Working for legal solutions

Blockchain applied to e-Sports.

IMPACT OF BLOCKCHAIN TECHNOLOGY IN THE E-SPORTS INDUSTRY

-Siddharth Gosain

With the recent developments in the blockchain technology, it has started gaining considerable amount of momentum in the e-sports industry, an industry which has now become an independent industry generating millions in revenues. New technologies such as blockchain, smart contracts and decentralized applications have provided impetus for the industry to grow further.

Blockchain technology constitutes a new infrastructure for storage of data and management of software applications which thereby decreases the need for centralized middlemen.[1] They operate through a different hierarchical structure wherein a network of computers are linked together via an overarching software protocol.[2] Since blockchains do not come with any centralized authority or gatekeeper, anyone with an internet connection can retrieve information stored on a blockchain simply by downloading an easily accessible open source software.

BENEFITS TO ESPORTS

Blockchain is gradually finding prominence in the e-sports industry as a block-chain based game allows players to trade weapons, cards or even characters on a more open market enabling the users to trade the virtual gaming items with each other with the use of cryptocurrency rather than using fiat currency to purchase items directly from game developers. Blockchain empowers the gamers to own the cryptocurrencies and even convert them into fiat currency. A crucial issue blockchain hopes to tackle is the common problem of delay in payments to the e-sports players.

Blockchain technology makes use of smart contracts on which people can build decentralized applications. Instead of relying on standard legal agreements, parties can use a smart contract to stipulate certain contractual rights and obligations which binds the parties together.[3] For execution of a smart contract, the parties have to first negotiate the terms of their agreement and once that is agreed upon, all or part of their understanding in smart contract code is triggered by digitally signed blockchain based transactions.[4] Once smart contract is put into motion, the terms embodied in the code are executed and cannot be stopped unless parties have incorporated logic  in smart contract to halt the program’s execution.[5] US Laws such as Uniform Electronics Transactions Act (UETA) and the federal Electronic Signatures in Global and National Commerce Act (E-Sign Act) accommodate blockchain technology, smart contracts and digital signatures generated using public-private key cryptography. A court cannot deny legal effect to an electronic contract (with limited exceptions) if parties manifest an intent to be bound by the agreement.[6]

Most of the e-sports players face the problem of delay in payments. Blockchain technology simplifies collection and distribution of payments to players. The transactions can be made without the help of an intermediary thereby reducing costs. Blockchain’s distributed ledger makes it impossible to manipulate, the winnings are automatically calculated and sent directly to the users thanks to smart contracts. It also provides anonymity as users do not have to share personal information when conducting transactions. By relying on digital signatures and public-private key cryptography, blockchains make it possible for a person to store information or engage in transactions without revealing one’s true identity[7]. First Blood, a decentralized e-sports platform based on block chain based platform called Ethereum provides its users the chance to receive awards in form of tokens. These tokens also form the basis of the platform’s ecosystem, enabling the token holders to play and watch e-sports matches, vote on juries and claim rewards.[8] Moreover blockchain technology provides for non-fungible asset which can be regarded as a type of token which helps to verifiably prove ownership and authenticity of an asset. In gaming, these assets can be anything from game skins to virtual cards part of a specific game that are verifiably scarce.[9]

The use of cryptocurrency in gaming also solves the problem of ownership of in-game assets, as blockchain-based games tokenize all gaming items. Once gamers acquire assets, they remain in their possession within a digital wallet until they decide to trade or sell the tokenized asset   just like any other cryptocurrency.[10] The potential power of blockchain for gaming industry is enormous. Blockchain provides the opportunity to both the players and owners to earn.  Blockchain drastically improves the eSports gaming process because of its transparency, decentralized structure, and token system.[11]

With blockchain technology, you can potentially use a decentralized, public database as your gaming portfolio to get sponsorships. Dream Team[12] is a decentralised platform which offers the players the opportunity to find team mates, get sponsorship deals and earn prize money. Dream team acts as a mediator between gamers, sponsors and professional competitions. It provides for an Ethereum based utility token used for payment within the platform.

E-SPORTS STREAMING

Blockchain solutions can also be applied to streaming which is an important facet of e-sports. Gaming platform Gfinity partnered with cryptocurreny Incent wherein the fans earned tokens while they watched an e-sports competition via a special website. These tokens carry a potential for value which can be traded with anyone who accepts such tokens. These tokens can also be sold and converted to other cryptocurrencies or even into traditional fiat currency.[13]

Play2Live which is a blockchain based streaming platform allows both streamers and viewers to earn tokens by simply watching the broadcast, sharing internet channel and by enabling advertising. It implements a revenue sharing model to monetize various aspects between the users and the platform which provides the viewers with different sources of earning tokens which can be converted into fiat money.[14]

