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Ethereum-Based Crypto-Games Fall under ‘Gambling’ – Study

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Recent research by the University of York found that Ethereum-based crypto-games in fact meet definitions of gambling.

Source: iStock/fergregory

This week, the university published an article saying that a new study looked into the nine highest-ranked Ethereum dapp (decentralized aplications) games listed on State of the DApps, a not-for-profit curated directory of dapps, and found that they meet definitions of gambling. The research paper, which will be presented at the CHI Play conference in Barcelona on October 24th, explains that crypto-games are video games with a fully or partially distributed ledger architecture that runs on top of a cryptocurrency network, giving players provable ownership over the virtual goods. The studied games comprise of about 16,000 player accounts, the article says, adding that this is still a niche phenomenon when compared to the games industry in general. The researchers chose Ethereum as it’s “the oldest dapp-supporting cryptocurrency and the most established as measured by market capitalization.”

Table 2. Sample of popular Ethereum crypto-games covered in this paper. For each, we report (a) the number of active user accounts, trading volumein Ethereum (ETH) and Great British Pounds (GBP), and average spend per account in GBP over the past 30 days on the sampling date of March 6,2019. We also report (b) which gambling criteria each game matches. Source: Ethereum Crypto-Games: Mechanics, Prevalenceand Gambling Similarities

What the researchers did is investigate gameplay mechanics, but also look into the data to see the way in which these players had been spending crypto within the game itself. To each of the games they applied the combination of legal and psychological definitions of gambling, which have been used in other areas of gaming. The psychological definition focuses on the behavior enabled by the activity, while the legal definition focuses on the financial components of outcomes. They found that “that all of the games in the sample meet our combined definition.”

As seen in the table above, all nine games meet the five combined criteria:

  1. The exchange is determined by the outcome of a future event, which is unknown at the time of betting
  2. The outcome of the future event is at least partly due to chance
  3. An exchange of money/objects of financial value occurs, typically without productive work from either side
  4. Losses can be avoided by not taking part in the activity
  5. Real-world money can be obtained by ‘cashing out’ winnings.

These games, the researchers found, allow their players to exchange virtual goods for cryptocurrency, which can then further be exchanged for fiat money, so they are “an instance of real-money gaming,” comparable to loot boxes and gacha games that worry the regulatory authorities. “As in many online games, crypto-games allow players to trade or auction such in-game items in exchange for in-game currency. Unlike most free-to-play games, in crypto-games, the in-game currency is often exchangeable and can be used to pay for other goods and services outside gameplay, and can be exchanged back for real currency,” the study states.

Focusing on the sampled games only, and not on crypto-games in general, the researchers found that these games “tie crypto-currency investments for in-game items and actions to chance-based mechanics.” The difference from many other games is that these nine games require players to pay for items and actions before chance-based events, which makes them “similar to the gambling mechanics of betting.”

Oliver Scholten, PhD Student in Computer Science, said: “Unlike games with loot boxes, all crypto-games in the study allowed the direct or indirect exchange of in-game items for real money, making them more readily fit criteria of gambling.” All this doesn’t mean that the technology should not be used to build games on, says Scholten, but that “designers need to think carefully about how their decisions may affect player spending.”

“While the underlying technologies are new, the cryptocurrency field is undergoing rapid evolution, and it is possible that the types of issues raised by the research may become more mainstream over the next few years,” the article says. The study adds that crypto-games are growing in popularity and have attracted large financial investments from players. The development of a set of design-specific criteria, based on the five point criteria set presented in the paper, the researchers say, may help crypto-game developers not to unintentionally create gambling platforms when wanting to make non-gambling games.

Meanwhile, interestingly, we’ve reported back in August that a prominent Shariah advisory firm specializing in Islamic finance solutions, Amanie Advisors, in collaboration with the Ethereum Foundation, looked into the Ethereum platform and its native currency Ether, to see if they violate any prohibition and if they are permissible for the Islamic community. They found that Ether is Shariah-Compliant, but only until it’s used for profit, and any sort of gambling is certainly forbidden.