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Overview: Play to Earn and NFT Gaming War – Key Legal Considerations

Published on : 02 Feb 2022
Author(s):Several

Play to Earn and NFT Gaming War – Key Legal Considerations

There has been a significant Collison between the worlds of crypto and video games. The amalgamation of the two is called "play to earn"; it is further a part of the "web3" movement. The collision of the two could significantly enhance the gaming experience to be on par with real-world economics and create additional incentives for new players. This could result in thoroughly elevating conventional business models in the gaming industrya. This can only happen when parties acting as gatekeepers for the traditional platforms for business models open the door to entertain innovation and growth for the industry. Many established companies continue to shut themselves from colliding with crypto. Thus the few games available in this form are scattered across the web. It is not essentially chalked out what it would take for a large company to resort to exposing itself to the new technology. However, it is essential to keep in mind that the blockchain gaming market is only booming at an incredible speed in the gaming industry, with no future potential risks of slowing down.

Initially, games were formatted where you pay and then are enabled to play. However, this changed with the evolution of free-to-play games, by which games are the monetization of these games are done by digital goods available for purchase within the game, forming an in-game economy. The pay-to-earning concept is an entirely different model from the traditionally recognized models in the gaming industry. Pay to earn is using blockchain technology in the form of NFTs, cryptocurrency, etc., to prescribe real-world value to digital items within the game. Suppose this evolution in the industry comes into being. In that case, it could help create the base for a metaverse that is high in demand for building, especially in the social media and gaming industries. Mark Zuckerberg, the creator of Facebook, proposed that generating a market for the trade of virtual clothing in the highly sought-after metaverse could potentially be an idea worth a billion dollars.

The crypto world is slowly emerging and entering the gaming market. The play-to-earn paradigm is a shift of crypto community members, startup companies, and various other investors engaging with digital goods in the games by applying the functions and particulars of NFTs to them. The concept of this application in play-to-earn games is based on the design wherein players are provided with monetary pay or some other incentives to play the game instead of the player paying to play the game or channeling money into attaining digital goods in a free-to-play game. These incentives often include gaining a financial stake in the company owning the game. By engaging in play-to-earn games, the players earn unique items that can be verified and exchanged in the market in the form of NFTs. The aspects of blockchain and NFTs are brought into this arena as these unique items available to players contain distinctive identification and value assigned to them or possessed by them that separates its identity and value from others, similar to those underlying assets of NFTs.

The trading engaged for these goods is for the cryptocurrency associated with the respective game. This is similar to the valuation of the play-to-earn game of Axie Infinity, which is a company valued at an amount of 3 billion Dollars as a result of play-to-earn headed by Andreesen Horowitz recently. It is safe to say that the trading and exchange via NFTs in the play-to-earn gaming world is similar to that of trading NFTs in the market with underlying assets of creative work, etc. However, this indulgence affects other games within the gaming industries, a few of which have previously or continue to engage in trades in the physical world based on digital goods within the game, although it is excluded and prohibited by multiple game creators.

Legal Considerations

When it comes to the legal considerations for play-to-earn games and the NFT concept being indulged within the gaming industry, certain specifications are to be considered prior. The new idea of play-to-earn is a profitable and high-income business model related to creating real-world value to in-game digital assets or rewards attained by players on playing the game. Any company interested in venturing into the play-to-earn arena of the gaming industry and the crypto world must retain a lawyer and a legal team as engaging in real money at any point will result in various legal aspects to be considered and touched upon. The money involved with these games would be considered in taxes, securities law, anti-gambling bans, etc.

The concept of attaining real-world money through games is not a completely new one. It has been engaged with several times in the past by games like Runescape or Everquest, etc. which would assign a real-world monetary value to in-game digital items. The problem arises when monetizing real money value for digital assets or items in play-to-earn games creates a closer link to gambling, making it highly controversial and complicated to deal with. Many businesses and individuals associated with developing these play-to-earn games are reluctant to engage in the legal obligations and considerations that come with using real-money trading and monetization in these games.

Play-to-earn video games are a rising endeavor wherein it is a practical career choice. Earning money by playing and investors and gaming companies engaging in play-to-earn games are highly rising and economically efficient with online tournaments for Esports and video games garnering real high income and professional status. The play-to-earn model is actively engaged inaccurate economic game models. Creators actively take up the prospect of a virtual economy and the potential to earn money by playing the game and attaining valuable entities.

Requirement for Legal Opinion – Advertisement and Recruitment

Companies or individuals in the gaming industry engaging in real money inherently requires a legal team or legal attorney to advise them on the various aspects of the law governing the same as there is real money involved. There are different conformity requirements with the law. There is a mandatorily need for advertising and recruitment, games involving real money to prove that they are based on skills and are not on par with gambling. The variations of legal obligations depend on the kind of game and its characteristics. These could include labor law obligations, taxes, state tax authorities, etc.

Indulgence in Securities

It is very important to ensure that these play-to-earn and NFT games do not sell securities that would simultaneously breach federal law. Securities involve investment contracts that are essential for investing money with the presumption of a return that is strictly scrutinized by legal agencies of the government relating to securities and exchanges. In the US, the Securities and Exchange Commission (SEC) conducted strict inspections and investigations concerning initial coin offerings (ICOs) in the cryptocurrency arena, specifically following pyramid scheme frauds by various contenders in the cryptocurrency world.

Use of Cryptocurrency or other Blockchain technology

There are specific regulations to be followed and adhered to when it comes to games indulging in cryptocurrency and other blockchain technology for real money value for in-game items and trading. Governments have a lot of regulations when it comes to the use of cryptocurrency and blockchain technology, so this inherently ascertains the need for legal considerations while associating with the same. The principles of crypto assets, currency, etc., vary according to the governments of different countries. It is an ever-evolving area concerning the law. Hence, there is a significant need to always be in line with the dynamic law and its developments to ensure that legal requirements are met, and businesses prosper.

Therefore, in any circumstance as a veteran in the industry or just a startup, there is an inherent need to indulge in an experienced gaming lawyer or legal team to ensure that the company meets legal requirements, which will further enhance the business prospects.  NFTs and blockchain technology in the gaming industry is an ever-growing venture regarding growing at a substantial rate. There are excellent prospects for growth in this industry. However, as it is relatively new, there are multiple uncertainties in terms of legal alliance and further research on the various risks involved in its conduct without sufficient scrutiny and supervision to protect the parties involved. We are moving towards a future of gaming where gamers are compensated for the time and efforts spent in the game. A clearer understanding of the new gaming prospect and the different factors involved with it, both negative and positive, and finding a way to deal with it through legal appropriations of government involvement will enlighten the path to evolution in gaming.

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