CROWDFUNDING THROUGH BLOCKCHAIN TECHNOLOGY AND ITS LEGALITY

New blockchain systems enable parties to raise funds online by assembling vast pools of digital currency through sales known as token sales or initial coin offerings (ICOs)[15] which are  offered to the public regardless of whether it is permissible under the existing laws. The parties behind these token sales and ICOs provide informal disclosures usually in form of “white papers” and websites which provide technical details behind the project. The act of owning tokens is very similar to owning shares but without passing through trusted authorities or centralized middlemen. These blockchain based tokens generally provide the holders with certain rights, privileges, or rewards within the context of a particular online application or service. [16] Other blockchain based tokens such as investment tokens provide the holders with economic and other profit rights. Since 2014 over 200 blockchain projects have raised over $6.3 billion in total through global blockchain based token sales.[17]

Due to the increasing popularity of token sales the US Securities and Exchange Commission issued a report in July 2017 stipulating that the fundamental principles of U.S federal securities laws applied to token sales.[18] Following the SEC’s report, Monetary Authority of Singapore issued  explained that digital tokens may be considered an offer of shares or units in a collective investment scheme and thus be subject to local regulations.[19] Meanwhile China and South Korea took a stricter stance by banning blockchain based token sales.

E-SPORTS BETTING

Another significant digital transformation is taking place in the e-sports betting industry. The most popular form of betting in the e-sports community is skin betting which is very similar to the normal betting but instead of betting using cash, players bet using in-game items which are called skins.[20] Decentralizing the platform caters for some unique advantages which do not exist in the centralized platforms. In the centralized betting platforms, the operators have control over their users and can ban or deny service to a user on account of high winnings or volume of bets. However, in the decentralized betting platforms, the operator has no ability to enforce discrimination over specific users. A prominent feature of the blockchain based esports betting platform is that the users can customize their bets in public and even private platforms. Bethereum which is a social betting Ethereum based platform allows users to bet on events with other players without a bookie or a betting provider.[21] Companies deploying blockchain systems for esports betting assess the validity of requisite regulations and restrictions in a jurisdiction.

Another benefit of decentralized betting platform is with regard to the security and fees involved. On the centralized betting platforms it takes a lot of time to process and also has deposit and withdrawal fees attached to it due to the necessity of third parties such as banks and payment gateways. With the help of a smart contract no third party verification is needed hence providing for security of funds, integrity of data and non payment of fees to third parties.[22] Once a smart contract has been deployed no single party can halt the execution of the contract unless provided for in the code.[23]

Platforms such as ZenSports enables users to create and accept sports bets without a centralized bookmaker through smart contract technology, blockchain and cryptocurrencies. A big advantage of using blockchain in sports betting is that it allows the bettors to set the odds and parameters for any bet. The smart contract sets the rules for how a bet is won or lost, who gets paid out, and other important details that need the kind of transparency blockchain allows. Disputes within the platform are settled through its own tokenized economy. Bettors are penalized for self-reporting incorrect information and users who vote with the majority on disputed results are rewarded. Through this method, users feel a deeper sense of connection with the marketplace and help to keep their peers accountable. [24]

CHALLENGES AND THE FUTURE AHEAD

However, there is uncertainty with regard to the worldwide regulatory framework of blockchain. Albeit even regulation creates its own sets of problems as regulating too soon could also stamp out potential benefits. In many jurisdictions the laws governing blockchain technology are either unclear or non-existent at the moment which makes it difficult to fathom as to how the governments will proceed with the laws and regulations to govern this technology. Therefore it is advisable to first analyze the emerging uses along with technology’s benefits and drawbacks in order to regulate blockchain technology.[25]

One of the biggest problems the blockchain technology faces is the scalability issue i.e. the capability of a system/network to handle the growing amount of work. Since blockchains are append- only  databases, each new transaction on the  network causes the blockchain to grow and hence larger the blockchain, the greater are its requirements in terms of shortage, bandwidth and computational power.[26]

Owing to blockchain’s swift and transparent transactions, reasonable cost and worldwide outreach, we are in the midst of a financial renaissance. The fusion of blockchain technology and gaming holds great promise for the growth of both industries. Blockchain technology helps in connecting gamers, sponsors and fans directly. Blockchain technology might be the key in helping e-sports grow from a worldwide phenomenon into a fully-fledged entertainment industry on par with sports with its own set off regulations. The decentralized blockchain technology sets to provide a platform that offers transparency, security, freedom an easy way to secure and exchange cryptocurrency. Having a fair and secure blockchain is the future of the gaming industry. Blockchain technology can fundamentally change the way the games are designed. With the ever growing popularity of e-sports there would also be a demand to ensure the integrity of the industry.


