In-depth: How to prevent and avoid the five major criminal risks behind blockchain game development, with gambling being the first?

author | Lu Jiepei, Attorney at Guangqiang Law Firm

edit | Colin Wu Reprinted with permission from the author

With the explosion of the concept of "Metaverse", blockchain games (chain games) have also ushered in a wave of popularity. The most attractive model for gamers is the play to earn (P2E) model, that is, "earning while playing". Gamers use digital currency (some games first use mainstream digital currency to exchange for coins issued by the game platform) to purchase heroes, props, etc. of a certain chain game, and obtain certain game heroes, props, etc. through duels and operations with other players or platforms, and then exchange and sell them for digital currency, or directly obtain digital currency through game operations, so as to obtain profits and achieve the effects of "earning while playing" and "earning by playing" promoted by the game platform.

1 Risk of being involved in gambling crimes

Since many games in the past used game props and game coins to be freely exchanged with legal tender (such as RMB and USD), gambling activities were essentially packaged as online games. Therefore, in order to severely crack down on gambling activities in the field of online games, relevant departments have issued regulations prohibiting game platforms from providing channels for exchanging game coins for legal tender. For example, the "Notice of the Ministry of Culture on Regulating Online Game Operations and Strengthening Supervision During and After the Event" issued by the Ministry of Culture: 2. Regulating the issuance of virtual props for online games "(X) Online game operating companies shall not provide users with services for exchanging virtual props for legal tender. If they provide users with virtual props for exchanging small-value physical objects, the content and value of the physical objects shall comply with the provisions of relevant national laws and regulations."

Including at the press conference on the typical cases of opening casinos released by the Supreme People's Procuratorate on November 29 this year, Zhang Xiaojin, deputy director of the First Procuratorate of the Supreme People's Procuratorate, introduced: "When using chess and card game software online, you must download and use it from regular channels; at the same time, the application software suspected of gambling has a significant feature, which is that it has a related cash withdrawal function . If you find software or applications that can withdraw cash or obtain valuable physical objects, please do not use it and report it to the public security organs in a timely manner."

This raises a question: for blockchain games that support the “earn while playing” model, players can obtain relevant cryptocurrencies through the game, and this digital currency can be freely traded in the secondary market, which naturally meets the function of “cash withdrawal”. So, do blockchain games necessarily constitute gambling crimes?

Not necessarily. It still depends on whether the specific "money-making" model of players in each game has a certain degree of randomness.

If classified by gameplay, current blockchain games can be divided into card games, development games, competitive games, role-playing games, collection games, etc. The modes of each game are different, and it is impossible to generalize whether they involve gambling crimes.

The so-called "gambling" is a kind of speculative behavior that uses money as a stake to compare wins and losses in a certain way. This statement may be a bit abstract. To put it bluntly, gambling is a bet on "probability". If you guess right, you win, and if you guess wrong, you lose.

Specifically for blockchain games, whether the game coins and game props that players earn in blockchain games and can withdraw or exchange are obtained through "betting on probability" is the key to whether this blockchain game is suspected of gambling crimes.

If a blockchain game is mainly based on opening blind boxes or lottery-type gameplay, and players obtain rare heroes and props by opening blind boxes and drawing lotteries from time to time, or directly obtain digital currency issued by the platform, and then obtain profits, or if it is a chess and card blockchain game, digital currency is obtained through chess and card activities such as poker and mahjong, then this type of blockchain game is more likely to be suspected of gambling crimes.

If it is a card game based on collecting cards, the player collects cards and then, based on his own strategy, flexibly uses different cards to construct a deck that complies with the rules, engages in battles and free trades to obtain rewards; for example, in some role-playing games, players are responsible for playing one or more roles and use the rules of the game to develop and strengthen the roles they play through some actions, and obtain rewards by defeating other players, or "plundering" other players' game resources to gain profits; and other games that gain profits based on game time and game skills, etc. For these games, there is less or even no randomness in winning or losing the game, and it is difficult to determine that game players are obtaining digital currency profits by betting on probability, and it is not appropriate to easily characterize them as gambling crimes.

On the contrary, this type of blockchain game is more like digital currency mining based on input of computing power or workload. This type of mining by individuals does not directly constitute a crime, and the blockchain game platform only violates relevant administrative regulations and does not constitute opening a casino or gambling.

In short, the "play and earn" model of blockchain games does not necessarily constitute a gambling crime. Specific analysis should be conducted on specific circumstances to explore whether the blockchain game has a model that calculates wins and losses based on accidental results. If not, then even if players directly earn digital currency or other currencies by participating in the game, it does not necessarily constitute a gambling crime.

