Korean law on gamers may make metaverse useless
The possibility of earning non-fungible tokens (NFT) in virtual gaming worlds shook the market and led to a rapid increase in the stock prices of a number of companies, until it became apparent that NFTs may be stuck in these virtual worlds.
NFTs are unique, irreplaceable and irreproducible digital objects that represent the digital ownership of assets. The tokens are backed by blockchain technology to give buyers proof of ownership.
Since late last year, a number of game companies have been contemplating the addition of NFTs to their games. The tokens could be discovered during gameplay, or points won by players could be redeemed for the tokens.
The innovation raised the possibility of a useful workaround to a Korean law that prevents gamers from turning points earned in the gaming world into real money. Taking NFTs with them might allow for the extraction value without violating the law.
When NCSoft announced on Nov. 11 during an earnings call that it would be introducing blockchain and NTF services, its stock jumped 29.9 percent. The turnaround came after a long decline for the shares since August as Blade & Soul II failed to wow players.
Its shares dropped from a high of 1,038,000 won ($867.9) in early 2021 to a recent low of around 567,000 in October before the NFT jump the following month.
Wemade, which has an NFT trading platform for its games outside of Korea, peaked at 237,000 won on Nov. 19, 521 percent higher than the first trading day of 2021.
Shares of other game companies, such as Kakao Games, Pearl Abyss and Com2us, also jumped after making similar announcements.
When solid plans failed to materialize, and when it started to become clear that the trick might not work, stock prices fell.
NCSoft is down about 15 percent year to date and is trading at about 567,000 won. Wemade's shares are down 30 percent compared to Jan. 3 and are trading at 128,800 won.
The misfortunes of Mir4
Wemade's Mir4 is a massively-multiplayer online roleplaying game (Mmorpg) more or less similar to existing games in terms of gameplay methods.
What makes Mir4 special is that players can buy characters and the NTFs of the characters with Wemix coins, a digital currency in the game. Prices of characters vary according to their capabilities, so the stronger or fancier the character, the higher the price.
On Jan. 3, a warrior character was sold for 32,000 Wemix coins. Wemix tokens closed at 6,895 won on that day, pricing the character at around 220 million won.
This service is not available in Korea and China, where the conversion of virtual coins to real money is not allowed. Mir4 is available without the NFT feature in these countries.
Korea’s Game Industry Promotion Act defines games as speculative if they allow players to trade items with each other using real money or exchange game money to real money.
Based on this definition, the Game Rating and Administration Committee (GRAC) gave Mir4 a rating without the NFT trading function in Korea. Without a rating from the gaming regulator, which is run by the culture ministry, games cannot be published in Korea.
According to the committee, games must be rated based on the law. This means that any game with a hint of speculation cannot be offered in Korea unless the law is changed first.
"The committee cannot arbitrarily interpret the law, and there are regulations on speculative games," said Kim Kyu-chul, the chairman of the committee, during the G-Star game exhibition last November.
"If a game uses blockchain or NFT technology but does not allow for the exchange of cash, then it can be rated. We welcome blockchain and NFT games without the trading functions, but then game companies won't be making them because then they won't make money."
"Companies are driving the NFT trend, but the committee cannot follow the fad."
The committee cannot comment further on the matter, a spokesperson said.
Opposition with reason
The game committee's conservative stance dates back to a 2006 gaming mania that resulted in hundreds of people going broke over the Bada Iyagi video game.
The GRAC was founded in 2006 as a result of a gambling frenzy set off by Bada Iyagi, or the Sea Story, that led to multiple reports of bankruptcy and even suicides of gamblers in 2006.
Bada Iyagi was a pachinko-style arcade game that was developed by Korea's A One Biz in 2004 based on Umi Monogatari, a Japanese pachinko.
It is a digital slot machine that features a screen with reels that spin when the player pushes a button. If the reels stop and the appearing pictures are the same, then the player wins prizes. A player could push the button 100 times for 10,000 won.
The machine didn't directly award prize money, but vouchers that could be exchanged into cash. The highest prize was 2.5 million won, and players felt that easy money was possible.
The Financial Supervisory Service estimated that 400 billion won of arcade game vouchers were issued in 2006.
The Korea Media Rating Board lost its jurisdiction over games for failing to report the game's speculative aspect to the police. Speculative games were prohibited from January 2007. and the game committee was formed.
"We need to think about what being 'speculative' truly means," said Lee Keun-woo, an attorney specializing in digital assets at Yoon & Yang LLC.
"Strictly speaking, it's difficult to say that P2E games are not speculative. They are an undeniable trend that rightfully deserves deeper discussion. But realistic and legal factors need to be taken into account if the discussions are to take place," he said using the acronym for play-to-earn (P2E) games.
Let's talk the talk
The discussion around P2E games is critical as it related to the metaverse and the viability of virtual worlds.
"Gaming is the most dynamic and exciting category in entertainment across all platforms today and will play a key role in the development of metaverse platforms," Microsoft Chief Executive Satya Nadella said.
Microsoft announced on Jan. 18 that it is buying Activision Blizzard, the creator of Starcraft and Overwatch games, for $68.7 billion, making it the biggest deal in the gaming industry.
Local companies have also expressed interest in the metaverse.
Com2us released its Com2verse service and Netmarble acquired metaverse developer ITAM Games for 7.7 billion won.
The metaverse space could potentially host not only entertainment but also be used for cultural, social, educational and even economic purposes. But if people can't take what they've earned in the digital world back to the real world, then that defeats the very purpose of the metaverse, according to Professor Lee Jae-hong of business school at Soongshil University.
"The metaverse is not just limited to games, and the law is blocking the potential of games and the fourth industrial revolution," he said. "Without being able to gain any tangible rewards from the metaverse, then people won't see any use in it. We need to start proper discussions and keep the doors open for the metaverse future."
That was the reason why Roblox, a game where users spend millions of dollars each month, failed to gain attention in Korea. Roblox players can make Robux game cash with the items they find within the game and then exchange that into real money. But the exchange function is not allowed in Korea.
The company established a Korean subsidiary in June last year, but did not gain much attention from local game companies.
Elsewhere in the world, P2E games using cryptocurrencies are already thriving.
There are 864 P2E games in the world and 86,852 NFTs traded in games, according to PlayToEarn, a blockchain game tracker, as of Jan. 19. On the same day, 14,491 transactions with a volume of $7.4 million were made.
Korean game companies are already lagging behind in the market, and even behind other competitors in Korea.
On Naver Z's Zepeto metaverse platform, users can sell the items they've created — such as clothes and accessories for avatars — to other users and exchange their earnings to real cash.
But on Roblox, a video game where players essentially get to do the same thing as they do on Zepeto, players can't exchange money because it's a game. Zepeto is categorized as a social media platform in Korea.
"It's true that P2E games could bring about problems at first and it wouldn't be right to jump the gun," Park Hyung-jun, a professor at the department of administration at Sungkyunkwan University, said.
"But with proper regulation, such as having limits on how much people can spend or make, then such problems could be prevented. It will be right that it's tried first then fixed, rather than just prohibiting them altogether."
BY YOON SO-YEON [firstname.lastname@example.org]