What legal issues should be paid attention to when starting a blockchain game business?

Source: Lawyer Shao Shiwei

Introduction:

The gaming industry has always been one of the fastest growing and most profitable industries in the world. In traditional games, game operators have control over the game. The game market lacks transparency and trust. If there are special circumstances such as game suspension, the interests of players cannot be protected. Compared with traditional games, Web3 games (or GameFi, blockchain games) rely on blockchain technology to enable each player to control their own in-game assets, and the use of smart contract technology also makes transactions open and transparent. Therefore, in recent years, more and more game entrepreneurs have focused on Web3 games.

However, due to the financial attributes of Web3 games and the game model that focuses on play to earn (make money while playing), compared with traditional games, Web3 games have natural policy risks in my country.

So what issues do Web3 game entrepreneurs need to pay attention to? This article sorts out the time dimension and lists the top ten legal issues that entrepreneurs need to pay attention to during the preparation and launch stages of game projects, the publicity and promotion stages before and after the game is launched, the game content itself, and the game operation process.

1. The technical team is located abroad. Can domestic legal risks be avoided?

This is the most frequent legal problem that Lawyer Shao encountered during the consultation process, and it is not one of them.

Because many Web3 entrepreneurs have a certain understanding of my country’s blockchain-related laws and regulations, they often feel that since there are so many restrictions on domestic development, it is better to Is the project ready abroad? Then the first thing to solve is the "people" problem. In order to avoid the legal risks that the project itself may bring to itself, domestic project parties often think of finding foreign technical teams for development. Or conversely, the people and projects are overseas, but the development team they are looking for is domestic.

In fact, judging from the two models, civil and administrative risks may be avoided to a certain extent, but criminal risks are difficult to avoid. Because our country’s criminal law provides for territorial jurisdiction and personal jurisdiction regarding jurisdiction. Territorial jurisdiction means that as long as the criminal act or result occurs within the territory of our country, our country has jurisdiction; personal jurisdiction means that as long as a Chinese person commits a crime outside the territory of our country, our country also has jurisdiction. Therefore, as long as a Chinese person commits a crime, or the crime or the result is domestic, our country has the right to take control.

 2. What policy restrictions will there be when making Web3 games in China?

Web3 games that focus on play to learn will generate tokens in the game. The tokens generated in foreign Web3 games can be directly liquidated in exchanges, but in China , virtual currency-related businesses are classified as illegal financial activities, prohibiting currency issuance, prohibiting ICO, prohibiting token financing trading platforms from engaging in the exchange business between virtual currency and legal currency, virtual currency, etc.

Relevant policies include: On February 18, 2022, the China Banking and Insurance Regulatory Commission issued the "Risk Tips on Preventing Illegal Fund-raising in the Name of "Metaverse"" to remind the public to be wary of games under the banner of the Metaverse blockchain game. Scam. Some criminals bundle the concept of "Metaverse" and claim to "make money while playing games" and "short investment cycle and high returns" to trick participants into investing by exchanging virtual currency and purchasing game equipment. On April 13, 2022, the Internet Finance Association of China, the China Banking Association, and the Securities Association of China issued the "Initiative on Preventing NFT-Related Financial Risks" which prohibited direct or indirect investment in NFT and provision of financing support for investment in NFT. matter.

These all make Web3 game entrepreneurship in China subject to strict policy supervision.

 3. When a Web3 game is launched, is it necessary to obtain a game version number?

This question needs to be distinguished whether it is at home or abroad.

If you are publishing a Web3 game in China, you need to obtain a game version number according to the "Interim Provisions on the Administration of Game Publishing" and other legal regulations. But game practitioners all know how difficult it is to get a domestic game license.

If you launch a Web3 game without a domestic version number or package number, you may be at risk of administrative penalties, or at worst, you may be sentenced to illegal business operations. Although the launch of the game without obtaining a version number constitutes the crime of illegal business operation in the strict sense of the criminal law, Lawyer Shao believes that there is still considerable controversy. However, in judicial practice, there have indeed been many cases in which game developers have been convicted of the crime of illegal business operation. Related For legal analysis, please refer to → "Is it okay to go online without a game version number on the blockchain game Gamefi?" ”, this article will not go into details.

