U.S. CFPB flags risks in virtual worlds’ crypto economy

The Consumer Financial Protection Bureau (CFBC) has targeted crypto-centric gaming in its report, cautioning against scams and decreased consumer safeguards in video games and virtual realms.

The CFPB’s report titled “Banking in Video Games and Virtual Worlds,” released on Thursday, April 4, highlights rising interest among gaming creators in bridging virtual items to reality. While crypto’s presence in virtual gaming is limited, it’s gaining traction.

Despite their lower popularity compared to mainstream gaming platforms like Roblox or Fortnite, the agency emphasized the significance of crypto-asset virtual worlds. Third-party trading platforms enable users to convert virtual assets into fiat currency, enhancing their liquidity beyond conventional gaming markets. The agency’s report said:

“Notably, some of the largest virtual gaming world publishers have expressed growing interest in positioning their virtual items as crypto-assets that have the ability to be traded outside of the game’s economy.”

The agency noted that crypto assets in virtual environments like Decentraland and The Sandbox can be exchanged for fiat currency on other cryptocurrency platforms.

Alexander Grieve, government affairs lead at Paradigm, noted that reports such as the one published by the CFPB on Thursday could signal upcoming regulatory actions. He suggested that the CFPB, like many federal agencies, is seeking its regulatory role in the cryptosphere, with this report potentially serving as one avenue, mainly if adjustments are made to their Larger Participants wallet rule.

Source: Alexander Grieve

The CFPB noted that online video games and virtual worlds are becoming akin to traditional banking but lack expected federal protections. The agency received complaints regarding hacking attempts, account theft, and asset loss within games, with consumers expressing dissatisfaction over the lack of support from gaming companies.

CFPB Director Rohit Chopra highlighted the increasing trend of Americans converting billions into digital currencies for gaming. With banking and payments shifting to virtual realms, the CFPB aims to safeguard consumers from fraud and scams.

The CFPB has shifted its focus toward cryptocurrencies, introducing a proposed rule titled “Defining Larger Participants of a Market for General-Use Digital Consumer Payment Applications.” This rule grants the agency oversight over “larger nonbank firms” providing digital wallet and payment app services.

It mandates nonbank financial entities processing over five million transactions annually to adhere to regulations akin to those imposed on major banks and credit unions. Although the 62-page rule references cryptocurrency sparingly, critics contend that it “asserts authority over cryptocurrency” in an inappropriate manner.

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