Web3 games have a potential in Japan?
From business and legal perspectives
From a business perspective
Market size of mobile gaming
In addition to the sufficient size of population, Japan led in per capita spending on mobile devices.
Large Japanese gaming companies already showed interest publicly and/or invested in web3/NFT gaming
Here is the list of the top 8 Japanese companies in terms of gaming sales with a comment on their interest and move in the blockchain industry. Interestingly, all of the top 8 companies have something public in relation to Web3 / NFT.
Nintendo
Nintendo showed interest in blockchain gaming fueled by metaverse and NFTs
Sony
Sony explores blockchain technology with NFT integration for PlayStation
Bandai Namco
Their corporate venture fund invested blockchain-related companies including double jump.tokyo and Gangbusters
CyberAgent
They have a subsidiary focusing on GameFi.
Square Enix
According to the news, the President said:
“Our group is currently developing several blockchain games, including titles announced last year, and we are preparing to unveil even more titles within this year.”
Sega Sammy
“The CEO of Sega commented that the introduction of NFTs utilizing blockchain technology is under consideration with a strong emphasis on the voices of the fans.”
Konami
They are seeking talent for their web3 businesses.
“Konami Digital Entertainment Corporation is broadly seeking talent for ‘system construction’ and ‘service development’ in preparation for the deployment of services offering new experiences such as WEB3 and the Metaverse.
Our company has been conducting research and development to apply the latest technologies to the gaming and content domains. We plan to start a service where players can trade NFTs (digital items) within the game on our unique distribution platform using blockchain technology.”
Nexon
Nexon takes 20-year-old MapleStory into web3 with Haechi’s help
Gaming-focused blockchains
There are some gaming-focused blockchains backed by Japanese founders / organisations. The attentions and involvement they are getting from the gaming industry shows the potential of Web3 gaming for other (public) blockchains as well.
Oasys
Leading companies both in the gaming and crypto companies joined the ecosystem as Oasys’ validators.
LINE blockchain (Finschia)
Some gaming apps are already provided on a blockchain operated by LINE, a message service provider.
From a legal perspective
If tokens used within a game fall under “crypto-assets” in terms of. the Payment Services Act, the seller of those tokens and the operator of any platform that trades those tokens, in principle, need to register as a crypto-asset exchange service provider.
Registering as a crypto-asset exchange service provider typically involves huge cost for compliance and security, and time for a supervisory review. Therefore, it is generally impractical to register solely for the purpose of operating on-chain games.
However, the Financial Services Agency supervising crypto-assets has issued clarifications regarding this issue as below.
Financial Services Agency’s answer to a public comment in September 2019:
“For instance, trading cards or in-game items recorded on the blockchain are generally not considered as type-2 virtual currency. Even if they can be exchanged with type-1 virtual currency, they fundamentally do not possess the economic functions of a payment method like type-1 virtual currency.”
Amendments to the Guideline for Supervision of Crypto-Asset Exchange Service Providers and Financial Services Agency’s answers to public comments on the amendments:
If NFTs fulfil all of the requirements below, such NFTs are, in principle, not regarded as crypto-assets. It is considered practically possible to satisfy these requirements. To my knowledge, it is rare for a governmental authority in any jurisdiction to show a safe-harbour rule including numerical conditions as (2) below.
(1) T&Cs and Product Description:
Clearly establish in T&Cs and other documents the intention to prohibit the use of the NFTs as a means of payment
(2) Price and Quantity at the time of sale are within the scope of the safe-harbour described below :
For the sale of NFTs, set the price per individual NFT at 1,000 Japanese Yen (roughly 7 to 8 US dollars) or higher, OR the quantity denominated by the unit which is not devisible (i.e. if “decimal” is 0, just count the number of NFTs) at 1 million or less.
(3) Ensure there is no actual use as a payment method:
Ensure that there is no actual usage of NFTs as a payment method. If there is any usage as a payment method, take reasonable measures such as issuing warnings to users.
Other typical legal issues for Web3 games are as below:
- Whether the in-game currency qualifies as “prepaid payment instruments” under the Payment Services Act and whether notification or registration is required for issuance of in-game currency.
- Gambling regulations under the Criminal Act
- Regulations over representations and advertisement under Unjustifiable Premiums and Misleading Representations Act
These legal issues in addition to the rules of accounting and taxation may affect business models of Web3 games, but, generally speaking, these issues are not prohibitive.
Infrastructures awaited for accelerating development and adoption of Web3 games
Wallet
- It is recognised that UX of Metamask (and other typical crypto wallets) are not the best solution for mass-adoption of Web3 games.
- Another concern is safety for users of Web3 wallets. Hacking incidents would damage the reputation of providers of Web3 games
- In this regard, it is noteworthy that the largest mobile-phone Operator NTT Docomo disclosed their plan to invest $4B into Web3, and according to their presentation (only in Japanese), one of their focuses is to develop a user-friendly, secure and integrated Web3 wallet.
KYC
- Large companies would want to avoid the risk of their products being used for money laundering.
- To what extent AML/KYC should be implemented for NFTs is a topic to be discussed further in the industry.
- The NFT white paper issued in 2021 by the study group which consists of member of Parliament discussed this issue.
Personal Remarks
To me personally, it seems highly probable that a kind of “Web3 games” of a substantial scale will be marketed in Japan and some of them may gain attractions in the near future.
However, I feel compelled to come back to the fundamental question “why blockchain?”
As a believer and enthusiast of the concept of public blockchains and open source, how Web3 games will develop in Japan and globally is a matter of interest.
