Preface:

In the regulatory environment of our country, blockchain game entrepreneurs need to pay attention to avoiding gambling risks from a compliance perspective.

At the press conference held by the Supreme People's Procuratorate on November 29, 2021, it was clearly stated that "applications suspected of gambling have a significant feature, which is the ability to withdraw related funds."

The basic model of blockchain games, "play to earn," refers to players being able to earn in-game tokens by playing games, which can be exchanged for virtual currencies such as Tether, and most blockchain game users are not playing games for the sake of playing, but rather to buy low and sell high to make money from the in-game tokens.

So, based on the description provided by the Supreme Procuratorate, does it mean that the "play to earn" model of blockchain games inherently possesses gambling characteristics? This article discusses this issue.

01 Cases of Gambling-Involved Blockchain Games

Fomo3D, which raised 70 million in 16 days, is a game based on the Ethereum network, with its core gameplay being "auction." Each time a player bids, it refreshes the game countdown, and the last bidder will receive 48% of the Ether prize pool. This "big fish eats small fish" game reportedly generated a revenue of 170 million in one month.

Biggame—The first case in the country to establish a casino using blockchain contract technology, an app developed by domestic personnel, allows users to install the citrus coin wallet, exchange RMB for citrus coins, and provides various gambling games for players to place bets.

02 What Kind of Games Constitute Gambling?

There is no explicit provision in Chinese law regarding which online games constitute gambling. However, we can summarize based on relevant regulations and policies.

According to the Notice issued by the General Office of the Ministry of Culture in 2020 on the issuance of the "Guidelines for the Supervision and Law Enforcement of Virtual Currency in Online Games," the main differences between ordinary guessing-type online games, online games containing gambling content, and online gambling games are as follows:

From this table, we can conclude that if an online game involves gambling, it should simultaneously meet 3 key points:

1. Prerequisite for participation: Users need to pay to purchase in-game items/game coins.
2. Mode of operation: The gameplay involves chance, and users participate in the game by "betting small to win big," with the possibility of loss.
3. Profit outcome: Users can directly or indirectly withdraw and obtain legal tender.

03 How to Determine Whether Blockchain Games Involve Gambling?

Considering the above 3 key points, we analyze the characteristics of blockchain games.

1. Paying to purchase in-game items/game coins.

The vast majority of blockchain game platforms require users to purchase in-game items or tokens through payment. The specific process is as follows: first, users purchase virtual currency with legal tender through exchanges (such as Binance, OKEX, etc.); then, they download wallets (TokenPocket, MetaMask, etc.) and transfer the purchased virtual currency to the wallet; after connecting the wallet to the blockchain game, they can purchase in-game items or tokens within the platform using the wallet.

Even if a small number of blockchain games initially claim to be free, it is a promotional effort to attract users, and users still need to spend money for a better gaming experience.

2. Ability to directly/indirectly withdraw and obtain legal tender.

For overseas blockchain projects, users can withdraw the NFTs or in-game tokens within the platform as virtual currency on exchanges. In China, due to the country's regulations on virtual currency, which stipulate that virtual currency does not have legal tender status and is a virtual commodity, and according to the relevant gaming laws[1]: "Services that provide game point transactions, exchanges, or use 'virtual currency' to indirectly exchange cash or property are prohibited."

Therefore, for blockchain games developed in China, if the in-game tokens support exchange for virtual currency (withdrawal), then, in combination with the above characteristic 1 (deposit), it possesses the characteristic of gambling involving deposits and withdrawals.

3. Gameplay: Chance, betting small to win big, possibility of loss.

Currently, blockchain games can mainly be categorized as: nurturing, simulation management, sandbox, card, mining, competitive, etc. The different categories do not distinguish whether the game involves gambling; it depends on the specific gameplay of the platform.

For example, blind boxes, lottery, and similar gameplay involve a significant element of chance in whether users win or lose. If the in-game items obtained by users through paid lottery have a significant difference in value, there is a high risk of gambling involvement.

04 Suggestions from Lawyer Mankun

Due to the incomplete state of laws and regulations related to blockchain and the metaverse in China, and the negative attitude towards virtual currency and mining in relevant policies, if a project plans to launch blockchain game products in China, it is essential to strictly control legal and procedural risks both before and after the product launch.

Before the launch, a rigorous risk assessment of the game mechanism is required to prevent gambling risks. After the launch, regular monitoring of product data is necessary to prevent users from exploiting platform vulnerabilities for gambling. In addition, attention should be paid to user complaints and reports. Once any related gambling behavior is discovered, prompt optimization and improvement of the product are necessary.

[1] Notice of the Ministry of Public Security, Ministry of Information Industry, Ministry of Culture, and General Administration of Press and Publication on Regulating the Operation Order of Online Games and Prohibiting the Use of Online Games for Gambling Purposes [Document No.: Gong Tong Zi (2007) No. 3]

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