2 Risks of suspected illegal fund-raising, pyramid schemes, money laundering, and fraud

So, in addition to the highest-risk gambling crime, are there any other criminal legal risks in blockchain games? Based on actual case handling experience, the author believes that blockchain games are an emerging field. With the explosion of the concept of the metaverse, the public's understanding of the metaverse and related concepts of blockchain games is unclear. In the future, the possibility of blockchain games being involved in crimes is relatively high. For game platforms, the main risks are illegal fundraising, pyramid schemes, fraud, money laundering, etc.

Illegal Fund Raising

Taking illegal absorption of public deposits as an example, to constitute this crime, four elements must be met: illegality, publicity, sociality, and inducement. Blockchain game companies generally do not obtain the qualifications to absorb deposits, and games are naturally a product that needs to be publicly promoted to the public. In other words, of the four elements of non-absorption, the blockchain game platform has naturally met three of them. The key lies in whether it promises to guarantee principal and interest payments.

The embodiment of the commitment to guarantee principal and pay interest in blockchain games, taking cultivation games as an example, if the game rules set by the game platform require game players to use a certain amount of digital currency to recharge and purchase a hero character, pet, or prop, after a period of time, the character can naturally upgrade, grow, and advance, and then become a character or prop with higher value, or within a period of time, the hero character automatically mines resources (digital currency) in the game system, and the platform can provide a channel for the repurchase of characters and props, then this rule is a disguised commitment to guarantee principal and pay interest, and this blockchain game will also be suspected of illegally absorbing public deposits.

Fund-raising fraud goes a step further. Based on the four elements of the crime of illegally absorbing public deposits, if the platform is found to have the "purpose of illegal possession" and use fraudulent methods to raise funds, it may be convicted of the crime of fund-raising fraud.

MLM

For a game to run and develop for a long time, it must have a certain number of players participating. Otherwise, no matter how well designed or how beautiful the game is, without the participation of game players, it is just a string of code. In order to gain huge user support, publicity and promotion are indispensable, and improper publicity and promotion methods may also be suspected of pyramid selling crimes.

For example, in order to expand its user base, a certain game platform has introduced promotion rules involving tiered rebates. Online players develop offline players by sending specific invitation codes. Not only can they get a share of the initial recharge amount of the offline players, but they can also obtain a certain percentage of the profits earned by the offline players during the game. Moreover, the rebates can be passed on tiered basis. In this case, this model is likely to be identified by judicial authorities as a pyramid scheme, and relevant criminal measures will be taken against them.

However, hierarchical rebates do not necessarily constitute a pyramid scheme crime. According to the Criminal Law and relevant judicial interpretations, the crime of organizing and leading pyramid schemes requires the purpose of defrauding property. If the blockchain game platform is simply for the purpose of expanding its scale, and the platform also has real game projects and has a certain market economic value, then simple hierarchical rebates do not necessarily constitute a pyramid scheme crime.

Money Laundering

Let's take an example. For example, a blockchain game has a rule that players deposit money using digital currencies such as Ethereum and Bitcoin, but the digital currency they earn through the game is USDT. There are two types of money laundering risks here, which I classify as "active" money laundering and "passive" money laundering. "Active" money laundering means that after the platform absorbs the players' Ethereum and Bitcoin, it transfers the USDT with the attribute of "stolen money" to the game players in order to launder the stolen money.

"Passive" money laundering refers to game players using digital currencies with stolen money attributes to deposit funds, and using the rules of the game to convert these "stolen coins" into clean USDT. The game platform becomes a part of the money laundering activities without knowing it, and objectively provides assistance to the money laundering activities. It may be identified as an accomplice to the crime of money laundering by the judicial authorities.

Scams

If the winning or losing results of a gambling game can be manipulated, then the "accidental" speculative behavior becomes a "necessity", and it is not pure gambling, but suspected of fraud. So, does the blockchain game with gambling nature have the possibility of fraud by manipulating the results? The author believes that this possibility is small.

Another difference between blockchain games and traditional games is that all data of blockchain games is stored on the blockchain, which is public and cannot be tampered with. Players can obtain relevant benefits through the rules set by the platform, and the platform cannot be manipulated or modified during the player experience, and there is no objective condition for artificial manipulation of the results. Of course, the premise of discussing this issue is that this game is truly developed based on blockchain technology and the relevant data is truly on the chain.

In summary, blockchain games not only have the criminal risk of gambling crimes, but also have criminal risks such as illegal fundraising, pyramid schemes, and money laundering due to their model itself or the process of publicity and promotion. For relevant platforms or individuals who are interested in engaging in the blockchain game industry, they should carefully set the rules of the game and optimize the game model to avoid passively falling into criminal risks.

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