The gambling sector is constantly evolving with more variety and options for customers than ever before. Entain has revolutionised the UK racing scene by introducing an immersive virtual reality experience which allows customers to go head-to-head with other virtual riders. SlotsMillion allows customers the choice to enter a VR casino using a headset or experience a lobby on their computer that resembles a 3D video game. Operators have invested huge sums of money to ensure that they are ready to launch their products in the metaverse.

Operators are constantly looking for new ways to entice customers and provide experiences that separate them from the rest of the market. However, in a world where the Gambling Act 2005 dates back to before crypto currency, blockchain and virtual reality existed, we must ask ourselves: are we ready to gamble in the metaverse?

The metaverse is still a developing technology; the most widely accepted definition of the metaverse is a “virtual-reality space in which users can interact with a computer-generated environment and other users”[1].

While many operators have begun to invest in the metaverse, questions remain as to how individuals will gamble in this new space. Unlike traditional online casinos in which customers play games on their phone or over a screen, the metaverse attempts to replicate the full casino experience. Customers can walk through a casino and experience a digital representation of the environment using a unique avatar. It is expected that customer’s will be able to control their avatar’s behaviour in a similar way to how they conduct themselves in the real world. By engaging and interacting with other avatars, customers will be able to monitor the body language and facial experience of their opponents when sat at poker table, for example. Avatars will become the customers of tomorrow.

It is likely that, instead of using fiat currency, metaverse casinos will seek to accept cryptocurrency as payment for gambling as a means of engaging with an audience that has already adopted, or will adopt, blockchain-powered technologies as the ‘new normal’. A metaverse casino requires a participant to convert their fiat currency into one of the crypto currencies accepted in the metaverse and deposit funds using a crypto wallet. So, unless you already own a lot of cryptocurrency, players will need to use a crypto exchange to purchase cryptocurrency before they are able to play. We expect operators in the metaverse to conduct themselves in different ways; some will provide winnings in NFTs, while others will provide winnings in the cryptocurrency that they decide to use, for example Bitcoin, Ethereum or Litecoin.

How gambling in the metaverse will ultimately be regulated is yet to be determined, primarily due to the wider unknowns surrounding the metaverse. Key considerations are how operators identify customers entering the metaverse and how regulators will get comfortable with the source of funds used to gamble in the metaverse.

We need to understand how gambling in the metaverse will be regulated before operators can open their doors to customers in the metaverse. So, what needs to be answered before this can happen?

The interplay between crypto assets and financial regulation is a highly complex and rapidly evolving area. As set out above, it is widely regarded that gambling in the metaverse will occur via the exchange of crypto assets as payment for opportunities to gamble. The Great Britain Gambling Commission (“Commission”) has released guidance[2] on the use of blockchain technology and crypto assets in gambling and what is needed if operators wish to use this as a means to deliver gambling products.

At present, the anonymity surrounding cryptocurrency has proved problematic with operators who are unable to provide adequate source of funds in relation to crypto assets. As such, cryptocurrency carries a higher risk of money laundering and terrorist financing risks for gambling operators by virtue of the fact that it is more likely to be exploited by criminals and money launderers. In order to keep crime out of gambling, it is the responsibility of the operator to understand the source of all funds that come into its business including all crypto assets.

Regulators and legislators are not known for their speed in adapting to new and emerging technologies. Unfortunately, at this stage there are more questions than answers. The Commission’s guidance recognises the interest from stakeholders over the use of crypto-assets; however, it acknowledges various challenges that arise from accepting crypto assets directly, such as (i) how fluctuations compared to fiat currency will be dealt with (this is likely to affect important thresholds, such as responsible gambling tools and AML triggers); (ii) how customer funds will be treated in the event of insolvency (one only needs to open the financial sections of the paper to read about the recent FTX scandal and it is likely that this will make regulators even more nervous about embracing crypto as an accepted payment method for use in connection with gambling); and (iii) what information has been provided to consumers to ensure they are aware of the risks associated with using crypto-assets as a payment method.

Until crypto assets become a regulated currency recognised by the Commission, licensed operators will struggle to use this currency in the metaverse.

The legal challenges around the metaverse and how consumers are protected start as soon as the software is developed and released into the metaverse. If the software developers have no control over the virtual environment, then who will take responsibility for illegal activity in the metaverse? How will customers be protected from illegal activities, such as theft and identity fraud and how will marketing material be communicated to customers in this virtual world?

Additionally, as with traditional online gambling, any gambling operator who provides gambling products in the metaverse will need to ensure that they have appropriate measures in place to identify and act when customers exhibit harm. When gambling went online, gambling operators faced new challenges about how they could monitor signs of gambling-related harm which required careful consideration given they could no longer assess the behaviour of a customer gambling in-person. Gambling in the metaverse will present similar new challenges which will need to be addressed prior to customers actively participating in gambling in the metaverse.

Operators need to pay particular attention to their terms and conditions and marketing communications to ensure customers are protected and that all relevant material has been carefully communicated to them prior to entry into the metaverse. There are also some novel issues that have not been resolved, such as managing consumer refund rights in relation to crypto assets. How will existing customers of an operator be informed of the new gambling world that occurs in the metaverse?

Child protection is an increasingly important topic, with various territories recently introducing new child protection laws. These will be highly relevant in the metaverse where anonymity is more prominent, resulting in the potential of easier accessibility to children participating in gambling related activities. The gambling sector must protect children, young persons and other vulnerable persons from being harmed or exploited. Until there is guaranteed protection of these individuals, we will never be ready to gamble in the metaverse.

The question still remains; are we ready to gamble in the metaverse?

References

[1] Definition of ‘metaverse’ from the Oxford Advanced Learner’s Dictionary

[2] Blockchain technology and crypto-assets: https://www.gamblingcommission.gov.uk/licensees-and-businesses/guide/page/blockchain-technology-and-crypto-assets