Decentraland: A Loophole for iGaming Regulations?

Reading Time: 8 minutes

Author: Sebastian Scheplitz

As technology outpaces iGaming regulation, both players and online casino operators are at a virtual crossroads, deciding in which direction to head. 

After our two-cents on NFTs with “Digitizing the Online Gambling Revolution with NFTs”, “Dominance of NFTs in the Sports Betting World,” and the Translation Royale take on “Horse Racing: NFTs in the Running for Gambling Supremacy,” we want to go even deeper on what Web3 has to offer for the iGaming industry.

We’re going to dim the lights, crack open a bottle of Teremana Tequila or Aviation Gin, and get downright intimate with the world of crypto gambling, up close and personal with Decentraland, and cozy up to iGaming rules and regulations 2022. 

Who knew NFTs in the online gambling industry could be so romantic?

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Decentralized Gambling 101

When we discuss ‘decentralized gambling’, what we’re truly talking about is gambling with a decentralized currency, aka cryptocurrency, also known as peer-to-peer money or digital currency.

Centralized gambling platforms (traditional online casinos) use fiat currency, so this could mean playing in Euro, British Pounds, US Dollars, or Hungarian Forint, for example.

Decentralized gambling platforms are – as you’ve no doubt already twigged – the opposite of this and instead use a non-fiat currency, the most popular of which are Bitcoin and Ether (Ethereum). 

You might also see these cryptocurrencies knocking around online casinos:

• Litecoin
• Tether
• Dogecoin
• Dash
• Ripple
• XRP
• Bitcoin Cash
• WINk

Pros and Cons of Decentralized Gambling

Before you start mindlessly taking out a second mortgage and/or blowing your life savings on digital NFT gambling or the horse racing in the metaverse, take time to weigh up whether metaverse gambling is suitable for you. 

Some advantages of decentralized gambling include:

• Protection – without a singular data resource, blockchains are harder to hack.

• Security – since crypto transactions don’t require personal data, there’s no risk of identity theft.

• Transparency – all blockchain tech uses a provably fair gaming algorithm (like the SHA-256 algorithm) to ensure all decentralized casino games meet standards. In centralized gambling, this is done by the Random Number Generator (RNG), which has the potential to be rigged.

• Freedom – no third-party regulatory meddling from gaming bodies such as the UKGC or MGA.

• Lower fees – the absence of traditional banks means lower transactional fees or none at all.

• Speed – crypto transactions are nearly instantaneous.

• No location restriction –  you can play from wherever you want. This is a huge advantage for players from restricted countries. And this allows operators to offer games to even more players around the world. Untraceability – no one can trace your money and where you’re playing.

The disadvantages of decentralized gambling look like this:

• Too much freedom – the lack of third-party regulation could mean that unmonitored transactions and assets may have arisen from illegal earnings or be a digital laundry for cleaning illegal funds.

• No controlling body – without a third-party regulatory body, there’s no control over whether a game is potentially rigged or not. Many crypto gambling platforms are licensed, though it is something you should look for as a player.

• No laws – without a state or governing body, there’s no one fighting for your rights in case you get ripped off.

• Complexity – there’s a steep learning curve for NFT, Web3, Metaverse, etc., and the required entry-level knowledge might turn a lot of players away. Using your credit card or bank account is already learned and automatic. Opening a crypto wallet, however, represents a technical hurdle most people haven’t jumped over yet, although it is relatively simple.

• Volatility – just look at the Bitcoin and Ethereum charts of the last couple of months. Yes, there’s inflation for Fiat currencies that crypto doesn’t have, but crypto hits different.

• Untraceability – yes, this can be a disadvantage. Because it also means that crypto can be used for fraud and criminal activity. Does it concern you as a player? Probably not. As an operator though…

So, it’s mostly about weighing the advantages against the disadvantages and knowing what you value more – as a player or as an operator. 

But, as with everything related to iGaming regulation, it’s not that simple. Well, it wouldn’t be as much fun if it were. 

Blockchain Technology and Online Casinos

Often cited as ‘the future of online gambling,’ some well-known crypto casinos in the current market include:

• BitStarz: the original don of crypto gambling 

• 7Bit: slot catalog superstar

• Slots.lv: the home of progressive (aka jackpot) slots

• Ignition: famous for its poker vertical 

• Cloudbet: accepts the widest range of cryptocurrencies

• mBit Casino: the community-based gambling platform

• Cafe Casino: offers the most generous Bitcoin welcome bonus

• Red Dog: also, great for Bitcoin bonuses

• Super Slots: leads the optimization for mobile race

• Slots Empire: brings players an unparalleled user experience

• Bovada: the go-to for sportsbook bettors 

What is Decentraland?

A 3D browser-based virtual world, Decentraland is an online space where virtual plots of land are sold as NFTs by real-world realtors. MANA is the cryptocurrency of choice for Decentraland gambling, operating on the Ethereum blockchain. Opening to the public in February 2020, Decentraland is governed by the nonprofit Decentraland Foundation. 

Created by Argentinians Ari Meilich and Esteban Ordano, the history of Decentraland’s development started back in 2015. At the initial launch, plots of lands sold for around $20 a pop with MANA tokens coming with a price tag of $0.02. 

Genesis city is the 3D world’s first map and comprises 90,601 parcels of NFT real estate. Decentraland pocketed $26 million during its initial coin offering (ICO) back in 2017.

When Facebook rebranded as Meta, MANA peaked at $5.79, proving itself as a highly volatile crypto option. 

By the end of 2021, household brands started appearing in the Decentraland Metaverse. Global companies such as Miller Lite, Samsung, PricewaterhouseCoopers (PwC), Adidas, and Atari all own properties in Decentraland, with Sotheby’s holding its first metaverse auction in March 2022. 