 If a Web3 game is released abroad, it is not subject to the version number restrictions stipulated in our country's laws. For example, the project team put Web3 games on Steam. Steam, as a game distribution platform launched by an American company, does not have domestic version number restrictions. Then many inquirers will ask further questions, is it legal for games listed on Steam to be targeted at domestic players? For relevant legal analysis, please refer to → "Is it illegal to publish a game on Steam without a game version number?" ”, in short, from a compliance perspective, regardless of whether the games listed on Steam are restricted to the country, in terms of publicity and distribution, it is still recommended to keep a low profile and not promote the game in the country.

 4. At the publicity level, you need to be alert to the risks of pyramid schemes!

Whether the Web3 game server is built at home or abroad, at the level of publicity and traffic before and after the game is launched, it is necessary to prevent the risk of pyramid schemes in the process of promoting and attracting new players. A common new acquisition model is generally that user A can generate his own exclusive QR code or link in a product poster. By sharing the QR code or link, if user B registers, A can obtain relevant rewards from the platform. This reward (or the commission income of old players) is generally based on the consumption of new players after entering the game. According to the order of joining the game, a pyramid-like hierarchical structure is formed.

According to the provisions of our country’s laws, pyramid schemes refer to organizers or operators who develop people by calculating and paying remuneration or requiring the people to be developed based on the number of people or sales performance they directly or indirectly develop. Personnel seek illegal benefits by paying certain fees as a condition to obtain membership qualifications, disrupt economic order, and affect social stability. If there are more than 30 people involved in MLM activities within an organization and the level is above level three, the organizers and leaders should be held criminally responsible.

 V. Gambling is the most important legal risk that Web3 game entrepreneurs need to pay attention to

The Supreme People’s Procuratorate held a meeting on November 29, 2021 In the press conference, it was clearly stated that "A prominent feature of the application software suspected of gambling is that it has a related cash withdrawal function." Web3's play-to-earn model naturally involves gambling risks.

For example, Fomo3D is a gambling game on Ethereum. The gameplay is that it sets a 24-hour countdown. As long as someone buys KEY (in-game token), the countdown will increase by 30. Seconds, the price of KEY will become more expensive as the prize pool gets larger. The last player to buy KEY can win a huge bonus at the end of the game. In addition, players holding KEY will also receive a corresponding proportion of dividend income.

If the game has a probabilistic gameplay, players can obtain game props or token rewards by playing the game, and these rewards can be realized in some way, such as trading on a virtual currency exchange. If game manufacturers directly or indirectly recycle game props/tokens from players, they have the characteristics of gambling crimes. For a more detailed analysis, please refer to → "Blockchain games that make money while playing, how to avoid becoming gambling?" 》.

 6. Domestic Web3 games, the legal risks of opening a secondary trading market for players

As mentioned in the previous article, if the platform is the player’s If the final realization of game tokens and props provides direct/indirect help, the game has gambling risks. So many entrepreneurs will ask, can a secondary market be opened to allow players to trade on their own?

First of all, if it is In-game virtual currency, whether it is the "Online Game Management Measures (Draft for Comment)" on December 22, 2023 or the relevant provisions of previous game laws , all mentioned: users must not be provided with services for exchanging online game currency for legal currency. In addition, the 2017 94 Announcement also clearly stipulates that ICOs are prohibited in the country, so token transactions will still have the legal risk of being deemed as a disguised issuance of tokens.

Secondly, if it is the NFT assets of players in the game, can a secondary (consignment market) be opened for transactions between players? From the perspective of legal compliance, you can refer to the provisions of the two documents Guofa [2011] No. 38 (referred to as Document No. 38) and Guobanfa [2012] No. 37 (referred to as Document No. 37). Centralized bidding, electronic Standardized contract transactions are carried out through centralized trading methods such as matching, anonymous trading, and market makers. From the perspective of judicial practice, the legal risks of the Web3 game platform's opening of NFT-related secondary markets can be referred to the digital collection platform. Lawyer Shao has handled many criminal cases for digital collection platforms. If a platform opens a second level, users will complain, and the public security department will launch an investigation, resulting in many cases of criminal detention of operators.

 7. Has the Web3 gaming platform become a tool for money laundering?

In the eyes of criminals, the Web3 game platform can also be used as a criminal tool. Let’s take the Roblox platform (an online game platform for children and teenagers), the first stock in the Metaverse, as an example to illustrate.

