A decade ago, few would have imagined that magic internet money, primarily accepted as currency only in the smallest of online circles and niche industries, that the likes of Bitcoin and Ethereum would one day command headlines on major financial media.
Fewer still may have predicted that the last couple of years would see growing acceptance of other types of crypto assets with flimsier foundations – meme coins buying up million-dollar ad spaces on the London tube, or gaming tokens and NFTs being listed alongside blue chip stocks on popular exchanges.
Crypto adoption is here as the business world and governments all over the world come to recognise and accept cryptocurrency, whether willingly or begrudgingly. And along with that, must also come regulation, the small price one must pay to be legally recognized and accepted.
Gaming tokens
As blockchain gaming companies do acknowledge also that there may come a time when regulations that govern crypto will also come to look at gaming tokens, since they will have monetary value and can be exchanged for money.
And perhaps today, the most recognized form of gaming tokens would be non-fungible tokens (NFTs), thanks largely to the huge amounts of value they have been commanding in the art and collectible sector. NFTs are also seen as a major part of blockchain gaming and Metaverse projects, combining crypto, gaming, and Metaverse aspects that would appeal to billions of gamers all over the world.
DappRadar already proves that there are millions in the crypto gaming sector, suggesting that integrating crypto via NFTs, with mainstream gaming, would provide an incredible boost to crypto adoption globally.
How would states and governments react to them? We take a look at some examples in the news.
China
China applied a blanket ban over crypto in 2021 September, so there’s no chance they would ever see gaming tokens as legal in the current climate. The ban covers all crypto-related activity including transactions and overseas crypto transactions, but of course, with the decentralized networks that define Dapps and blockchain gaming, this hasn’t stopped Chinese people from playing with blockchain games and earning gaming tokens and NFTs. There hasn’t been any action against consumers yet, and it is assumed that the crackdown was largely aimed at corporations involved in mining and exchange activities.
USA
In the US, SEC chair Gary Gensler, who has labeled crypto as the “Wild West” in the past, has always been calling for more regulations, insisting that crypto should fall within the SEC’s jurisdiction. The Robinhood fiasco earlier this year, which exposed the flaws in the system of stock markets and clearinghouses, and how regular consumers took Wall Street investors for a ride using their own systems, only served to put more scrutiny on the speculative activity seen as rife within crypto.
Like China though, the US feels powerless if it doesn’t intervene in crypto. New York Magazine’s Scott Galloway noted:
“The institution that has the most to lose from crypto is probably the U.S. government. The strongest part of this country’s soft power is the fact that the U.S. dollar accounts for two-thirds of reserve currency around the world… That’s part of the reason people like crypto though: It’s a decentralized network that’s not subject to the visibility or controls of a government or bank. Sovereigns have this authority — whether it’s righteous or autocratic authority — over the visibility into flows of government-issued currency.”
While this approach has been clear for regular cryptocurrencies, there hasn’t been any development yet with regards to gaming tokens in particular.
In fact, back in 2019, the SEC already ruled that Gaming Tokens that aren’t marketed as investments certainly cannot be viewed as securities. In other words, gaming tokens, as long as they’re never sold as investments, are safe. Good news for all blockchain gaming companies with tokens!
And just this year, online gaming lawyer Jeff Ifrah was certain that they would keep the same stance, as long as gaming tokens are only offered on the game to “extend play, to skip levels, to gain certain powers”.
United Kingdom
The same rule of thumb adopted by the US SEC on gaming tokens also appears to apply in the UK, where the government there has expressed recent concern over meme coins and NFTs, due to the nature of marketing being used.
The UK’s Financial Conduct Authority (FCA) only has a purview to regulate assets that pose a risk of breaching money laundering or terror laws. Thus, there is no agency that is regulating any type of crypto asset for now, with only the Advertising Standards Authority (ASA) that is tasked with ensuring practices in marketing and advertising do not mislead the public into thinking they are making investments when buying gaming tokens.
NFTs came into the spotlight when football legends John Terry and Wayne Rooney started promoting NFTs, while fan tokens sold by Arsenal were also slammed for promising fans a “stake” in certain club affairs.
Once more, gaming tokens seem to be in the clear in the UK, but only if they aren’t sold as anything more than digital tokens to be used in gaming.
EU
In the European Union, there are 3 types of “regulated” digital tokens, meaning that these fall within the scope of EU financial services regime: e-money, securities, and DLT transferable securities.
Once more, we take the view that gaming tokens and NFTs would not fit into any of those types, so would be deemed as “unregulated” tokens (utility tokens are recognised as unregulated). While this doesn’t mean EU legislation doesn’t apply to them, it does free gaming tokens from the burden of complying with the EU financial services regulation framework.
The draft MiCA Regulation Proposal aims to be “a bespoke regime to regulate digital tokens falling outside the perimeter of the financial services framework”.
We’ll have to keep our eyes peeled for updates on that.
Overall, regulators all over the world are not yet making any hard moves to the use of crypto in the online gaming space, whether as gaming tokens or NFTs. But it pays to keep an ear on the ground and to always ensure growing decentralization in blockchain projects so that tokens cannot be seen as securities belonging to a centralized entity.