How NFT and Web3 Gambling look like in the Metaverse

Online gambling has been a staple of internet gaming for decades. That, or a thorn in the side of regulators ill-equipped to hold operators to the standards of ever-changing legal parameters. A $52 ​​billion (in 2021) industry that seemingly exists in the ether, Web3 communities are getting excited about the prospect of high-stakes virtual games.

But times have changed significantly since the poker boom of the early 2000s. While online gambling has been subjected to the twists and turns of the legal system, it has emerged on the other side as a robust, if relatively niche, ecosystem. Nevertheless, the days of internet casinos are still changing, and now virtual gambling is happening on the blockchain and in the metaverse.

From virtual poker to skill game competitions, the line between viability and legality for Web3 gambling seems pretty thin. Considering the mistrust created in the NFT space via scams and scams, users are understandably apprehensive about engaging with any metaverse gaming platform. But is the skepticism really justified? Is there really that much at stake for those who want to engage in metaverse gambling?

The legality of online gambling

Before delving into the forms of NFT gaming in the metaverse, it is important to understand the legal status of online gambling in the United States. Without going too deep into the vast and strange history of the industry, in 2022, gambling regulation is both quite strict and varies from state to state.

For the most part, the regulation of online gambling dates back to the Federal Wire Act of 1961. Originally, this law came into effect to prohibit gambling that takes place across state lines. In other words, placing a bet in your state of origin is fine, but placing a bet in an adjacent state where you do not live is considered illegal. This act came about mostly as a way to suppress local criminal activities that supported national criminal organizations, but with the advent of the internet, it has had noticeable effects on online gamblers across the country.

In turn, the Federal Wire Act also affects Web3. Because while the Obama administration’s Department of Justice (DOJ) concluded in 2011 that the Wire Act can only apply to sports betting, the Trump administration’s DOJ reversed the previous interpretation years later, in 2018, saying that the law covers all forms of gambling across states. This effectively threatened the legality of online lotteries, poker, etc, leaving it to the discretion of individual states to regulate.

But the Wire Act is not the only force restricting online gambling, as the Unlawful Internet Gambling Enforcement Act of 2006 (UIGEA) made it illegal to operate an online gambling site from US soil. Still, since operators of most online gambling sites moved overseas, their US-based users retained the ability to continue legally placing bets on said platforms from home, so the law gave players some leeway. While this provided more accessibility for online gamblers, the 2018 interpretation of the Wire Act restricted online gambling as a whole, meaning that even offshore casinos were off limits to those in states with strict regulations.

Currently, online gambling is only legal in seven US states – Nevada, Connecticut, Delaware, Michigan, New Jersey, Pennsylvania and West Virginia. But there’s a bit of a catch: In Connecticut online poker is illegal, and in Nevada online casinos are illegal. Beyond that, each state differs when it comes to regulating lotteries and sports betting, with some having introduced general gambling bills that await further review.

Gambling in the conventional sense can be defined as the act of playing games of chance for money. Obviously, the money part is significant, as regulators are only looking for games with stakes – like money, valuables and assets (which can include crypto and NFTs, by some definitions). But sometimes skill games are also placed under the same umbrella as gambling, despite subtle differences.

A game of skill is any game, competition or amusement the outcome of which is determined by the judgment, skill, dexterity or physical ability of the participant, rather than by chance. Think of this difference as the difference between a slot machine and poker. Slot machines present randomized pairings with varying odds of winning, while a poker win depends on the skill and knowledge of a player (and some chance).

While legal jargon and compartmentalization may seem unnecessary, it is inevitable, and part of the inherent framework of Web3 gambling. When viewed holistically, gambling is not the same, with some forms varying significantly. But if broken down, we can answer the most pressing questions surrounding metaverse betting:

• Who can participate in metaverse gambling? Anyone can participate in metaverse gambling, 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 mentioned specific states can participate in online and metaverse gambling for money.
• How does metaverse gambling work? Games of skill seem to be the only truly viable way to host metaverse gambling. Chance cannot be a significant factor. While games of skill are considered more akin to competitions rather than gambling, they often fall into the same category, culturally speaking.
• Where does metaverse gambling happen? Read on to find out.

