TL;DR
The adoption of virtual assets and blockchain technology in the online gambling industry has been growing rapidly in recent years.
Although online gambling in Korea is led by gaming companies, it is not possible to conduct online gambling businesses based on cryptocurrencies due to the fact that cashing out in-game currency is illegal.
However, as the gambling market is a highly profitable sector, domestic operators are expected to actively promote the adoption of cryptocurrencies by targeting overseas markets with relatively flexible regulations.
Active cryptocurrency adoption in the gambling industry
As the cryptocurrency market has grown in size, so has its dark sides. Cryptocurrencies are actively used in illegal industries such as gambling and the underground economy, where their relatively untraceable flow of funds makes them ideal for avoiding regulatory scrutiny. Cryptocurrencies have also been adopted by the gambling industry in particular because they are so-called borderless currencies, meaning that they are not tied to a specific country and can attract a global audience. This trend, coupled with the growing demand for remote gambling in the post-COVID-19 era, has led to an explosion of market interest.
The scary growth of crypto-enabled gambling industry
Within the gambling industry, the online gambling market is experiencing explosive growth with the active adoption of cryptocurrencies. In fact, cryptocurrency-based casino operator ‘Stake.com’ has seen remarkable growth, becoming the seventh largest global gambling operator in just five years. Their revenue in 2020 was only $100 million. Within two years, they had achieved $2.6 billion in revenue, a 20x multiple. ‘Rollbit’, an on-chain cryptocurrency casino, also has significant revenue, with an estimated $1 million in daily profits. This shows how popular and lucrative cryptocurrency-based online gambling has become.
Korea online gambling market: A grey area
With cryptocurrency-based online gambling generating significant revenue, it is expected that there will be continued interest in the business. However, Korean markets show little opportunity, as most of the online gambling market is illegal. The criterion for the legality of gambling businesses are whether the in-game currency can be cashed out. Therefore, adopting cryptocurrency for online gambling in Korea is a violation of Article 32 (1) (7) of the Act on the Promotion of the Gaming Industry, and operation of the service in the Korean market will be difficult. 'iGaming', an online casino game that allows users to bet and withdraw cashable assets, is also illegal under domestic law and cannot be used, so it goes without saying that cryptocurrency-based online gambling will face the same situation.
If the service is non-cashable online gambling, otherwise known as a "social casino," it is not subject to direct regulation and can be consumed as a genre of games. However, even this can be partially restricted if there is a possibility of monetization through user-to-user transactions, such as 1) showing heavy similarities to actual gambling with the same appearance as a real casino, with games such as blackjack and slot machines, or 2) purchasing game money for cash. In fact, the Gaming Rating and Administration Committee may refuse to classify the game and restrict its release and distribution.
On the other hand, web-board games that simulate gambling, such as Matgo and poker, are subject to less regulation. This is because web-board games are considered to have less of a gambling nature compared to games that depict casinos. Unlike social casinos, it is also possible to purchase in-game money for cash. Under the current law, in-game money can be sold with a monthly limit of 700,000 KRW (roughly 538 USD) . Therefore, online gambling in web-board games is gaining attention as a field that domestic game companies are actively pursuing.
Nevertheless, the introduction of cryptocurrency in the Korean online gambling markets is still expected to be difficult, as regulatory authorities are taking a firm stance against non-gambling 'P2E' games as well. Therefore, it is expected that online gambling game companies will not consider introducing cryptocurrency for business operations in the Korean market, but rather for aim for overseas expansion.
Adopting cryptocurrency for international expansion
As mentioned earlier, the introduction of cryptocurrencies in Korean online gambling market looks to be difficult. However, Korean gaming companies that operate online gambling games seem to be actively considering utilizing cryptocurrency and blockchain technology to enter overseas markets.
Major Korean game companies such as WeMade, Neowiz, and NHN are actively adopting blockchain technology for online gambling content targeting overseas markets. In addition, Kakao Games announced the launch of a social casino game utilizing its blockchain 'Bora' in the fourth quarter of this year.
The adoption of cryptocurrency and blockchain technology in online gambling is expected to be both profitable and provide a competitive edge. This is because the social casino genre itself is characterized by 1/low development costs, 2/high profitability, and 3/sustainability. Therefore, the introduction of cashable cryptocurrency is expected to have a significant impact. In the case of ‘Netmarble’, which operates social casinos in overseas markets, about 27% of its total revenue in the second quarter of 2023 was from social casino operations. Furthermore, transparent operation through blockchain technology is likely to become a competitive factor. This is because the online gambling market is full of illegal tricks, such as forcibly removing members with a high win streak, or forcibly closing games without returning dividends to members.
Conclusion
The Korean online gambling market is centered on gaming companies, and the adoption of cryptocurrency and blockchain technology by these companies is expected to accelerate. Online gambling based on cryptocurrency is expected to be very popular in Korea due to the aggressive tendencies of some communities in the country, but cashable online gambling is not possible due to regulations under domestic law. However, as it is a highly marketable sector, domestic game companies are expected to actively integrate cryptocurrencies with the aim of entering overseas markets.
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