Why the Lottery Industry in the Artificial Age Urgently Needs Blockchain Transformation

Lottery + Blockchain is a new direction for the combined development of industries.

In recent years, with the development of blockchain technology and the highlighted pain points of the lottery industry, the use of blockchain to empower the lottery industry has begun to enter the mainstream.

As a new generation of technology, blockchain has many irreplaceable powerful functions, such as distributed data storage, point-to-point data transmission, etc.. Because of its immutable underlying logic, the blockchain has plenty of room for development in many application scenarios such as traceability, certificate-saving, and trust mechanisms etc., which deeply matches the needs of the lottery industry.

After the article “Blockchain as an important breakthrough for independent innovation of core technologies” reported by the People’s Daily, the cooperation model of “lottery + blockchain” has reached a new level.

On November 19th, Hongbo (002229), a listed company in the lottery industry, reached a strategic cooperation with the blockchain company Hashi Technology to jointly explore the “lottery + blockchain” industry combination, which is an in-depth practice of industrial cooperation.

In this article, we will describe in detail how blockchain can empower the lottery industry:

01

Status and problems of lottery industry

Since the official issuance of lottery tickets in 1987, China has cumulatively sold about 3.7 trillion lottery tickets.

According to figures released by the Ministry of Finance, as of 2018, the cumulative sales of welfare lottery tickets has exceeded 1.1 trillion yuan, the cumulative sales of sports lottery tickets has exceeded 0.9 trillion yuan, and more than 0.5 trillion yuan of public welfare funds have been raised. In 2018, the revenue of public welfare funds reached a new high, reaching 131.3 billion yuan, and its proportion of fiscal revenue continued to rise to 0.72%, which has made great contributions to all sectors of society.

At the same time, according to relevant media data statistics, the overall quarterly active user scale of the lottery service industry remained at 30–40 million in 2018.

It can be said that the entire lottery industry is in an upward and benign development state. But at the same time, we also see that there are many pain points in the lottery industry that need to be resolved.

The pain points of the lottery industry are currently focused on four major areas:

Credibility needs to be continuously strengthened

The lottery industry has always been a concern industry, but in recent years, due to some criminal factors, the credibility of the lottery industry has declined to a certain extent.

In June 2019, at a Beijing court trial, Feng Lizhi, deputy director of the China Welfare Lottery Issuance and Management Center, used the “lottery” to accept a bribe of 5.851 million yuan, resulting in the loss of 160.3161 million yuan in lottery business fees and causing major losses to national interests by abusing his power, who was finally sentenced to 17 years.

Earlier, there was a lottery fraud in Shenzhen that shocked the country. A man used his position to maliciously tamper with the lottery data after the draw, in an attempt to forge the fact that the two-color ball won the first prize. The amount involved was as high as 33.05 million yuan.

Over the past 20 years, people ’s lifestyles have changed dramatically, and the lottery industry is still at the stage of manual lottery sales, manual lottery draw and manual lottery redemption. The changes in the industry cannot keep up with the advancement of science and technology, and the incidents happen many times that affect lottery drawing and redemption through technical means. The existence of a small number such as Feng Lizhi deepened the mistrust of lottery players in the lottery industry.

To eliminate this distrust, one requires time, and the other requires technology.

Further implementation of regulatory compliance

Due to the large number of lottery sales outlets and the large number of lottery ticket buyers, there are still problems in the implementation of laws and regulations in the actual lottery operation.

This inadequate implementation of regulations is rarely existed in the first and second tier cities, but is still severe in a wide range of sinking markets.

On August 5, 2019, the Dongguan Tangxia Police successfully cracked this “Red God, Xixi Sports Lottery” APP online gambling case using physical legal gambling as a cover, and arrested 10 criminal gangs, involving up to 16.7 million yuan in participation and about 14,000 betting staff across the country.

