The term ‘metaverse’ was coined by Neal Stephenson in his 1992 novel, ‘Snow Crash’, to describe a digital world beyond our analogue world. The metaverse has gained popularity in the crypto space for providing another use case for cryptocurrencies, and similar decentralised ethos. It has also provided artists and art enthusiasts a space to create and trade in new forms of art, referred to as non-fungible tokens (NFTs). Gamers have also found a ready arena for real-time gaming in the metaverse.
The buzz around the metaverse took on new life after Facebook, rebranded as Meta Platforms in 2021, in line with its pivot to the metaverse. The metaverse combines the use of virtual reality, augmented reality, decentralised finance technologies, and different virtual worlds, each built by the platforms that offer metaverse-based services.
Since then, the biggest players in the metaverse ecosystem have been big tech companies (Microsoft, Apple, Meta), chip makers (Nvidia), gaming providers (Epic Games, Minecraft, Roblox, Niantic), restaurants (Chipotle Mexican Grill), and metaverse-focused companies (Decentraland, which sold a plot of virtual real estate in its metaverse for $2.4 million).
In 2021, the metaverse market was worth $47.48 billion, roughly half the contribution of ICT/Tech to Nigeria’s 2022 GDP. The metaverse market is further projected to hit $678 billion in value by 2030. There is already activity in the Nigerian metaverse gaming, with one provider raising $3.2 million in their seed round via a token offering.
Gaming and gambling have gradually evolved from physical activities and transited online. The metaverse is a new domain and gaming providers have identified its potential to allow them to offer their services in ways previously not envisaged. 52% of US gamers believe that the metaverse can revolutionise the gaming industry. Entire virtual worlds and game economies can be created in the metaverse, ensuring that players are retained for longer; and additional value can be extracted from game-playing activities beyond the primary gaming activity.
Because of this, it is necessary to consider if there are extant legislations that may apply to metaverse gaming and gambling, to determine if they provide any safeguards or how well-adjusted they are to this new domain. Some games are subject to legal restrictions in how they can be made available, and the rules guiding gameplay. The metaverse offers an opportunity to sidestep restrictions or bend gaming principles, where the rules are strictly defined to refer to physical gaming.
Using Nigeria as a case study in this two-part series, we review gaming legislation in Nigeria. While there is no direct reference to the metaverse, metaverse applications can be captured by provisions referring to remote communication or remote gaming. After these laws are considered, we provide recommendations on how the regulatory landscape can be improved.
Federal Legislation
i. Gaming Machines (Prohibition) Act 1977: This law was enacted to ban the importation, ownership and operation of gaming machines. Gaming machines refer to any ‘gaming or gambling machine or other mechanical devices capable of being operated automatically or by means of a lever of other devices whatsoever, by any person, after insertion of a coin or token and with a view to obtaining a pecuniary reward.’ Slot machines are a good example of gaming machines.
From Nigeria’s independence, gambling was largely unregulated. Even when the Casino Taxation Act was passed in 1965, the focus was on imposing a tax on the revenue from gambling activities, while gambling activities were left open. The enactment of this 1977 law was a sharp turn from a government that largely ignored it before then. It made it illegal to own or operate gaming machines in Nigeria.
Any license issued before this law came into force was immediately terminated when the Act commenced on January 1st, 1977. Owners and operators of gaming machines were given till March 31st 1977 to dispose of their existing machines, either by export or any other means. Any machine left in Nigeria after the grace period would be forfeited to the government. No person has since then been granted a license to own and operate gaming machines in Nigeria under this federal law. Since gaming machines are mostly used by casinos, Nigeria has granted some licenses to casinos, like Le Meridien Eko Hotel & Casino, Federal Palace Hotel and Casino, and Transcorp Hilton Casino.
Any person who operates gaming machines in Nigeria while this law is in force would be guilty of an offence and liable upon conviction to imprisonment for a term of a year without the option of a fine. The gaming machine in question and the proceeds thereof will also be forfeited to the Federal Government.
