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Blockchain in eSports – The perfect match with some legal issues

How blockchain can be used in eSports? What potentials and current usages, but also which legal issues can arise from such combination?

The eSports industry has undergone a massive growth in the recent years hitting a record market revenue of almost $1 billion. Blockchain technology could foster even more the huge market growth building trust, adding transparency and introducing new business models. Here is a brief overview of its applications and legal challenges from my colleagues Alessandro Ferrari and Tommaso Ricci that was initially published on IPTItaly blog.

Blockchain in the entertainment revolution of eSports

According to market statistics the eSports industry is the fastest-growing industry at the moment, growing at a 32.6% Compound Annual Growth Rate since 2012 (with North America and China leading the charge) and with a global revenue forecast of $1.5 billion by 2020. Besides the huge growth, the industry is rapidly evolving, going from content consumed largely through streaming platforms such as Twitch to network-backed streaming services.

The rise of new startup platforms is gradually making the watching of eSports even more mainstream as such initiatives are largely welcoming the use of blockchain based applications to reward users and gather capital through the offering of tokens.

Companies step into the eSports game often launching an ICO (Initial Coin Offering) allowing users to buy-in and leveraging smart contracts technology to enable players and brands to organize tournaments of any scale using tokens as a prize pool. Furthermore, distributed ledger technologies (DLT) are being used to enable streamers to earn coins with advertisements on their channels and through sponsorship agreements. Blockchain applications are used in the the entertainment sector to reward fans who get to earn tokens simply by playing games and watching their favorite streamers. In this sense, platforms such as TaTaTu are offering an holistic approach which aims at reverting the traditional business models putting users, advertisers and content providers on an equal footing.

Without any doubt, blockchain technology offers a uniquely simple and clear way of generating new sources of value while providing security and transparency on exactly how content generates revenue for all parties.

At the same time, this all takes place on a decentralized platform that remains largely unregulated, for the time being and considering the average lifespan and success rate of a blockchain project, content creators and brands shall definitely be smart in choosing their contracts.

Read on the topic our previous post “Top 3 predictions on legal issues of the blockchain for 2019” which outlines the regulatory developments around blockchain.

Blockchain as the key for profitability of eSports

While incentivising a tournament environment can help players sharpen their skills, another important application of DLTs is how this technology can help amateur gamers on their pathway to going pro, by decreasing the entry threshold when it comes to building and managing teams.

The upcoming competitive gaming platforms like FirstBlood allow players to challenge each other while providing a fully automated experience from registration and bracket management to scoring and prize fulfilment. In addition, new infrastructures – such as DreamTeam – foster the development of new worldwide teams offering a recruitment and management platform for amateurs, novices, and pro teams, using blockchain based smart contracts to build and automate financial relations between users without participation of third parties, thus speeding up prize cashing and supporting the development of small tournaments and secure payments.

With transactions happening so fast and almost without human intervention, building trust and ensuring transparency is the key factor for a blockchain based platform to succeed, and in order to build a multi-billion dollar ecosystem upon media right sales, sponsorships and prize money, a complex smart contract structure may not be enough, as investors’ trust is influenced by different factors and crypto related markets are subject to the highest degree of volatility.

Read on the topic our previous post “Blockchain based smart contracts equal to written document in Italy“.

eSports betting between potentials and limitations

At the end of the day eSports are just like any another sport business, with less green fields and more enchanted blades, but is it all about streaming and sponsorships? Not at all. In the world of eSports, betting has a huge, untapped business potential, and blockchain could definitely leverage that.

Compared to normal sports betting, the eSports betting sector is under-represented, suffering from transparency and reliability issues thus lacking of an adequate betting-fan base.

Game integrity is essential both for eSports bookmakers and gamblers: in order to set odds for gamblers and correctly price risk a betting ecosystem should be free from cheating, whether that means software cheat codes, e-doping, match-fixing or online attacks that slow or disable opponents.

Blockchain can  help identify such errors by providing a decentralized and incorruptible way to place betsthrough smart contracts. Using Gimli for example – a decentralized platform based on Ethereum –  the conditions for each bet are publicly available, and rules governing the whole platform are fully transparent: streamers can record the conditions for their bets on the blockchain, with results being triggered at the end of the game without any possibility of foul play.

The most popular form of betting in the eSports community is skin betting, just like normal gambling but instead of betting using cash, players bet using in-game items (“skins”).

As frequently happens in fast growing markets, when the opportunity comes up, regulations are often left behind. Notwithstanding the enormous potential of skin betting – due to the level of abstraction that likely increases the typical willingness to wager – the lack of legal certainty and recent controversies have put downward pressure on the skin betting market, paving the way for cash betting to emerge.

Companies willing to deploy blockchain systems to foster eSports betting shall carefully assess the relevancy of prize promotions regulations and gambling restrictions as the applicability of such rules varies depending on the jurisdiction.

In Italy for example, given the potential winnings in cash in eSports tournaments, the gambling regulator decided to put in place a regulatory environment that would ensure adequate protections to players and at the same time would consider eSports as a kind of “soft” game waiving some regulatory obligations.

Read on the topic our previous post “eSports tournaments limited by Italian prize promotion and gambling rules?“.

Blockchain and its usage for eSports crowd developing

As a conclusion, it shall be also pointed out that Distributed Ledger Technologies could eventually be used to enable the so called “Crowd developing“, offering an open source mentality that would allow independent game developers to build on common frameworks  and be compensated for their work through token payments. This open source approach could eventually decentralize creativity and shift some control power towards the players.

eSports tournaments have major potentials, but need to deal with considerable regulatory restrictions that can be avoided through the implementation of a careful approach. According to Mr. Bracken Darrell, CEO of Logitech international, “eSports has the potential to be part of the Olympics”. With that in mind, blockchain and decentralized platforms seem poised to find a way into this growing segment and the gaming industry is both driving that technology and being shaped by it.

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Giulio Coraggio

I am the head of the Italian Technology sector and the global head of the IoT and Gaming and Gambling groups at the world leading law firm DLA Piper. Top global IoT influencer and FinTech lover, finding solutions to what's next for our clients' success.

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