The model of “Red God Sports Lottery” is very simple. It cooperates with many welfare lottery physical stores in third- and fourth-tier cities. When lottery ticket buyers buy lottery in physical stores, they recommend the app to lottery ticket buyers by calling it a regular lottery software. However, The “Red God, Xixi Sports Lottery” APP is just a group of criminals who set up privately to illegally accept the disguised betting of gambling by way of betting on football and lottery.

Attracted by small profits, the scam partnered with some physical lottery operators to bring more than 14,000 people into the pit.

Therefore, in the process of actual lottery management, how to prevent lottery players from stepping on these pits is also a pain point for the industry.

High labor costs

Under the existing lottery ticket sales process, each link of the sales process is cumbersome and requires a lot of manpower. Not only the operation efficiency of the entire lottery ticket sales process is low, but also the problem of high labor costs exists.

According to data from the third-party Analysys China ’s Lottery Market Industry Analysis 2019, among the current lottery industry ’s profit share, the lottery printing in the upstream is only 0.5% and the equipment supply is less than 2%, while channels, including entities channels and paperless channels account for more than 20%. This is also the most costly part of the current lottery industry.

Saving high labor costs and obtaining higher operating efficiency are the third focus of the lottery industry.

Common case of lottery tickets lost and redemption of others

Due to the low threshold for lottery purchases, the large number of outlets, and the large number of lottery ticket buyers, it is difficult to achieve real-name authentication such as mobile phone number purchases, which has also led to the loss of lottery tickets and the use of lottery tickets by others.

On February 15 this year, the Intermediate People’s Court of Fuyang City, Anhui issued a notice offering a reward of 460,000 yuan for the whereabouts of Pan Pan and Wang Wenjun’s property. Behind this bounty announcement is a bizarre lottery case.

In 2012, Mr. Li, a citizen of Fuyang, entrusted the local lottery shop owner Pan Pan to buy lottery tickets on the phone. After winning more than 6 million yuan, the prize was jointly claimed by Pan Pan and Pan Pan’s relative Wang Wenjun. Pan concealed the fact of winning the prize from Li, and handed the winning lottery ticket to his relative Wang, who told Wang to misrepresent that he had won the prize, and obtained an after-tax bonus of about 5 million yuan. Then Wang withdrew the cash in more than 10 banks in the urban area and hid the money. After several trials and executions in this case, Pan and Wang have not returned the money.

The wealth is seductive. Under the temptation of huge profits, there are always some twists and turns in the bright development of the lottery industry.

This is why the call for “blockchain + lottery” has become stronger.

02

Why blockchain + lottery is the trend?

As early as 2015–2016, the blockchain + lottery solution has been proposed, and some people in the lottery industry have begun in-depth research at that time.

But for some reason, this idea has not spread to the entire industry.

Until 2018–2019, the gust of blockchain + lottery really started to blow.

On April 4, 2019, the Chinese Government Procurement Network released the “Announcement of Publicly-Tradeable Electronic Lottery Draw Technology Research and Application Based on Blockchain Smart Contract Technology”, which mentioned in the announcement that focusing on the actual needs of lottery number generation of welfare lottery electronic drawing, starting from the application scenarios of various provinces, it should break away from the traditional “technical formula” of electronic lottery thinking, combine the core characteristics of financial blockchain technology, study the means and models of applying blockchain smart contract technology to electronic lottery systems, to solve the key unfair and unauditable issue of the current lottery industry’s electronic lottery system, and to further study the next generation lottery drawing and lottery redemption system technology.

On April 13, 2019, the world’s first blockchain lottery was opened in Kampala, Uganda. The blockchain lottery system is built on the basis of blockchain technology and is operated by MOBILELOTTO LTD in Uganda.

On October 28, 2019, the Shenzhen Welfare Lottery Issuance Center stated that it plans to conduct a “blockchain” technology lottery pilot to launch lotteries printed with personal information such as ID numbers or mobile phone numbers to promote real-name lottery tickets for lottery ticket buyers without worrying. This is the first time that “blockchain + lottery” has been officially mentioned in China.