The state of gambling in the metaverse

One of the most robust use cases for metaverse gambling may not be gambling per se. Internet Game is more of a Web3 game, pitting users against each other in a Battle Royale minigame that almost anyone can join. Built around the power of blockchain technology, the game allows NFT enthusiasts to compete in multiple online games for a chance to win prizes worth hundreds of thousands of dollars.

At face value, some might consider the platform itself a gamble. After all, to participate in Internet games, you need to buy a Game Token NFT, and the proceeds from the sale of Game Tokens are partially used to buy the game prizes. But this does not make the game a raffle or lottery – it is more of a competition because prize winnings are not left to chance. Instead, they are up to your ability to succeed in games of skill (there’s that term again). However, not all games of skill are created equal, as Internet Games Co-Creator Jordan Lejuwaan knows well.

“If you have games that are too heavy on the skill side, like they’re 100 percent skill-based, then you want players that absolutely dominate,” Lejuwaan said in an interview with nft now. “But you can’t have too much luck, because then it’s considered gambling. Internet Game only runs games of skill. It is a competition that does not count as gambling because users are in control of their own destinies.”

For now, skill games seem to be the only viable way to host metaverse gambling. But this may not be gambling at all. Although the term “metaverse casinos” present the connotation of gambling, they often offer games of skill such as poker, blackjack and backgammon, rather than slot machines, roulette, dice and other games of chance. So perhaps metaverse gambling deserves to be its own term, separate from the traditional gambling definition.

But anyway, games of skill tagged with buzzwords like “metaverse gambling” have started to take off, with videos of users playing poker in the metaverse even going viral. Through platforms like Meta’s Pokerstars VR and Decentraland’s ICE Poker, users are finding a newfound love for online gambling. But there’s a catch: you can’t really make money from metaverse poker, because poker and virtual casinos are so strictly regulated. Although ICE Poker appears to skirt regulation by allowing users to earn game-native crypto-tokens, which actually have some blockchain value.

Still, ICE Poker is more a game of profit than it is metaverse gambling. While poker itself begs for a “gambling” label, making small profits through skill play over time is a clear P2E. Of course, some would say that investing in a P2E project is in itself a bet that the project will do well in the long term. But the argument is that decentralized or Web3-leaning P2E gaming is simply a variant of the real-money gaming business model popularized by esports – with games like Axie Infinity replacing League of Legends.

Does Web3 and NFT gambling have a future?

Unless you live in a country that has looser gambling laws than the US, don’t expect to make beaucoup money from metaverse casinos anytime soon. Unless these winnings are related to Fortnite V-Bucks and cannot 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 crypto winnings to be reported as taxable income.

That is exactly why projects such as Gambling Apes have country-specific blocking enabled on their destination pages, hoping to deter potentially illegal activity, albeit to some extent.

For now, reading metaverse casinos for fun seems the wisest course of action. That, or find a good game of skill (like Internet gambling) that operates within the confines of the law. After all, those who aim to capitalize on metaverse gambling without doing their due diligence are likely to get burned. This is exactly what happened to Slotie NFT, a metaverse casino that was accused of selling NFTs that violated securities laws.

Like crypto regulation at large, metaverse gambling feels like a “wait and see” scenario. For now, it’s still relatively unclear how, if, and to what extent existing regulations apply to metaverse gaming, regardless of the interpretations we can derive from things like the Wire Act and UIGEA, so it’s probably a smart path to exercise caution. developers and users. Surely, if an entertainment-centric metaverse is to become sustainable, as Zuckerberg’s Meta undoubtedly hopes, regulators and the Web3 community should keep an eye on metaverse gambling.