In 2021, the Yuanverse platform Roblox will be listed on the New York Stock Exchange. It was previously discovered in a class action lawsuit on the platform that more than 300 users on the platform may be suspected of using the Roblox platform for money laundering activities. These users "seem to use the Roblox platform to transfer money to each other by purchasing fake items. This is a very inefficient and expensive way to transfer money." For example, a user used the platform's virtual currency Robux (approximately 12,500 US dollars) to buy the same item from the same seller. A user spent the equivalent of US$6,250 in one day to buy the items he sold.

If the platform has serious flaws in supervision, it will harm the interests of the majority of users and have a negative impact on the long-term development of the platform itself.

If the platform is established in China, according to the "Cybersecurity Law", "Blockchain Information Service Management Regulations" and other regulations, Internet users need to provide their true identity when registering, logging in and using Internet services. information. According to the "Anti-Money Laundering Law of the People's Republic of China", "Regulations on the Management of Payment and Clearing Institutions" and other regulations, when Internet companies provide business related to fund transactions, they need to establish and implement an effective KYC system (Know Your Customer) to ensure customer identity verification, risk management and other regulations. Assessment, transaction monitoring and other aspects were effectively implemented.

 8. When Web3 game entrepreneurs are accused of “fraud”

As a criminal who is deeply involved in the Web3 industry As a defense lawyer, the criminal cases involving the platforms I represent often arise out of user complaints. Players who lose money playing games on the platform often have several ways to protect their rights: (1) A small number of radical rights-protecting users are often things that you cannot reasonably reason with. I made a loss on your platform. The platform is a fraud. I will report the fraud. (2) There are also some rational users who will choose to go to the court to file a civil lawsuit, but it is generally difficult to file a case, so these users also go to the police station to report the case. (3) Most users will choose to call 12345 to complain to administrative departments such as the Market Supervision Bureau. The accumulation of the above number of users will attract the attention of the public security department, and the platform operator will most likely receive a "tea" invitation from the police.

Therefore, during the operation of the platform, it is necessary to establish an effective user complaint handling mechanism, improve customer satisfaction with platform services, effectively appease users' emotions, actively communicate, and provide customers with effective solutions.

 9. Web3 game platforms need to guard against illegal fund-raising risks

According to the 2022 "About Preventing the Risk of Illegal Fundraising in the Name of the "Metaverse"" "Risk Warning of Illegal Fund-raising", some criminals fabricate concepts such as metaverse-related game production, publicly falsely promote high profits, and take the opportunity to absorb public funds, which has the characteristics of illegal fund-raising. Illegal fund-raising crimes in criminal law generally include the crime of illegally absorbing public deposits and the crime of fund-raising fraud.

The economic model of early Web3 games had a major flaw. The profits of old players were maintained by the entry of new players. Once old players sell a large number of in-game tokens, users in the market will fall into a "fomo mood", which will lead to a continuous shrinking of users, and eventually the game will fall into a "death spiral". If the project from the player's perspective is "slumped" or " "Run away" without any control measures. According to Lawyer Shao's case handling experience, some judicial authorities will file a case against the platform for criminal crimes such as fund-raising fraud.

 10. Risks of intellectual property infringement in Web3 games

For digital assets such as NFT in the game, for registered works, a copyright registration certificate should be obtained and copyright certificates and other documents. For unregistered works, the platform should obtain a copyright statement and related commitment letters signed by the original rights holder to prevent infringing works from being uploaded to the chain. If the platform party uses other people's works to mint NFT for business operations without the permission of the copyright owner, according to the "Copyright Law", it needs to bear civil responsibilities such as stopping the infringement, eliminating the impact, making an apology, and compensating for losses. In more serious cases, depending on the circumstances of the case, it may also involve criminal charges such as copyright infringement and selling infringing copies.

Written at the end:

As the market picks up, Web3 games have begun to gain new popularity, and new development teams are constantly emerging. But for Web3 game entrepreneurs, they will be subject to the dual constraints of game legal regulations and blockchain-related policies in my country. Lawyer Shao sorted out the top ten high-frequency legal issues that may be encountered in the process of starting a Web3 game, hoping to be helpful to friends in the industry.