Depending on the interpretation approach taken, this law might be applicable to regulate the online activity of metaverse gaming platforms. The definition of gaming machines presented above is not anchored on physical activity or devices. As such, a virtual representation of a gaming machine, that has the features described in the definition may be interpreted to be a violation of the law.
However, its effect has been mitigated by other laws that permit and license the use of gaming machines. Some of those laws will be reviewed subsequently in this article.
ii. National Lottery Act 2005: The National Lottery Act 2005 provides for the operation of a national lottery and establishes the National Lottery Regulatory Commission (“the Commission”), and the National Lottery Trust Fund. It however does not envisage online or remote gambling like similar UK laws which will be subsequently considered. It only refers to electronic communication in the operations of a national lottery which are not broad enough to capture online or metaverse gaming.
A lottery includes any game, scheme, arrangement, system, plan, promotional competition or device for the distribution of prizes by lot or chance, or as a result of the exercise of skill and chance or based on the outcome of sporting events, or any other game, scheme, arrangement, system, plan, competition or device, which the President may by notice in the Gazette declare to be a lottery and which shall be operated according to a license.
This definition is broad enough to capture a wide range of gambling activities, irrespective of type and mode of delivery, physical or virtual. The Act also defines tickets as any receipt, symbol, sign, token, warrant, card, printed paper, document or any other means or device including an electronic record, which entitles a participant to take part in a lottery.
When read together with the definition of a lottery, it is clear that though the Act does not directly make reference to online gambling, lotteries and the ticketing process are defined in a manner broad enough to capture the activities of online or metaverse gambling.
While there is no direct reference to the metaverse, metaverse applications can be captured by provisions referring to remote communication or remote gaming.
iii. National Lottery Regulations 2007: The National Lottery Regulations 2007 were released by the Commission and provide operational guidelines for national lottery operators. It makes reference to online tools, but in reference to the general operations of lottery operators, not as a distinct class of operators. It establishes the minimum share capital of a company that wishes to engage in a lottery as N5,000,000. Before the company can be registered with the Corporate Affairs Commission, it must also obtain approval in principle from the Commission.
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The Regulations however introduce an important restriction that curtails the scope of gaming activities that online or metaverse-based gambling providers can offer. It provides that the Commission shall adopt rules prohibiting the operation of any game using a video lottery machine. Video lottery machine is in turn defined to refer to any electronic video game machine that, upon insertion of cash, is available to play or simulate the play of a video game, including video poker, keno and blackjack, using a video display.
The Regulation also states that licensees will not establish or operate a lottery game in which the winner is chosen on the basis of the outcome of a sporting event. Sports events refer to football, basketball, baseball, or similar games, or a horse or dog race, on which pari-mutual wagering is allowed.
On the surface, it would seem that this provision bans the application of the metaverse for most video gaming applications. But a careful reading of these provisions reveals certain loopholes that can be leveraged by a licensed operator to offer gaming services in the metaverse without running foul of the Regulations. By replacing the ‘insertion of cash’ with virtual tokens and avoiding gambling or sports-related games, licensees can stay within the ambit of this Regulation and freely operate.
It should be noted that virtual tokens here are similar to in-game tokens which players buy with fiat currency. The virtual tokens will have no use outside the ‘game world’ of the licensee (unlike most cryptocurrencies), to avoid potential liability under the proposed SEC Rules on Issuance, Offering and Custody of Digital Assets and the CBN Letter to all Deposit Money Banks, Non-Bank Financial Institutions and Other Financial Institutions, restricting the processing of crypto-related transactions.
In the game world, the virtual tokens will be spent by players to gain access to the available games available. The licensee should also issue tickets upon payment with fiat currency, apart from the virtual tokens; to ensure compliance with several provisions of the Regulation.
In the second part of this article, we review state and remote gaming legislation.