On the same day, “Shenzhen Evening News” took the lead to report that Shenzhen Welfare Lottery will apply blockchain technology on a trial basis in April 2020, calling it a local lottery center’s innovative attempt for “tech lottery”.

On November 19, 2019, Hongbo Co., Ltd. (002229), a listed company in the lottery industry, reached a strategic cooperation with the blockchain company Hashi Technology.

Blockchain + lottery is springing up, so what exactly is a blockchain? To put it simply, blockchain is an underlying technology, which has the characteristics of decentralization, data disclosure, and tamper resistance.

1. Decentralization. To put it simply, blockchain technology does not rely on additional third-party management organizations or hardware facilities, and there is no central control. In addition to the self-contained blockchain itself, through distributed accounting and storage, each node achieves self-verification, transmission and management.

2. Data is open and transparent. The blockchain technology foundation is open source. Except for the encryption of private information of the transaction parties, the blockchain data is open to everyone. Anyone can query the blockchain data and develop related applications through the open interface, so the entire system information is highly transparent.

3. Immutable. The blockchain is an open chain. As long as you cannot control 51% of all data nodes, you are not able to manipulate and modify network data. This makes the blockchain itself relatively secure and avoids subjective and artificial data changes.

In addition to these, blockchain technology also has technical characteristics such as distributed storage, random numbers on the chain, and smart contracts that execute automatically. These characteristics are undoubtedly a good medicine for the current lottery industry, which can promote the development of the industry from multiple aspects such as information security, capital security, lottery interests, and identity authentication.

Moreover, this driving force is not in a certain link or in several links, but in the issuance, sales, drawing, and redemption of lottery tickets. In all links, the blockchain can promote the progress of the industry, which is visual and perceptible.

03

How blockchain empowers the lottery industry

First of all, the blockchain is not a panacea, and it cannot solve all the problems faced by the lottery industry, but only provides a series of support for the lottery industry from a technical level.

So, how exactly does blockchain + lottery operate?

Let’s talk about principles first.

The blockchain can use a strong encryption method to create an authentication infrastructure that can control the entire process of lottery sales, drawing and redemption. It contains personal basic information of lottery buyers, lottery information entry, full redemption process information, the actual redemption situation of the prize, etc .; secondly, the private key is used to encrypt and sign the certificate; next, a hash value is created to verify whether the content of the certificate has been tampered with;

Finally, a private key is used again to create a record on the blockchain network to prove what the certificate has reached at some time.

Then we will use cases to explain to everyone.

In the past:

Mr Wang is a lottery ticket buyer. When buying lottery, all Mr Wang can do is to go to a physical store to buy a lottery ticket and wait for the lottery to be drawn. During the lottery drawing, Mr Wang can only see the it on TV. Of course, if it is the lottery ticket similar to scratch, it will be scrapped on the spot. Then, after Mr Wang found himself winning the prize, he went to the physical store / reward center to redeem the prize.

But in the process, Mr Wang met many pits.

1. There were some loopholes in the official lottery (hacked, corrupted. Mr Wang failed to get the prize.

2. He called the physical store owner to help buy the lottery. After winning the prize, the boss swallowed the lottery secretly. Mr Wang failed to get the prize.

3. He went to the physical store to buy a lottery ticket, but found that the lottery ticket was fake. Mr Wang failed to get the prize.

4. On the way to redeem the prize, Mr Wang accidentally lost the lottery ticket. Mr Wang failed to get the prize.

5. Mr Wang successfully redeemed the prize, but because he forgot to hide the information of winning prize, he was often disturbed by relatives and friends.

At present:

Mr Wang came to the physical lottery store and realized one-click identity authentication through the blockchain. The process is very simple through the authentication of face recognition or ID card recognition. After confirming that Mr Wang meets the age of 18, he bought one lottery ticket. Because everything needs to be on the chain, the physical store can not recommend to Mr Wang the lottery that is not on the chain, so the “fake lottery scam” can no longer harm him. At the same time, in the process, Mr Wang and the lottery information purchased have been completed on the chain.

