Online gambling has been a staple of internet gaming for decades. It is either a thorn in the side of regulators that are unable to keep operators up to the standards of ever-changing legal parameters. A $52 billion industry (in 2021) that appears to be on the air, Web3 communities are enthusiastic about the prospect of high-stakes virtual gaming.
But times have changed significantly since the poker boom of the early 2000s. While online gambling has gone through the legal system, on the other hand, it has evolved into a robust if not relatively niche ecosystem. However, the days of online casinos are still changing and virtual gambling is now taking place on the blockchain and in the metaverse.
The line between the viability and legality of Web3 gambling, from virtual poker to competitive games of skill, seems rather thin. Given the distrust created in the NFT space due to scams and shenanigans, users are understandably wary of interacting with any metaverse betting platforms. But is this skepticism really justified? Is there really so much at stake for those who want to gamble in the metaverse?
Legality of online gambling
Before delving into the forms of NFT betting in the metaverse, it is important to understand the legal status of online gambling in the United States. Without getting too deep into the vast and bizarre history of the industry, gambling regulation will be quite strict in 2022 and varies from state to state.
Much of the regulation of online gambling dates back to the Federal Wire Act of 1961. This law originally went into effect to ban gambling that took place outside of the state. In other words, placing a bet in your country of origin is legal, but placing a bet in a neighboring state where you do not reside is illegal. The act primarily originated as a way to stop local criminal activity that supported national criminal organizations, but with the advent of the Internet, it has had a tangible impact on online players across the country.
In turn, the Federal Wire Act also affects Web3. Since the Obama administration’s Justice Department (DOJ) concluded in 2011 that the Wire Law could only apply to sports betting, years later, in 2018, the Trump administration’s Justice Department reversed the previous interpretation, stating that the law applies to all forms of interstate games. This effectively compromised the legality of online lotteries, poker, etc. and left regulation up to the individual states.
But the Wire Act is not the only force restricting online gambling, as the Unlawful Online Gambling Enforcement Act of 2006 (UIGEA) made it illegal to operate online gambling websites from within the United States. However, since the operators of most online gambling sites have moved overseas, their US users have retained the ability to continue to legally wager on said platforms from home, so the law has given users a free hand. While this has provided greater accessibility for online gamblers, the interpretation of the Wireline Act of 2018 has restricted online gambling in general, meaning that even offshore casinos have been banned for those in states with harsh regulations.
Currently, online gambling is allowed only in seven US states – Nevada, Connecticut, Delaware, Michigan, New Jersey, Pennsylvania and West Virginia. But there’s a catch: Online poker is banned in Connecticut, but online poker is banned in Nevada. casino are illegal. In addition, each state regulates lotteries and sports betting differently, and some have introduced general gambling laws that are pending further review.
Gambling in the conventional sense can be defined as gambling for money. Obviously, the money side matters a lot, as regulators are only looking for stake games like money, value, and assets (which could include cryptocurrencies and NFTs, by some definitions). However, sometimes games of skill are also classified as games of chance, despite slight differences.
Skill games are any game, competition or pastime in which the outcome is determined by the judgment, skill, dexterity or physical ability of the participant, and not by chance. Think of this difference as the difference between a slot machine and poker. Slot machines present randomized pairs with different odds of winning, while winning in poker depends on the skill and knowledge of the player (and some chance).
While legal jargon and separation may seem redundant, it is inevitable and an integral part of Web3 gambling. Indeed, if we consider gambling in general, they are not the same, and some forms differ significantly. But if we break it down piece by piece, we can answer the most pressing questions related to betting on the metaverse:
- Who can participate in metaverse gambling? Anyone can participate in the games of chance of the metaverse as long as there is no real monetary gain or loss at stake. This means that anyone can play online casino games for funbut only those in the aforementioned specific states can participate in online and metaverse gambling for money.
