(Bloomberg) -- It turns out that gambling, not buying digital kittens, is one of the most popular applications on the blockchain -- the distributed ledger technology that has been touted as the solution for everything from world hunger to money transfers.

Over a recent 24-hour period, the Fomo3D app attracted more than five times the number of users than CryptoKitties, the game involving breeding cats that famously clogged up the Ethereum network last year. The gambling app, in which contestants try to fleece others via a fictional coin offering, is also lucrative. Players sent more than $40 million on the distributed application since the first version was launched in July, according to the game’s lead designer.

Fomo3D is hardly the only blockchain-based gambling app. Of the top 10 distributed apps by money received, gambling as a category is only second to exchanges, according to DappRadar, which tracks applications that run on blockchain. Gambling-related token sales also continue to gather steam: Dragon Coin and another ICO raised nearly $1 billion, while a total of 21 other projects have garnered another $300 million through initial coin offerings, according to Autonomous Research.

"You gamble some Ethereum, and it’s possible to get more," Dragos Dunica, co-founder of app tracking service DappRadar, said in a phone interview. "At this point in Ethereum, most of the people are looking for profit, to get something back."

Ether, the cryptocurrency used on most of the networks, has slumped 74 percent since its January peak, while bigger rival Bitcoin is down by nearly 70 percent from its record high in December.

Many of the gambling efforts originate from questionable and anonymous teams. A former Macau-based gangster known as Broken Tooth has been linked to Dragon Coin. Fomo3D, whose developers’ identities aren’t disclosed, has been accused of being a ponzi scheme, though the venture’s head designer, who goes by Justo, said in an email the app is "ridiculously honest" because it’s governed by software. Once set up, the software, which directs payouts, can’t be modified, he said. Most blockchain gambling outfits aren’t licensed or legal.

Even so, the distributed apps, which are governed by a software-based so-called smart contract sitting on a blockchain, continue to pull in users. Non-blockchain-based, legal site PokerStars -- the most popular online venue for poker -- attracted around 8,600 people on an average day over the last week, according to traffic tracker PokerScout.com. More than 10,000 people were playing Fomo3D on a recent day in late July, according to DappRadar.

That gambling is becoming red hot on the blockchain-based web -- often called Internet 2.0 for its potential to tie tokens to various new functionality -- shouldn’t come as a surprise. Gambling was among the first sectors to make it big on the original World Wide Web. The $40 billion-plus market for online gambling is already growing at the compound average rate of 11 percent a year, according to Transparency Market Research.

While many players in places like China and India, where gambling is illegal or heavily restricted, already use online gambling sites, they fear discovery. Blockchain-based sites could offer them more privacy, by only letting players access their identity information -- while keeping it hidden from governments.

"It makes internet gambling a more friendly place," Sunaxi Sangole, an analyst at Transparency, said in a phone interview.

Fair Game?

Transparency is another attraction blockchain holds for gamblers. The technology can potentially help sites and apps prove that their games are fair. All transactions are recorded on the blockchain, and software governs how funds are distributed to winners.

"The whole point was to give people a tool to play games knowing that the results won’t be tampered with," Anton Ivanov co-founder of Dice2.win, which lets players roll a dice or flip coins, said in a phone interview. "The house can’t run with the money, and being as transparent as possible."

New companies such as Unikrn, using blockchain for some functionality, also hope to muscle in on new opportunities made available by the U.S. Supreme Court’s decision earlier this year that legalized sports betting.

"We address a younger customer base, a customer base that wants to get things done much quicker," said Rahul Sood, chief executive officer of Seattle-based Unikrn. “More than anything, it’s going to expand the market. Esports betting is still pretty nascent." The company, whose investors include Dallas Mavericks’ owner Mark Cuban and actor Ashton Kutcher, has already partnered with MGM Resorts International to run weekly esports tournaments inside the MGM Grand Hotel & Casino.

The blockchain also opens up potentially new -- often shocking -- ways to gamble. Prediction markets app Augur, for instance, lets people bet on deaths of public figures.

Whether some of the unlicensed outfits will be shut down by regulators remains to be seen.

"The background of the projects raising massive gambling ICO checks does not bode well for government acceptance and regulatory approval of such activity," Lex Sokolin of Autonomous Research, said in an email.

Various types of online gambling are only allowed in a handful of states. Most casinos don’t accept Bitcoin, and "most regulators aren’t prepared to deal with it on a reporting level," said Matt Kaufman, an analyst at researcher Eilers & Krejcik Gaming.

"The fact they are not accepting deposits certainly makes them a lower risk of being targeted," Kaufman said. "The regulators are more likely to pursue bad actors where they can expect a result."

--With assistance from Christopher Palmeri.

To contact the reporter on this story: Olga Kharif in Portland at okharif@bloomberg.net

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net, ;Jeremy Herron at jherron8@bloomberg.net, Dave Liedtka, Randall Jensen

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