Next, during the lottery drawing, random numbers were drawn on the blockchain without any human intervention. Mr Wang saw the entire process of lottery drawing and was clear that there was no shady in the process.

After the prize draw was completed, Mr Wang won the prize successfully. As the information on the chain has been confirmed, neither the physical store owner nor the person with bad intentions can swallow the lottery prize privately, and the entire network knows that Mr Wang won the prize.

On his way to redeeming the prize, the paper lottery was lost accidentally. However, he was not panic and proved his identity through the information on the chain. He successfully won the prize.

The entire network understands that Mr Wang has won the prize through hashing, but because the personal privacy chain is confidential, everyone knows that the identity has won the prize, but no one knows that this person is Mr Wang.

Mr Wang successfully received the bonus, avoiding all risks, and everything is under control.

In this case, we can see that the blockchain has successfully exerted its efforts before the lottery’s draw, in the draw process, and in the redemption process, and has optimized many of the disadvantages of the current lottery industry.

1. Before the draw:

Users can only purchase lottery after the on-chain identity authentication is performed by the blockchain. The user purchases the lottery at the sales outlet and completes the ticket issuance. The sales outlet information, lottery betting information, amount, user unique identification and other data are stored on the blockchain. On the one hand, it is to prevent minors under the age of 18 from buying lottery, and on the other hand, to confirm the identity of the lottery buyer, which is convenient for subsequent redemption.

2. In the draw process:

The lottery will be drawn on the chain by a random number on the smart contract chain. Manual lottery will no longer be conducted in the past, which avoids the possibility of “human operation” during the lottery.

After the lottery is completed, the lottery information is stored on the chain through smart contracts. All information is open and cannot be tampered with. At the same time, the smart contract will automatically match the betting information and the lottery information. The winning situation will be displayed on the chain. The form is hidden, and only the winner can confirm his or her winning situation through the private key.

3. In the redemption process

The user completes the redemption by matching the on-chain identity verification with the smart contract’s lottery information. The redemption process will be public on the chain, but the privacy of the redeemer will be encrypted.

So, here comes the question. After applying the blockchain technology, what is the progress for our lottery industry?

First, the credibility of lottery tickets has been further improved. Since the blockchain uses smart contracts for lottery and redemption, the “artificial lottery” model that has been criticized in the past will no longer exist, and the “shadow” will have nowhere to go. The amount of public welfare funds will also be disclosed on the chain and is visible on the whole website.

Like the case of “ interference of human factors with the lottery” and “modifying the background data to illegally redeem the prize” in the past, it has become impossible in the era of blockchain + lottery, and the lottery’s trust in lottery will undoubtedly be further strengthened .

Second, the regulatory compliance of the lottery industry will be further regulated. Through the blockchain technology, after all lottery sales outlets, lottery centers and regulators at all levels are linked, the behavior of the lottery business premises will be uploaded to the blockchain, and the regulator can view all the data stored in the entire blockchain at any time to immediately intervene in non-compliance.

For example, the “Red God Lottery” mentioned above intends to cooperate with some physical stores to sell illegal lottery tickets to lottery buyers. However, if the lottery operation is to be transmitted to the chain, physical stores will no longer be able to perform black box operations and can only sell legal lottery tickets .

Third, labor cost optimization. After the introduction of blockchain technology, many processes of lottery sales, draw and redemption will be replaced by smart contracts. The time and labor cost of lottery redemption will be greatly reduced, and the labor cost will be greatly optimized. This also means that channel fees, which used to account for 20% of costs, will be greatly reduced, and public welfare funds will be greatly improved.

Fourth, the loss of lottery tickets and fraudulent redemption will no longer bother lottery buyers. After the lottery is combined with the blockchain technology, the user’s lottery information will be uploaded to the chain, and the lottery information will not only be stored offline, but will be tied to the corresponding user on the chain. The lottery buyer can directly redeem the lottery by passing the on-chain identity certificate, and the phenomenon of losing lottery tickets and fraudulent redemption of lottery prizes by others no longer exists.

