Amid the Bitcoin community, gambling happens to be one of the first of the vices that most users stumble across. In fact, the prevalence of pyramid and Ponzi schemes plying for people to throw their bitcoins into them are quite common—although most of them are entirely in good fun as they openly announce exactly what they are to the community. As with any valuable currency (even in the case of bitcoin microcents) people who gamble with their coins still want to be sure that they’re not getting entirely ripped off.

Enter some interesting ideas involving the cryptographic nature of the Bitcoin model itself and we can see the slow emergence of the crypto-casino.

Much like any Western, people might understand that casino’s gain reputation not just by being vigilant about preventing cheating by their customers, but also by showing their customers that the house isn’t cheating them. This is much more difficult online due to the lack of connection between parties and the anonymity granted by connections across the Internet (i.e. it’s difficult to see what each side is doing.) As a result, security and reputation houses have arisen from the murk such as PricewaterhouseCoopers who deal with “relationship security.”

PwC audits online casinos for the fairness of their algorithm and produces them a certificate that they can display to their customers that they can be trusted not to rip them off. As a result, it is PwC putting their own reputation on the line to essentially vouch for the casino’s fairness; but casinos that use Bitcoin may be able to take a different route and actually show that they’re being fair because the exchanges involved happen to be recorded publicly in the Bitcoin block chain.

Jim at Bitcoin Blogger initially picked up this story to speak about Bitlotto.com, a bitcoin lottery that provides a great deal of security, anonymity, and uses bitcoins as its currency exchange source. The bitcoin lottery service runs with the tagline claiming to be “anonymous, transparent, and cheat-proof with a 99% payout.” Their transparency exists entirely in the fact that every transaction in and out is recorded in the Bitcoin public block chain, in fact, when a person submits their .25 BTC their lottery ticket number is the payment record of the initial bitcoin quarter.

Curious parties interested in making sure that they lottery functions as it admits it does can check the Bitcoin public block chain to make certain that during a day all of the bitcoin quarters that get sent into the lottery at least one of the exchanges from a batch receives a payout. If someone were to discover that payouts were not happening (and once again, this is publicly visible in the block chain) it would wreck the reputation of the lottery and Bitlotto.com would go down in flames.

Well, at least that’s the hopeful end result of the community discovering and being able to show with evidence that a cheat happened.

Cyptography and other extremely hard mathematical products are used commonly in the computing world to show that a thing is what it is mostly because 99.99% of the clients in any given sphere don’t have the computing power to break or forge cryptographic signatures or proofs. They’re a pretty good demonstration of honesty—although not entirely perfect. By in large, they do tend to keep honest people honest and adding a level of transparency—while actually poking a little hole in total anonymity—could go a long way to giving bitcoin casino services an ability to generate their own reputation and allow them to provide evidence of their own fairness by simply pointing to the block chain.