Uncertainty Swirls Over South Korea’s ‘NFTs Video Games Are a Form of Gambling’ Stance
South Korea’s blockchain gaming sector finds itself at a crossroads due to recent court decisions categorizing non-fungible tokens (NFTs) as a type of gambling. Despite political winds hinting at regulatory changes, gaming companies face hurdles from judicial interpretations linking NFTs in games with gambling, creating uncertainty in market operations.
Legal professionals contend that gaming firms are challenged by court rulings that define the core characteristic of NFT-powered games as gambling. This legal stance has deterred domestic companies from venturing into blockchain-based gaming development.
According to Lee Cheol-woo, an expert in the video gaming legal framework, South Korea enforces stricter gambling regulations than many other countries. Past landmark cases in the gaming industry have significantly influenced the current regulatory environment, making it difficult for gaming entities to ignore these precedents.
One notable example is the Sea Story arcade game case from the early 2000’s, which became embroiled in controversy. Released in 2004 and operated by A1Biz, Sea Story machines were widely distributed, but their CEO was incarcerated for breaching gambling laws. Courts found that the game delivered a gambling-like addictive experience by awarding gift certificates, leading to a regulatory clampdown.
Legal logic used in the Sea Story incident has been subsequently applied to blockchain games involving NFTs and cryptocurrency. The Game Rating and Administration Committee (GRAC), responsible for age-related certifications, has been pivotal in this development. Without GRAC’s approval, games cannot feature on prominent app marketplaces.
In 2023, a decisive ruling by the Seoul Administrative Court supported GRAC’s actions to withdraw its rating from the NFT game “Five Stars for Klaytn,” developed by Sky People. The court detailed the game’s offerings as prohibited “gifts,” underscoring the perception that these functions promote gambling due to their combination of monetized transactions and random outcomes.
Lee Cheol-woo elaborated, outlining that the Game Industry Act’s clauses, which restrict prizes with inherent property value, extend to virtual assets like NFTs. Courts thus perceive NFTs as valuable prizes due to their persistent value outside game ecosystems.
This regulatory stance has resulted in a de facto ban on games featuring NFTs, Play-to-Earn (P2E), and Web3 components in South Korea, with the essence of these elements viewed as gambling under current law.
In response, domestic game developers have pivoted their business strategies, some jettisoning NFT applications altogether or exiting the South Korean market.
Amidst these challenges, the political horizon offers potential change. President Lee Jae-myung, who assumed office in June, has promised reforms favoring both gaming and cryptocurrency industries. However, a proposed crypto regulatory framework still languishes within legislative processes.
President Lee has previously critiqued the nation’s historical approach to gaming regulation, suggesting that over-regulation has caused South Korea to lose its competitive edge in gaming to other nations, like China. His administration may consider shifting the responsibility for game ratings to the private sector, providing blockchain gaming enterprises a glimmer of optimism.
“Five Stars for Klaytn” serves as a poignant example of these dynamics. The role-playing game (RPG) incorporates NFTs as in-game items tied to players’ digital wallets, with mechanisms for peer-to-peer trading or third-party sales.
Despite South Korea’s barriers, major gaming corporations such as Wemade, Netmarble, and Com2uS have delved into creating blockchain titles, only to encounter restrictions in their home market. The global perspective, however, remains optimistic, with anticipations of the blockchain gaming industry exploding to a value of $26.5 billion by 2034, driven primarily by mobile title innovations.
Experts agree on the necessity to dissolve the association between NFT ownership and gambling in South Korea, a unique stance not mirrored by other global jurisdictions. Critics and reformers are engaged in a delicate impasse, taking firm stances on possible solutions.
Legal professionals suggest exploration in eliminating “chance” components from games and instituting age restrictions for downloading NFT-enhanced titles. Meanwhile, scholars within the field, like Kim Jeong-tae from Dongyang University, propose discarding terms like P2E to pave the way for regulatory advancements, advocating for distinct, permissive standards that align with innovation.
Recently, government authorities issued stern warnings to website developers about potential legal repercussions associated with creating online platforms for illicit gambling operations, further emphasizing the stringent nature of current legislative actions.