As mentioned above, Mr. Li, a citizen of Fuyang, will no longer be misappropriated by lottery shop owners and can legally obtain his own benefits.

Based on the above, the author has made a comparison chart of traditional lottery and “blockchain + lottery”, for everyone to check easily.

04 Blockchain application of instant lottery, analysis of Hongbo shares + Hashi technology cooperation

In the above, we put more emphasis on welfare lottery and sports lottery. Here, we analyze the blockchain application in the instant lottery.

The analysis of instant lottery is based on Hongbo shares.

Public information shows: Hongbo is a registered A-share listed company in Fujian with a stock code of “002229”. Its main business is security printing. It is one of the leading companies in the Chinese lottery printing industry, providing printing, sales, operations, and product development services for China Sports Lottery and the Welfare Lottery Center.

On November 19, 2019, Hongbo Co., Ltd. (002229.SZ) announced that in order to promote the development of blockchain core technology-related business, Hongbo Co., Ltd. and Shanghai Hashi Technology Co., Ltd. (“Hashi Technology”) signed a strategic cooperation agreement. It is planned to carry out in-depth cooperation in the fields of lottery and electronic tickets based on blockchain technology.

This cooperation will be concentrated in the field of instant lottery. Instant lottery tickets have a wide range of markets around the world, with the characteristics of easy entry, immediate purchase, draw and redemption.

In the lottery scene, lottery buyers buy instant lottery tickets, scrape out the patterns or numbers on the instant lottery tickets, and compare them according to the winning rules. The winning prizes will receive the corresponding prizes or bonus. Each operator will design the gameplay in accordance with the regulations of the country and region.

For example, our common scratching play is the representative of instant lottery.

Instant lottery passes value between strangers. The winnings flow from the lottery buyer to the operator through the consignee, and the bonus flows from the operator to the lottery buyer. Instant lottery flows from operators to lottery players as securities. Prize data and reward data are stored centrally in the operator’s server.

Different from welfare lottery and sports lottery, that is, during the production of instant lottery tickets, different teams are responsible for generating random numbers, awarding algorithms, awarding results, and printing tickets. Data flows between different teams, so there is a risk of external hackers tampering with the data during the entire process.

In the actual operation process, all operators will pay special attention to data security and ticket security. In terms of technology and operating procedures, many links will be designed to ensure security and reliability. Once an external hacker invades and manipulates data, lottery operators will suffer heavy losses. .

But at the current stage, these design links are basically centered, which also leaves room for lawbreakers to operate.

For example, Eddie Tipton, the head of the security department of a lottery company in Iowa, USA, has tampered with data in 2007 and 2012, illegally manipulated lottery draw procedures, and used fraud to win huge bonuses. .

To ensure the security of instant lottery, blockchain may be the best choice.

First of all, the instant lottery will be integrated with blockchain technology in the process of prize selection, printing, distribution, sales, prize checking, rebates, and statistics. In these processes, the data and information to the chain are realized through blockchain technology to avoid data tampering.

Secondly, in the back-end links such as redemption and verification, blockchain technology can improve the technical difficulty of external hackers attacking the center server and tampering with data, and the risks of hackers are greatly relieved.

In addition, the blockchain can also help the instant lottery to realize the flexible joining and exit mechanism of remote business nodes and the review and audit functions of the lottery data by the regulatory node. This is also well understood. In the instant lottery, different teams responsible for random number generation, awarding algorithms, awarding results, and printing tickets become different nodes on the chain. The blockchain provides effective means for tracking and non-repudiation in the meantime to assist supervision.

In addition to the above advantages, the blockchain cooperates with instant lottery tickets, and can also provide transparent access to lottery users, providing process and data visibility features to achieve open, fair, and just appeals. Its credibility has also been greatly strengthened.

