What’s the difference between gambling and gaming? In a study conducted by Daniel L. King et. al, published in the Journal of Behavioral Addictions, gaming is “principally defined by its interactivity, skill-based play, and contextual indicators of progression and success.” Gambling, on the other hand, “is defined by betting and wagering mechanics, predominantly chance-determined outcomes, and monetization features that involve risk and payout to the player.”
It’s important to distinguish between gambling and gaming, because excessive gambling is considered a serious problem, while that’s less the case for excessive gaming. Additionally, gambling has strict age limits in nearly every country, while gaming has a much more lenient age limit system (that most parents or kids also don’t care about).
From the birth of the video game industry up until quite recently, the distinction between gaming and gambling was still relatively clear. This was mostly because buying a game involved paying $50 for it in a game store and that was it. No other monetary transaction was involved. You bought the entire game for $50 and would not have to make any further payment.
The story is very different now. Many games nowadays have a radically different monetization model. Some games, such as Fortnite, are free and charge for cosmetic upgrades in characters. Highly profitable. Other games charge you a monthly fee to play, one such example being World of Warcraft. Games might also ask you to pay money for certain parts of the game, or ask for money to become better at the game, something that’s called pay-to-win. As one might reasonably expect, pay-to-win is disliked by gamers, but it brings in a lot of money for big game developers such as EA.
These different monetization models blur the lines between gambling and gaming. As a result, games have come under government scrutiny, and the specific gaming element that triggered this scrutiny was a concept called loot boxes. A loot box in a game is a virtual box that you pay for and that rewards the player with a randomized selection of in-game items. You don’t know what will be in the box before you purchase it.
Loot boxes have become omnipresent in the world’s most popular games. FIFA, Overwatch, Counter-Strike: Global Offensive, Playerunknown’s Battlegrounds, and many other popular games have loot boxes that significantly increase the revenue of the game developer.
But governments are striking back. Gaming Commissions in both Belgium and the Netherlands have determined that these loot boxes count as “games of chance”, and that a game with loot boxes is in violation of the country’s respective gambling legislation. In Belgium, this can lead to a prison sentence of five years and a fine of €800,00 for the developers, which is doubled if minors are involved.
As a result, video game publishers such as Blizzard, Valve, and Take-Two have removed loot boxes from their games in Belgium. EA, however, didn’t immediately want to give up such a profitable revenue stream, and hasn’t removed loot boxes from their FIFA games yet. Their argument is that a loot box isn’t a gambling mechanic, because there’s a specific number of items in each loot box, and because EA doesn’t provide or authorize a way to sell the virtual items in those loot boxes for real money.
This is a valid point that other governments have acknowledged. Gaming commissions in the UK and New Zealand, for example, decided that loot boxes should not be considered as gambling. Even in the official (Flemish) statement from the Belgian Minister of Justice, there’s room for ambiguity, because it defines a “game of chance” as having following elements: a monetary input that gives the players items that have an impact in the game, generated with an element of chance that can result in a monetary gain or loss. Additionally, if the mechanics behind that element of chance are not known to the player, that’s another argument to say it is a game of chance.
Following this definition, EA can reasonably claim that their loot boxes don’t lead to a monetary gain or loss. You spend a certain amount of money on a fixed number of items that you cannot sell for real money. That’s the exchange of value. There’s no gambling involved.
As you can see, there are valid arguments on both sides.
How Blockchain Technology Solves the Problem
A fully decentralized blockchain is a widely distributed ledger available for anyone to download and use. Anything recorded on this kind of blockchain is visible to the general public. As such, if the mechanics behind the element of chance in those loot boxes are registered on the blockchain, gamers would have a reasonable idea of the chance that a loot box will generate a certain kind of item.
For example, the mechanics in one game might be that every loot box generates five items, with a 100% chance of one epic item and a 10% chance of a legendary item. Or a loot box could generate between one to four items, with a 50% chance it will be one item, a 25% chance it will be two items, 20% chance for three items, and 5% for four items.
Whether this is enough for gaming commissions to not consider loot boxes as gambling is hard to tell. After all, the National Lottery of many countries also display the odds of someone winning the full prize. Then again, if the odds for a good payout in a loot box showcase a reasonable exchange of value, maybe that’s enough to convince gaming commissions loot boxes aren’t gambling mechanics.
However, blockchain technology isn’t a panacea that solves the whole gambling/gaming problems in one fell swoop. In fact, decentralized games (DGames) could make the problem much worse.
How Blockchain Technology Makes the Problem Worse
One of the defining features of blockchain technology is that you fully own the digital assets transferred to you. There’s no centralized entity that holds those assets for you, or has a say in the properties of those assets, or can determine what you can do with those assets. This means that you can buy or sell digital assets as you please.
While many would consider that a fantastic benefit, because a company cannot limit your freedom to do whatever you want with the assets you rightfully own, it also poses a considerable problem in the gambling/gaming debate.
After all, EA is debating the decision of the Belgian Gaming Commission in part because they don’t give players the ability or the authority to sell the virtual items in their loot boxes. But in a game on the blockchain, no game developer could stop their gamers from selling their virtual assets.
Seen this way, blockchain technology could incentivize gamers to buy loot boxes with the intention to sell it for more. Considering the items in loot boxes are chosen at random, gamers spend a certain amount of money and are at risk of losing money if the loot box doesn’t happen to have the desired items in it. All of this makes a loot box resemble a game of Roulette.
Even if we’re not talking about loot boxes, the fact that DGame players fully own their assets and can buy or sell them as they want could be enough for certain countries to put a strict age limit on DGames.
This is a considerable risk for the DGaming industry, which is why we encourage DGame developers to make their game in such a way that you can justifiably argue your game is far more a game than it is gambling. This can include using the following strategies:
- Do not randomize the acquisition of virtual items or at least make transparent how the randomization mechanism works. Give players an easy way to know the chances of receiving a certain type of item or tell them exactly what they’ll get before they spend money.
- Do not give out virtual items that make the player better in a game or at least give the player the option to acquire this item without having to pay money. Think of how Fortnite only allows for cosmetic upgrades, not upgrades that enhance the player’s abilities. Alternatively, make every item available to every player through different mechanisms, such as investing more time and/or skill to get the item.
- Do not allow players to sell their items for less than they bought them for. Instead, give them the option to upgrade their items by investing time and/or skill until the item will be worth at least as much money as they spent on it.
These are a few strategies DGame developers can employ to make sure their game doesn’t come under the scrutiny of a gaming commission. This isn’t a black or white debate. There’s plenty of gray, but DGame developers have every incentive to stay on the whiter side of it.