[1]  Primavera De Filipi and Aaron Wright- Blockchain and the Law Harvard University Press, 2018, p.33

[2] Arvind Narayan, Joseph Bonneau, Edward Felten, Andrew Miller, and Steven Goldfeder, Bitcoin and Cryptocurrency Technologies: A Comprehensive Introduction (Princeton University Press, 2016)

[3] David Chaum- “Achieving Electronic Privacy”, Scientific American 267, no. 2 (1992):96-101

[4] Ian R. Macneil- “The New Social Contract: An Inquiry into modern contractual relations, New Haven, CT: Yale University Press

[5] Kevin D. Werbach and Nicolas Cornell- “Contracts Ex Machina”, Duke Law Jounal 67(2017)

[6] Electronic Signatures in Global and National Commerce Act, Pub.L No. 106-229 114 Stat 464 (2000) (codified at 15 U.S.C SS 7001-7031); Uniform Electronics Act (2002)

[7] Arvind Narayan, Joseph Bonneau, Edward Felten, Andrew Miller, and Steven Goldfeder, Bitcoin and Cryptocurrency Technologies: A Comprehensive Introduction (Princeton University Press, 2016)

[8] Lester Coleman- Decentralized Sports Platform FirstBlood Raises 465,312.00 ETH, Set To Improve eSport,CCN., 29 September 2019, https://www.ccn.com/firstblood-decentralized-sports-platform-raises-465312-00-eth-set-to-improve-esports (last accessed 9 April 2019)

[9] Brian Curran- “Blockchain Games: The current state of Blockchain Gaming Technology”, Blockonomi, 14 March 2019, https://blockonomi.com/blockchain-games/# (last accessed 9 April 2019)

[10] Rachel Wolfson- “Gamers and Investors bet big on cryptocurrency and  blockchain in gaming industry”,Forbes, 11 April 2018, https://www.forbes.com/sites/rachelwolfson/2018/04/11/gamers-and-investors-bet-big-on-cryptocurrency-and-blockchain-in-the-gaming-industry/#2f1ee7058b87 (last accessed 9 April 2019)

[11]Alexander Pavlov- “The use of Blockchain technology in gaming industry”,Medium, 5 June 2018, https://blog.usejournal.com/the-use-of-blockchain-technology-in-gaming-industry-853f773653b0 (last accessed 9 April 2019)

[12] Infrastructure platform and payment gateway for esports and gaming– Dreamteam whitepaper. https://token.dreamteam.gg/documents/DreamTeam_Whitepaper_ENG.pdf (last accessed 9 April 2019)

[13] Seamus Byrne- “Blockchain Decrypted: Explaining the Technology’s Impact on Esports”,21 February 2019Esportsobserver.https://esportsobserver.com/crypto-blockchain-esports/ (last accessed 9 April 2019)

[14] Alexander Pavlov- The use of Blockchain in Gaming Industry, Medium, 5 June 2018 https://blog.usejournal.com/the-use-of-blockchain-technology-in-gaming-industry-853f773653b0 (last accessed 9 April 2019)

[15] Richard Kastelein- “What Initial coin offerings are, and why VC firms care,” 24 March 2017, Harvard Business Review, https://hbr.org/2017/03/what-initial-coin-offerings-are-and-why-vc-firms-care (last accessed 9 April 2019)

[16] Ibid

[17] David Floyd- “$6.3 Billion: 2018 ICO Funding Has Passed 2017’s Total”, CoinDesk, 19 April 2019, https://www.coindesk.com/6-3-billion-2018-ico-funding-already-outpaced-2017 (last accessed 9 April 2019)

[18] Securities and Exchange Commission, Report of Investigation Pursuant to  Section 21(a) of the  Securities and Exchange Act of 1934, 25 July 2017, https://www.sec.gov/litigation/investreport/34-81207.pdf (last accessed 9 April 2019)

[19] Monetary Authority of Singapore, MAS Clarifies Regulatory Position on the Offer of Digital Tokens in Singapore,” 1 August 2017,http://www.mas.gov.sg/News-and-Publications/Media-Releases/2017/MAS-clarifies-regulatory-position-on-the-offer-of-digital-tokens-in-Singapore.aspx?utm_source=rss&utm_medium=rss (last accessed 9 April 2019)

[20] Tomamaso Ricc, “Blockchain:the real fuel for e-sports” Lexology.https://www.lexology.com/library/detail.aspx?g=ca0f3af5-cebb-4153-926a-217392dfa566 (last accessed 9 April 2019)

[21] Bethereum white paper, 22 November 2018, https://www.bethereum.com/Bethereum-Whitepaper-EN.pdf?v=04

[22] Mirren King Smith, Tsering Redmond, Sergej Stojanovski. Block Sports Whitepaper- Block Sports: A  decentralized sports betting exchange, 18 July 2018  http://files.blocksports.com/Block_Sports_White_Paper_v1.pdf ( last accessed 9 April 2019)

[23] Arvind Narayan, Joseph Bonneau, Edward Felten, Andrew Miller, and Steven Goldfeder, Bitcoin and Cryptocurrency Technologies: A Comprehensive Introduction (Princeton University Press, 2016)

[24] Hayley Davison- The Role of Blockchain in Sports Betting, 22 October 2018, https://cryptocanucks.com/online-blockchain-sports-betting/ (last accessed 9 April 2019)

[25] Primavera De Filipi and Aaron Wright- Blockchain and the Law ,Harvard University Press 2018

[26] Kieren James Lubin, “Blockchain Scalability”, OReilly, 22 January 2015, https://www.oreilly.com/ideas/blockchain-scalability (last accessed 9 April 2019)

Blockchaintecnology

chamatabogados • 17 septiembre, 2019


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