Invest in the Satoshi Dice Bankroll
You have the opportunity to be part of Satoshi Dice's bankroll. The bankroll is the total of all investments into the site and you are paid according to your percentage of the house's bankroll. Satoshi Dice uses a 1.9% house edge and investors get 50% of the house wins or losses. This means a 0.95% Expected Value (EV) that is shared by the investors. Affiliate earnings, Leader Board rewards and other rewards are not paid by the investors, and there are no additional investor fees.
How Investor's Percentages of the Bankroll Are Determined
If the first investor deposits 10 bitcoins, he has 100% of the bankroll, and earns 1.9/2=0.95% of all earnings. Now suppose that players lose 10 coins while playing on the site. 50% of this is rewarded to the investors, and since there is only one investor he gets 5 coins added to his investment. The house's bankroll is now 15. Now another player invests another 5 coins, bringing the bankroll to 20. The original investor's 15 coins now make up 75% and the new investor's 5 coins make up 25% of the total bankroll. If now another 10 coins are lost by players, the first investor gets 7.5 coins and the second investor gets 22.5 coins, bringing their investments up to 22.5 and 7.7 coins respectively. At this stage, the first investor can withdraw his 22.5 bitcoins with a 12.5 profit and this would bring the second investor's percentage of the bankroll from 25% to 100%.
Satoshi Dice keeps the maximum profit a player can make on a bet to 1.9% of the bankroll (employing the Kelly criterion). This means that if the house loses money to lucky players, the maximum allowed profit made on new bets will shrink. If we assume that the players try to play with the highest possible EV, they will try to always place bets that has the maximum allowed profit when winning. If the same bet volume is maintained by bets with a lower maximum profit, it would have to be accomplished by a larger number of bets. This would increase the EV for the house because each single bet has a 1.019 EV for the house. The automatic adjustments of the maximum allowed bet profit also makes it impossible for players to win the entire bankroll.
Potential Risks for Investors
- The Kelly criterion that sets the maximum bet profit assumes that you can choose to make a large numbers of bets and that over time the positive EV will give you a profit. But the house can't choose when to play; it just waits for players to place bets. If players stop betting, a house profit may never occur. Players can choose to stop at any time and if they stop when they have a profit, the house will remain with a loss.
- Large investors may dilute your investment. If lucky players make your investment shrink and then large investors (or even the lucky players themselves) dilute your share, you may struggle to recover your loss. If your percent of the bankroll is halved by large investors, it would take twice the time to recover a loss.
- The operators of Satoshi Dice may die, lose their private keys, get hacked, or simply disappear with the bitcoins.