Chinese authorities have proposed a ban on converting virtual gaming tokens to fiat currency in a preemptive move to regulate the burgeoning Web3 gaming sector.

The proposed rules were introduced as part of a larger draft of new regulations for the gaming industry. They aim to exert tighter control over the digital economy, particularly in the rapidly evolving domain of blockchain-based gaming.

Ban on conversion to legal tender

The draft regulation, released by the General Administration of Press and Publication (GAPP) on Dec. 22, outlines comprehensive measures governing the issuance and management of virtual tokens in online games. A key aspect of this regulation is the prohibition of converting in-game virtual tokens, often used in Web3 and blockchain-based games, into legal tender.

The move is seen as a direct response to the increasing integration of blockchain technology in gaming, where digital currencies and assets are commonly traded and potentially exchanged for real-world money.

The proposed rules are primarily aimed at mitigating financial risks, illegal fundraising, and money laundering—issues often associated with the unregulated use of virtual currencies.

Under the new guidelines, online gaming platforms must ensure that virtual tokens used within games cannot be exchanged for fiat money or other real-world assets. The regulation also mandates that these platforms must keep detailed records of users’ purchases of virtual tokens for a minimum period of two years.

In addition to the ban on currency conversion, the draft imposes strict standards on the issuance of virtual tokens. It emphasizes transparency and reasonableness in these tokens’ distribution and purchasing standards, underlining the government’s approach to safeguarding consumer rights and maintaining financial stability.

The proposed regulations also stipulate that entities offering trading services for virtual tokens must adhere to real-name registration systems and are prohibited from providing anonymous trading services. This aligns with China’s broader push for a more regulated and monitored digital economy.

Rules could stifle blockchain gaming

These regulations are expected to have significant impacts, particularly on developers and operators of Web3 games in the gaming industry. The inability to convert in-game tokens to legal tender could change the economic model of many blockchain-based games, potentially affecting their popularity and profitability.

Experts believe that while these regulations could curb speculative trading and ensure better oversight, they might also stifle innovation in the gaming industry, which has been a significant driver of blockchain technology adoption.

Chinese authorities have not yet announced when these regulations will come into effect, but the gaming and blockchain communities are keenly watching for further developments.