The gaming industry has been exploring the potential of blockchain technology over the past few years. In India, this exploration has significantly increased. Blockchain, a decentralized data storage system, stores identical copies of information across multiple computers in a network. The broad scope and applicability of blockchain have made it appealing to the gaming industry, particularly for online video games.
Understanding Blockchain Gaming
Blockchain games are essentially online video games designed with blockchain technology integrated into them. They include elements that utilize blockchain technologies based on cryptography like Cryptocurrency or Non-Fungible Tokens (NFTs). Users can buy, sell, or trade these elements with other players, providing a new form of monetization for game publishers. For instance, Dapper Labs’ developed CryptoKitties, the first-ever blockchain game, in 2017. Players could adopt and breed virtual cats (CryptoKitties) in the game, with each CryptoKittie acting as a Non-Fungible Token (NFT).
Key Components of Blockchain Games
The critical elements of blockchain games include:
1. NFTs: These represent in-game assets owned by players, such as maps, armor, or land. NFTs allow players to securely record ownership of in-game assets. The assets can outlive the game itself and be transferred from one game to another.
2. Cryptocurrency: These digital currencies, often based on the Ethereum blockchain, can be used to purchase in-game assets directly from the game.
The Legal Landscape of Games in India
In terms of legal jurisdiction, state legislators have exclusive power to make laws relating to betting and gambling, according to Entry No. 34 of List II (State List) of the Seventh Schedule of the Constitution of India. Games in India are primarily classified as ‘games of skill’ and ‘games of chance.’ The ‘dominant element’ test is used to determine if a game is based more on skill or chance.
Understanding the Difference between ‘Games of Skill’ and ‘Games of Chance’
A “game of skill” is predominantly based on a player’s mental or physical expertise, while a “game of chance” is mainly determined by a random factor. Games like Chess, Carrom, Rummy, and Fantasy Sports are considered games of skill, while Blackjack and Roulette are considered games of chance.
Blockchain Gaming within the Legal Framework
As blockchain is just the underlying technology, there is no express regulation of it in India. However, each blockchain game must qualify as a ‘game of skill’ to be legally allowed in most Indian states. Further, the legality of blockchain games depends on the legality of cryptocurrency.
The Financial Implication for Blockchain Games in the Budget 2022-23
In Budget 2022-23, it was announced that income from the transfer of any ‘virtual digital assets,’ including cryptocurrencies and non-fungible tokens, would be subject to income tax at the rate of 30%.
Intellectual Property Protections for Blockchain Games
Blockchain games can be protected by patent, trademark, and copyright laws under certain conditions. While computer programs are not patentable, a blockchain game with a technical contribution or effect may be patentable. Trademarks protect the goodwill and reputation of the brand, and copyrights guard artistic work, musical work, and other creative products, including video games under the category of ‘multimedia products.’
Challenges and Opportunities for Blockchain Gaming
Despite the potential benefits of blockchain technology for online games, certain challenges need addressing. These include regulation, privacy and cybersecurity, financial regulations application to blockchain games, and the assurance of intellectual property rights protection. These aspects will play a crucial role in the growth and development of blockchain gaming in India.