From Trending to Falling Apart: A Reminder of the Importance of Blockchain Regulation

It was only last month that I wrote about NFT projects and why they shouldn’t shy away from regulations. Not merely because NFTs represented a new class of digital assets (at least for the regulators) but also because of the fervour of hype that seemed to be pushing it into a sudden and inexplicable wave of adoption.

At least, that’s how it was just before the May terrors were visited upon the global economy, the effects of which reverberated around cryptocurrency. NFTs weren’t left out.

Lessons Repeated

Not long after that, we had the LUNAcy of Terra remind us about the fickle and precarious positions that any blockchain and crypto project must contend with. Things have happened and steps were taken to remedy the situation after the debacle. But the real meat of the lessons weren’t new delicacies, if we’re being honest.

It wasn’t just crypto people who sat up at night, either, rocking silently and questioning their journeys. Amid every crypto catastrophe, light is being shed on what should have been done to avoid it. Watching the market in a freefall, and investments and life savings being lost, made the regulators ask themselves if they did their job right.

It wasn’t the first time it’d happened, but it demonstrated that once again regulations have not been set in place when we needed them. As reported by Reuters, the crypto collapse was a wake-up call for an urgent need for harmonised crypto regulations on a global level.

As much as we want to see ourselves as decentralised, self-governing pockets of people on the internet, it was clear that the majority of participants are still, after all, human. And new.

We, the crypto community, showed that we needed regulatory guidelines on stablecoins, transparency safeguards, containment measures and risk disclosures at the minimum. And the powers that be have been prodded into action once again -- or at least to sound the bells to alert themselves to the need for action.

The need to regulate the crypto market attracted the attention of G7, the U.S. SEC, the EU and other important players among the global regulators. For once, they presented a unified front claiming that we need regulations, rules and disclosures to protect investors in a market that has been partially looked down on.

Many other authorities are deciding to join the regulating bandwagon announcing acts on digital assets. We cannot be sure what will happen next, how fast the crypto market will recover, and how well the regulators will act as promised. However, one thing is for sure; the crypto market has been taken as seriously as possible and it is here to stay.

It might be tempting to finger the blame on the likes of Terra but scapegoats don’t change the fact that this was inevitable. The Terra crash sharpened the attention of regulators and shifted their focus to the blockchain industry – something that should have been done before the disaster ever happened.

Blockchain gaming and its shades of grey

The concept of blockchain gaming is no longer a new thing for regulators worldwide. Similar to any technology that deepened its roots in the global market, the blockchain business model attracted a plethora of investors to its side. However, every new investor who wants to take a piece of the blockchain’s cake, must know how to secure the investment and ensure it reaches its optimal potential.

Just as how environmental factors have an impact on the growth of an industry, no matter how frequently we water it, a number of political factors, such as laws and regulations, severely influence the success of a certain business model. Risk may be associated with investing, but climbing into legal grey area isn’t.

A 2021 report by the Blockchain Gaming Alliance demonstrated that NFT-based games have accumulated $2.32 billion in revenue between July and September in the last year, along with Metaverse-related activities exploding in the first half of 2021, especially in the United States and Asian Countries. The same report further showed that the majority of active developers in the blockchain gaming industry are concerned about the impact of government-imposed laws and regulations on the industry or the lack of it as well.

Another report shed light on the gaming market’s status, predicting that it is expected to grow by $125.65 billion from 2020 to 2025 due to the integration of blockchain technology as a key market driver.

Looking at these numbers suggests that the regulators are speeding up in the race to regulate the blockchain gaming market, but the reality is that they are still at the starting point.

If we take a look now at the legal situations in several jurisdictions, we can see a general objective to regulate with a number of disparities. For instance, the United States is considered to be the most advanced country in the aspect of adopting blockchain and cryptocurrency regulations on the federal level and agency cooperation, along with laws that differ on a state-to-state basis.

However, it is interesting that the U.S. government has been taking an active stand on regulating the cryptocurrency industry, but the shushing habit regarding other blockchain-related business models remained.

On the other hand, the EU as another main regulator on the global level, has been taking on a more active role in regulating blockchain-based business models and crypto assets, but it is all still in the status of proposals. The Union adopted an extensive package of legislative proposals for the sake of regulating crypto assets and increasing investments, along with a pilot regime for market infrastructures. By moving away from cryptocurrencies and opening the blockchain-based gaming sandbox, we may encounter that most countries that brought in crypto laws didn’t quite cover the whole area.

For instance, there are differences between Asian countries when it comes to the regulation of NFTs. From interpreting it to fit existing laws because of no regulations dealing with NFTs in Japan to determining such transactions on a case-by-case basis, there is no legal certainty at the moment, yet only promises for a better tomorrow.

Take heed and take faith

If a technology encompasses immense potential, the regulatory adoption will continue for sure, and blockchain is at the moment in the middle of such procedure. Looking at the bigger picture, the future appears bright for blockchain gaming. Despite now being held in the throes of the bear market, many projects continue to build as they were before the bull stepped away from the frame, confident that one of the biggest market drivers will eventually step out into the light.

There is a huge incentive to regulate all aspects of blockchain internationally, and these actors are positive about blockchain gaming regulations. Perhaps the time will come when they even demand it.

The 2022 crypto crash is real. It’s happening. So we live in fear. But we shouldn’t stop achieving a better understanding of what happened, why happened, and how to prevent future occurrences.

While we await the international community to lay down a harmonized regulatory package on all aspects of blockchain-based business models, let us attempt to protect ourselves by choosing to align with projects that think ahead of the regulation curve. Projects that prioritise user protection and safety, and projects that want to comply with existing and coming laws and regulations.

Because really, we can’t afford not to.