- How does the gambling metaverse work? Skill games seem to be the only truly viable way of gambling in the metaverse. Randomness cannot be a significant factor. While games of skill are considered more competitive than gambling, culturally they often fall into the same category.
- Where does gambling take place in the metaverse? Read on to find out.
The State of Gambling in the Metaverse
One of the most robust use cases for the metaverse of gambling may not actually be gambling per se. More like a Web3 game show, the internet game pits users against each other in a battle royale mini-game that just about anyone can join. The game, built on blockchain technology, allows NFT enthusiasts to compete in multiple online games for a chance to win hundreds of thousands of dollars in prizes.
At first glance, some might consider the platform itself a gamble. After all, to participate in an Internet game, you need to purchase a Game Token NFT, and the proceeds from the sale of the Game Token are partially used to purchase game prizes. But this does not make the game a raffle or a lottery – it is more like a competition, because the winnings are not left to chance. Instead, they depend on your ability to excel in games of skill (that term again). However, not all skill games are the same, as Internet Game co-creator Jordan Lejuwaan is well aware.
“If you have games that have too many skills, for example if they are 100% skill based, then you will have players who absolutely dominate,” Lejuvaan told nft. “But you can’t have too much luck, because then it’s considered gambling. The internet game runs only skill games. This competition is not considered a game of chance, because users are in control of their own destiny.”
At this point, it seems like skill games are the only viable way to play games of chance in the metaverse. But it may not be gambling at all. Although the term “metaverse casinos” implies gambling, they often offer games such as poker, blackjack, and backgammon rather than slots, roulette, craps, and other games of chance. So maybe metaverse gambling deserves its own term, different from the traditional definition of gambling.
But despite this, games of skill tagged with buzzwords such as “gambling in the metaverse” began to gain popularity, and videos of users playing poker in the metaverse even went viral. With platforms such as Meta’s Pokerstars VR and Decentraland’s ICE Poker, users are rediscovering their love for online gambling. But there’s a catch: you can’t make money on the metaverse of poker, because poker and virtual casinos are very heavily regulated. Although ICE Poker seems to be getting around regulation somewhat by allowing users to earn in-game crypto tokens that actually have some value on the blockchain.
However, ICE Poker is more of a money making game than a metaverse gambling game. While poker itself is begging for the label of “gambling”, making a small profit from games of skill over time is definitely P2E. Of course, some will say that investing in a P2E project in itself means betting that the project will perform well in the long run. But the argument remains that decentralized or Web3-based P2E games are just a variation of the real-money gaming business model popularized by esports, with games like Axie Infinity supplanting League of Legends.
Do Web3 and NFT have a future?
Unless you live in a country with looser gambling laws than the US, don’t expect to make big money at Metaverse casinos anytime soon. Unless those winnings look like Fortnite V-Bucks and can’t be cashed out for real money. Also, don’t expect to use a VPN to join offshore virtual casinos because while the prospect of earning untraceable coins is tempting, the US requires all NFT and cryptocurrency earnings to be reported as taxable income.
That’s why projects like Gambling Apes include country-specific blocking on their landing pages in the hope of deterring potentially illegal activity, at least to some extent.
At the moment, browsing through the metaverse of casinos for fun seems like the wisest course of action. Or find a good skill game (such as an Internet game) that is legal. In the end, those who seek to capitalize on the gambling of the metaverse without doing their due diligence are likely to go bust. This is exactly what happened to Slotie NFT, a casino metaverse that was accused of selling NFTs that violated securities laws.
Much like the regulation of cryptocurrencies in general, gambling in the metaverse looks like a “wait and see” scenario. It is still relatively unclear at this time how, if, and to what extent existing rules apply to metaverse games, regardless of interpretations we can draw from things like the Wire Act and the UIGEA, so broadcasting on the side of caution is probably in a reasonable way for developers and users. Of course, if the entertainment-focused metaverse is to become sustainable, as Meta Zuckerberg no doubt hopes, regulators and the Web3 communities should keep an eye on gambling in the metaverse.