The value of block chain + instant lottery has been recognized by the market. In response to the Shenzhen Stock Exchange’s “Letter of Concern to Hongbo Co., Ltd.”, there are corresponding cases and market demands in the application of block chain technology in the lottery and bills industry. The cooperation between Hongbo Co., Ltd. and Hashi Technology is a decision made after careful consideration by the management, and it is necessary and feasible.

It can be said that the blockchain has really started a new forefront in the lottery field.

05

Blockchain + Lottery Solution of Hashi Technology

Hongbo shares reached a strategic cooperation with Hashi Technology, and the two parties will jointly explore the blockchain + lottery. Then, how can Hashi Technology promote the further upgrade of the lottery industry through blockchain technology?

We will mainly achieve it from research and development:

The Hashi technology team independently developed a complete set of blockchain technology system, including a new generation of digital financial public chain, smart contract graphical deployment system, token candy airdrop system, equity incentive token system, blockchain wallet GARDBOX, etc. These functions and technologies can be used in the application of blockchain + finance.

a. Hashi’s public chain can achieve distributed storage

1) Distributed ledger technology shares, replicates, and synchronizes databases among network members (nodes), and any network participant can obtain a unique, true copy of the record.

2) All data changes in the ledger will be reflected in other copies. In the Hashgard blockchain, it only takes about 3–6 seconds.

3) The assets stored in the ledger can be logical or electronic assets, and the ledger records can be managed and updated by one or more participants.

b. Hashi’s public chain POS consensus mechanism is more efficient

1) At the beginning of each block, Tendermint pseudo-randomly arranges a validator to propose the block. After the proposal, it needs to be formally submitted as a block after 2/3 of the validators’ pre-voting and pre-signing signature. If the submission fails, the protocol will reschedule a new validator proposal block.

2) Tendermint can tolerate failures below 1/3, including failures or malicious users

3) However, the block generated by Tendermint is finalized and the network will not be forked

c. Hashi’s public chain implements data on-chain:

1) The lottery platform built on the public chain independently developed by Hashi Technology can be stored according to the data file type and data size

2) Data related to business document status, issuance, and important document deposit certificate are directly encrypted and uploaded on the application side and signed

3) The data that does not involve the storage of important data and has a large storage space will store the original in the local server, and at the same time, encrypt the result of the file and the storage address and upload it to the chain.

d. Smart contract of Hashi’s public chain

The Hashgard VM, a virtual machine independently developed by the Hashi technology team, supports multiple exclusive smart contract functions, which can effectively support the development of more complex lottery businesses

At present, the HVM virtual machine has a series of functions including protocol instruction set, random numbers on the chain, smart contracts can be updated and upgraded, and smart contracts can be executed automatically at regular intervals, which can be applied to lottery business such as lottery drawing and redemption.

06 Why choose Hashi Technology

At present, the Hashi technology team can provide the development of the blockchain main chain, blockchain virtual machines, blockchain smart contracts, and token application systems.

Cooperation Case:

Hashi Technology and A-share listed company Hongbo shares (002229) reached a strategic cooperation

Product Case:

Hashgard public chain

GARDBOX:

Smart contract deployment system:

Equity token incentive system:

Stronger research & development capabilities

More technical innovation and better application experience

Hashi Technology looks forward to cooperating with you!

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About Hashi Technology

Hashi Technology is an international leading blockchain company dedicated to providing diversified scenarios solutions for global customers. The team comes from giants such as Huawei, iFLYTEK, JD.com, Novartis Pharmaceuticals and top blockchain investment institutions. It has the domestic, autonomous and controllable underlying blockchain technology-Hashgard blockchain.

Since its establishment in early 2018, the company has served a large number of customers in the fields of lottery, games, equity incentives, asset management, etc., and reached strategic cooperation with many partners, including A-share listed company Hongbo shares, to jointly serve the real economy. There have been more than ten technology patents pending.