Federal Watchdog Takes Aim At Crypto Gaming

Federal Watchdog Takes Aim At Crypto Gaming

In a report last week, the U.S. Consumer Financial Protection Bureau (CFPB) revealed that they were monitoring online gaming.

It said that this was particularly applicable to financial transactions that take place on gaming platforms and the oversight was aimed at protecting consumers in the financial markets, wherever they exist.

The in-game currency

The CFPB said that players purchase or earn in-game currency in some of the most popular video games available these days, as fiat currency is converted into in-game currency.

It said that this currency is then used for purchasing goods and services that are part of gameplay, which includes virtual items.

According to the CFPB, it is essentially banking in virtual worlds and video games, whether players buy special powers or extra lives in a casual game, or earn tokens or ‘virtual currencies’ in a play-to-earn game.

It said that if gaming assets are used as a medium of exchange for peer-to-peer transfers, or goods and services, then they are similar to payment services and banks.

Crypto virtual worlds

The agency stated that virtual gaming worlds, such as Fortnite, Second Life, and Roblox are significantly more popular than crypto-asset virtual worlds.

However, third-party crypto-asset trading platforms have become quite prevalent due to which it is important to note them.

According to the agency, these are more porous as compared to typical gaming markets because users can convert the native crypto-asset of a virtual world to fiat currency.

The increase in activity and interest in crypto gaming has resulted in heightened scrutiny of this particular industry.

The first quarter of 2024 saw gaming tokens record a massive surge. According to data from CoinGecko, their total market capitalization surpassed the $26.9 billion mark.

These include tokens, such as Ronin (RON), Floki (FLOKI), Immutable (IMX) and Gala (GALA). In fact, the blockchain gaming scene has caught the attention of AI developers as well.

A $50 million gaming accelerator was recently launched by Helika, an AI analytics firm.

The concerns

The CFPB also shared its study of concerns, such as theft, scams, and other criminal activities. The agency stated that it is taking note if platforms that are offering recourse to users for lost assets.

It said that a ‘buyer beware’ approach is usually used by gaming companies, which puts the burden on the players to avoid phishing attempts and scams.

While these companies do block, or ban accounts suspected of phishing or scamming, they do not offer any remedy to the victim.

The CFPB further said that some third-party websites allow users to trade their in-game currencies and items for Bitcoin.

The agency mentioned Second Life’s ‘Linden Dollars’ that gamers can buy with fiat currency via the official Linden Exchange (LindeX) and use Skrill and PayPal to transfer to third parties.

The agency said that trading between Bitcoin and Linden dollars was allowed by third-party websites between 2011 and 2013.

According to Second Life, the average number of daily users in 2021 was 200,000 spread across 200 countries, which makes it a GDP equivalent of $600 million.