchain through a sidechain payment gateway, which means there is no "middleman" involved with the transfer of funds. After you deposit funds and place a bet on BookiePro, your funds (along with the funds from the person taking the other side of you bet) are held in escrow by a smart contract, which is an immutable software program that automatically releases the funds to whomever wins the bet. Since there is no payment processing company, there are no limits on deposits, withdrawals, transfers or bets.

Who creates and resolves the betting markets?

Without a single operating authority, how do the hundreds of sports leagues, and thousands of unique sporting events that happen around the world each year find their way onto the BookiePro app? Well in fact, it’s the Peerplays witnesses who are responsible for uploading data to create and reconcile each betting event, and they manage this through a software suite called Bookie Oracle Software (BOS). Many companies in the betting industry use sports data feeds to automate the creation and settlement of markets, because it costs way too much to do it manually. In the same way, Peerplays witnesses are encouraged to utilize the BOS software to automate the process on BookiePro.

In essence, BOS gives each witness the tools to independently monitor a multitude of sports data feeds for each event, and then combine the data into a single database. This database “normalizes” the data into an agreed upon format and then publishes the median result to the blockchain. The blockchain then utilizes the median result of all the witnesses’ combined data, therefore creating two separate layers of probabilistic robustness. Once the data is validated, smart contracts on the blockchain then use it to “trigger” the creation and settlement of each betting market.

Sports data feeds are published by companies who often rely upon reputation and trust to sell their service, because one single mistake in their data could mean thousands or even millions of dollars loss for their customers. Because of this, feed providers often have impeccable records of accuracy. Even so, because funds settlement on BookiePro is irreversible, it is especially important that accurate results be achieved every single time. Therefore, BOS gives witnesses another tool called MINT, a manual intervention tool which will automatically notify the witness if any discrepancy is found, and allow for manual override if and when necessary. Naturally, the blockchain still requires 51% of witnesses to agree on any override measure taken.

In order to know which sports and leagues should be monitored, the witnesses can reference a catalogue called Bookiesports which contains a lookup table of reporting standards for each sport and league. Updates to Bookiesports, which will correspond to support for additional sports and leagues being added to the BookiePro app, are scheduled to be released by PBSA as soon as the process of formatting the necessary information for each sport and league is completed. For a further overview of BOS, please see the following articles 1, 2.

And what about marketing?

It might be hard to imagine a decentralized application competing on a level playing field against the multi-million dollar advertising budget of a corporation, but recently the BookiePro development team has presented a promising solution. In short, it involves an affiliate referral program that automates betting commission kickbacks to people who refer new users, thus incentivizing an army of grass-roots advertisers. We will discuss this solution in more detail in a future report, because the full picture has not yet been made public by the development team.

BookiePro - A Radical New Way of Doing Business

In this report we talked about the technology behind BookiePro, and showed how blockchain is paving the the way for a brand new type of organizational structure. By reviewing the challenges and pitfalls of the traditional betting exchange business model, we set the stage for a solution that breaks many of the rules and assumptions which have been in place for decades. And while these radical ideas were mere concepts a few years ago, BookiePro has now emerged as the first example of a major consumer-scale blockchain sports betting app to integrate them.

If you want to keep up with the latest news about BookiePro and Peerplays, be sure to check out www.bookiepro.fun as well as www.peerplays.com.

And if you want to join the betting community or get involved with the Peerplays project, you can visit BookiePro and Peerplays on Telegram at t.me/BookiePro and t.me/Peerplays.
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