Blockchain Gaming Raises Legal Gambling Questions

The virtual kitten you bought online might seem docile, but it may upend how courts interpret online gambling laws.

Online gamers and game developers have battled in courts for years over whether in-game prizes, like a digital sword or piece of gold, can be considered items of value for gambling law purposes. 

Now online games built on blockchain technology, like CryptoKitties and Ethermon, might challenge future judges’ interpretation of how to apply those laws, Alexis Kramer, Bloomberg Law tech reporter, said in a recent episode of Code& Conduit.

“If blockchain can add to the argument that game items have value, then a court may look to them and say maybe this game of chance is gambling,” Kramer said. 

A game generally has to satisfy three elements to be considered gambling, which is illegal in most states in the U.S. The game has to have an element of chance, the player must give up something in order to play it, and there needs to be a prize, or item of value, at stake, Kramer said.

The inherent technology of blockchain allows gamers to hold onto or trade their digital prizes even if the game itself ends, Kramer said.

“Before, an in-game item would exist just within the game itself, and that’s it, but with blockchain the item exists on the blockchain,” Kramer said. “It’s a digital ledger.” 

Blockchain is the technology that underlies virtual currencies and tokens like bitcoin and ether. Players can use these tokens or others invented by the game to buy or sell items in the game, like a kitten, which will permanently exist as a separate digital asset, Kramer said.

One sure bet for now: more blockchain game platforms are poised to keep growing this year, Kramer said.

You can read more reporting about blockchain on our tech, telecom and internet blog or on Bloomberg Law. If you liked what you heard in the podcast, sign up for a free trial of Bloomberg Law’s legal and regulatory news and content.

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