Vgo,Nft,Omg! Commentary on Continued Developments in Skins Wagering

What are VGO Skins?

VGO skins are unique digital items, which employ blockchain technology to create non‐fungible tokens (NFTs), a classification similar to other crypto non‐currency items, such as those in the popular CryptoKitties game. ¹ Fungible tokens, such as cryptocurrencies (e.g., Bitcoin), are fungible in that they can be directly exchanged; there is no difference between a dollar or a Bitcoin owned by any given party and one owned by any other party. An NFT, meanwhile, contains information in its metadata that makes each token unique; value is determined by a range of subjective qualities, one of which is scarcity. NFTs, such as CryptoKitties or VGO skins, are thus more akin to baseball cards than fiat currency. ² Like baseball cards, however, these can be exchanged for fiat currency as each market may dictate.

OPSkins, a popular skins exchange website, created VGO skins as a direct consequence of two associated events related to traditional skins. First, in March 2018, the game developer Valve (which owns the Steam marketplace), through which many skins for games like Counter‐Strike: Global Offensive (CS:GO) were traded, implemented a seven‐day trading hold on skins for any item new to the consumer's account (whether by purchase or trade). ³ This limit on trading indirectly affected the peripheral gambling market, as the seamless exchange of skins for currency now meant that individuals had to wait seven days before their deposited skins could be used for gambling, and items could not be distributed throughout a gambling website for multiple wagers per day (as had previously been the case). Second, in June 2018, OPSkins opened the WAX ExpressTrade peer‐to‐peer trading service to facilitate immediate peer‐to‐peer trading of skins without the seven‐day ban. ⁴ Valve quickly issued a cease‐and‐desist order for this platform, for violating the terms of the subscriber agreement, and banned OPSkins from trading via the Steam marketplace as of June 21, 2018. ⁵

After a limited early release, VGO skins were officially launched on June 21, the same day that the Valve cease‐and‐desist order became effective. ⁶ VGO skins can be obtained in a number of ways: they can be purchased from any marketplace which supports VGO items; they can be traded via the peer‐to‐peer service; and vKeys can be purchased to open vCases which provide skins in the same way as other loot boxes, including CS:GO cases. ⁷

OPSkins specifically developed VGO items for their marketplace to re‐create the experience of trading CS:GO skins via the Steam marketplace, but without the restrictions and trading hold. ⁸ This is an important distinction, as the adoption of NFTs has important implications for video gaming and for creative digital industries at large. In relation to video gaming, for example, NFTs have been proposed as a means by which gamers can use their digital items in a range of game environments. ⁹ This means that a skin from one game can be used in another unrelated game, or that a player can use a single avatar in a range of games rather than having to create a new one for each game. ¹⁰

We can see, therefore, a decentralization of digital item ownership—that is, the items are no longer specifically tied to, and controlled by, a games developer. Yet the aim of VGO to replicate the CS:GO trading community means that the marketplace for these items follows a similar pattern to the controversy surrounding skins betting: an item pulled from a loot box can then be used as a means of participating in online gambling activities. And in this sense, the VGO skin, like other skins, can serve as both the prize and the consideration in a gambling setting. With several jurisdictions seeking to or already classifying loot boxes as gambling, ¹¹ VGO skins fall within this category, with an extra regulatory twist—they also take advantage of blockchain technology.

VGO Skins and Gambling

VGO skins appear in gambling settings in similar ways to those of traditional skins. The purchase of vKeys/vCases, for example, parallels the purchase of loot boxes on the Steam marketplace. The cases are similar Schrödinger's cat experiments: within a case is a virtual item of undefined value. But the enclosed item does, indeed, have a monetary value beyond the abstract value for in‐game use, as all VGO skins can be exchanged for fiat currency. And in the case of VGO skins, the monetary value far outstrips the in‐game value, as these skins were specifically created to replace a product and market that contributed to an oft‐illegal gambling market, and are not currently available for use in any major gaming title. ¹² The approach here is the opposite of the Steam marketplace skins development; rather than make a marketplace that uses the items already created for games, OPskins has created a marketplace and a traded commodity, and are now asking games to include it in their product. The acceptance of VGO skins by third‐party gambling sites has already started, and several of these sites are the same ones who received Valve's cease‐and‐desist orders over the past two and a half years.

A key difference from the original skins market, however, is that while the monetary value of VGO skins is dictated by the market forces applied to the blockchain, the user owns their skin, and not the game developer. The blockchain component of the VGO skins and cases also adds a layer of consumer protection to the case‐opening, in that VGO provides application programming interface (API) support for third‐party case opening (such support is not offered by Valve for third‐party sites ¹³ ) and the items that come from opened VGO loot boxes are immediately transferred to the consumer's ExpressTrade inventory account. Through the ExpressTrade account, VGO marketplace users can convert their skins to cash immediately, and thus the items can be used as consideration in a third‐party gambling setting without the issues created by Valve's seven‐day trading hold on new items.

That we know of, the gambling activity (with VGO skins as the consideration) is not yet tied into the blockchain that creates VGO skins themselves. In this case, there is an intermediary (i.e., the bank) and thus, the VGO skins can be converted to a fungible commodity. And here, the original skins‐betting issue is paralleled—items that have “money's worth” are replicating the gambling that took place within the original skins wagering sites. Because the VGO skins were created without a game, it is difficult to argue that they are not meant to have “money's worth”; they were specifically created to be a tradable commodity that can be exchanged for fiat currency in the manner of Valve's skins. ¹⁴

The means of acquisition, too, parallels current debates in loot boxes and skins. These new VGO loot boxes are, by social sciences definition, gambling: a consumer is risking something of value (purchase of the vKey) on an event whose outcome is uncertain (contents of a vCase). The legal discussions on loot box classification have often centered around the prize component, with several jurisdictions indicating that when the skin reward from traditional loot boxes does not have an economic value, it is not legally considered a gambling game. ¹⁵ With VGO loot boxes, however, the skin items are unmistakably meant to have money's worth in that that they were explicitly created to facilitate online trading. Given the recent collaborative declaration of 16 gambling regulators to further pursue gambling‐themed elements in video and social games, ¹⁶ this is a case that clearly fits the scope of inquiry and merits attention.

Conclusion

What is presented here is meant to be an informational summary of a development in virtual and cryptocurrency gambling that also draws on factors present in the merging of gambling and gaming. VGO skins present a prime example of how a variety of different technological developments can be combined into a new gambling product, and this demonstrates that recognizing these developments in their own individual silos may not be an effective approach to assessing the respective regulatory needs. Meanwhile, this is a firm reminder that the speed of innovation often far surpasses the speed of regulation, and it continues to evolve while stakeholders are still grappling to understand the previous iteration.