Also in March 2022, Decentraland’s “Metaverse Fashion Week – The next chapter of fashion” was deemed a success and showcased popular high-end brands such as Estée Lauder, Dolce & Gabbana, Tommy Hilfiger, and Imitation of Christ. The soundtrack for Decentraland Fashion Week was provided by Grimes and Deadmau5. 

As the most prominent of all metaverses (Yes, there are many, but going into detail might be a bit much for this article. Just imagine them as different online cities), Decentraland hosts a total of three metaverse casinos: Chateau Satoshi, Tominoya (the original Decentraland casino), and Atari Casino. 

Decentraland Casino – Play-to-Earn 

The sign-up fee for Tominoya currently stands at $5,000 dollars, for which you’re furnished with a gambling NFT that increases in value, the more you play (and win). This technically makes Tominoya a play-to-earn platform, rather than a traditional play-to-win operator. 

These value-boosted assets can then be resold at a higher price. To date, Decentraland has increased players’ NFT assets to the tune of $15 million. 

Games offered include casino classics such as slots, roulette, blackjack, and poker. Sadly, sportsbook verticals are still lacking, but NFT horse racing will be covered by the ZED RUN HQ in Vegas City, Decentraland (DCL). Well, it is still early days.  

Law & Order in the Metaverse

Because metaverse casinos cross international borders, while local jurisdictions have their own specific laws regarding all online activities, gambling in the metaverse is governed by the players themselves and the owners of the online casinos. 

Metaverse policies include regulating the conduct related to how data can be accessed, promotions, and appropriate speech – all of which will be affected by local laws and iGaming regulations. Well, that’s the theory at least.

In reality, the metaverse could be compared to the wild west, just with fewer cowboys and showdowns at noon. As a fully immersive digital world, it’s highly probable that metaverse gambling platforms will need to introduce a more rigid approach to regulation – effectively private laws to monitor and regulate the fairness of NFTs in online gambling. 

A loophole could suggest many things but generally veers towards the more nefarious activities relating to finance or law. First, let’s get familiar with the purpose of iGaming regulatory bodies and what they exactly do. 

The UKGC has this to say:

“We license, regulate, advise and provide guidance to the individuals and businesses that offer gambling in Great Britain, including the National Lottery in the UK.”

The UKGC also pockets huge amounts of cash from fines issued to online casinos – a hectic industry where mistakes happen too easily (and too often). The question is whether we even need a regulatory body to oversee gambling activities. As we all know, online casino licenses aren’t created equally. 

Players are also fully aware that a casino from a beautiful yet probably highly corrupted offshore country’s license serves the main purpose of bringing legitimacy to an online casino. 

Crypto trailblazers BitStarz operate with minimal licensing and are taking down iGaming awards every which way. Hands-off licensing and non-fiat currency seems not only a viable business model but also an enjoyable and fair gaming environment.

As BitStarz has proven, whether framed as a loophole of iGaming regulation or simply an example of how eased regulations can benefit a casino, the same lack of third-party interference applies to Decentraland. 

Should an international metaverse audience gravitate towards a single platform, as seen with Facebook, which in the first quarter of 2022 had 2.93 billion monthly active users (and dwindling), this completely surpasses the population of any given country. 

If a metaverse casino finds a similar user base, the influence this could have on setting policies and standards will be weighty, to say the least.

The UKGC and Decentralized Gambling

Defining cryptocurrencies as ‘crypto-assets’, the UKGC definition covers the “way to fund gambling, both new and existing, or as a means to deliver gambling products using cryptocurrencies.”

The stance on risks by the UKGC is that directly accepted crypto-assets carry the following risks:

• Tracing source of funds

• The effect of non-fiat fluctuations with the potential triggers of volatile deposit limits and anti-money laundering concerns 

• Scalability

• Costs

• Security of casino balance

It’s Probably Not a Loophole

With the UKGC licensing conditions comparable to that of boss-level gambling policies, yet open-minded towards blockchain tech, iGaming rules and regulations in 2022 regarding the metaverse seem to be in development with UKGC policymakers and other regulatory bodies open-minded to progressive digital trends. 

To say that Decentraland is a loophole for iGaming regulations – a seemingly astute viewpoint – is in fact simplifying the matter. If past trends are anything to go by, more and more gambling enthusiasts will no doubt play casino games in the metaverse. 

Unfortunately, the $5,000 dollar entrance fee for Decentraland’s operation is pricing out the majority of casual players, and this is where casinos make their bread and butter.

With this demographic demoted to traditional online casinos, it’s a bit of a reach to assume that Decentraland and other metaverse casinos will continue to flourish without a more accessible approach to accepting new players.  

Blockchain-based casinos – even the most popular, respected, and lauded – get by with the bare minimum licensing requirements, the industry leader BitStarz holding just Curaçao and Cyprus licenses. 

While technically play-to-earn, players instead enjoy an increase in NFT value rather than a boost in casino balance. Regulatory bodies need to sit up and draw a legal distinction with what ‘play-to-earn’ defines which could appear to be a semantic sidestep by Decentraland. 

iGaming regulators are powerless when it comes to wielding any kind of audit or regulation at metaverse casinos. The regulation now needs to be viewed globally instead of by local lawmakers. 

While the prospect of a Casino World Police might be slightly far-fetched and more than a little tricky to implement, cooperation between countries’ associated gambling commissions is the only answer for metaverse gambling regulation. 

The real question we should ask ourselves is: Does Decentraland even need iGaming regulation?

Header Image Source: Photo by kevin laminto on Unsplash