Legal Tech • March 2025

Crypto and the Law

It's in the Game.

Written by Juan Antonio Solis

The evolution of video games has been nothing short of remarkable, ever since a British doctoral student created a digital version of tic-tac-toe in 1952. Long gone are the old school arcade games like Galaga and Pac-Man that epitomized the 1980s; so too the 8-bit graphics of Super Mario Bros. After all, why go to an arcade when you can play a more sophisticated game at home? Home consoles have made online gaming and multiplayer experiences mainstream, but a new era of gaming has arrived as virtual reality, artificial intelligence, and blockchain technology rapidly push the boundaries of interactivity and immersion.

Cryptocurrency, in particular, has reshaped how players engage with virtual worlds, introducing innovative economic models and altering the concept of ownership. The exciting potential of cryptocurrency in gaming is not without challenges or legal uncertainty. At the heart of this transformation is blockchain technology—the backbone for cryptocurrencies—which permits direct, peer-to-peer transactions on a decentralized digital ledger. Although this technology has now been deployed in many other industries, it is particularly appealing in gaming, where it allows in-game assets to be represented as non-fungible tokens (NFTs), enabling true ownership. Players can also buy, sell, or trade NFTs and other in-game items for other cryptocurrencies, creating a semblance of a real economic system.

Among the most significant developments is the emergence of play-to-earn (P2E) models, popularized by Axie Infinity, Decentraland, and others. In P2E games, players earn cryptocurrency for participating in the game or adding value to it. Both Axie Infinity and Decentraland feature native tokens that can be used to transact within virtual worlds. These tokens can also be traded on other cryptocurrency exchanges for fiat currency.

As these virtual economies develop, traditional financial products are joining the fold. A number of programs have started allowing players to take out loans against their in-game crypto assets—including loans to purchase digital land in games that became known as the first “mortgages” of the metaverse. The emergence of NFTs has also fundamentally changed the concept of ownership, permitting players to buy and sell unique in-game items, including “skins” (character gear), weapons, and digital land in blockchain-supported marketplaces.

These developments have led to thriving secondary markets where in- game items can reach exorbitant prices and players treat them the way they would real-world assets. This fosters a sense of ownership that traditional gaming models could not provide.

As regulators try to wrap their arms around the integration of cryptocurrency in gaming, a legal framework is starting to take shape, bringing with it higher expectations for gaming publishers.

Consumer protection is central to any regulatory concerns. The Consumer Financial Protection Bureau issued multiple reports and consumer advisories in 2024 to address the growth of financial transactions in video games.

According to these reports, video games are increasingly resembling traditional banking and payment systems that, through virtual currencies, are susceptible to fraud, theft, and scams. As the value of in-game assets rises, regulators may demand that publishers increase their efforts to secure accounts, safeguard virtual assets, and provide recourse for players who suffer losses.

Regulators have also warned that gaming markets can facilitate money laundering, prompting stricter rules for money transmission licensing. It has been more than a decade since the U.S. Department of the Treasury announced that administrators of entralized repositories that facilitate the transfer of convertible virtual currency (which includes “value that substitutes for currency”) are considered money transmitters under federal law. Since then, states have enacted their own crypto-specific transmitter regulations, such as New York’s BitLicense for virtual currency business activity. In general, this has required cryptocurrency exchanges—which mirror aspects of gaming platforms to the extent they permit the transfer of cryptocurrency— to register as money transmitters, maintain an anti-money laundering (AML)/know your customer (KYC) program, and monitor for and report suspicious activity.

The gaming industry is in the bullseye of those concerned about companies collecting personal and behavioral data regarding their customers. With cryptocurrency fueling the virtual economies created by these games, publishers can collect players’ financial data, purchasing patterns, and spending behavior. Using generative AI, publishers can generate real-time, unique content based on this data. To address concerns about the dissemination or misuse of this information, the Federal Trade Commission recently proposed changes to the Children’s Online Privacy Protection Act (COPPA) to place new restrictions on the use and disclosure of children’s personal information. States have also enacted their own comprehensive privacy laws to regulate the use of personal information.

The incorporation of cryptocurrency in gaming marks a revolutionary shift in how human beings interact with digital worlds. Looking ahead, as blockchain technology continues to evolve, game publishers will continue to find ways to integrate cryptocurrency in their games. The full scope of legal challenges to those applications largely remains a hypothetical, but likely not for long.

This article, which was originally published in the Dallas Bar Association’s Headnotes, has been edited and reprinted with permission.

JUAN ANTONIO SOLIS is a financial services associate in the Dallas office of O’Melveny & Myers. His regulatory practice focuses on consumer, market regulation, and data privacy issues, with an emphasis on financial technology, digital assets, and other emerging technologies.