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Forte said that its Provenance Technologies (PTI) division has received important regulatory licenses to enable blockchain gaming transactions around the world.
The division has received both a Money Transmitter License and BitLicense from the New York State Department of Financial Services. This distinction puts the company in an exclusive group of financial-services providers that can offer consumers added compliance and protection for blockchain game transactions, said CEO Josh Williams in an interview with GamesBeat.
If Forte didn’t get the licenses, that could have potentially held up the launch of more blockchain games in the U.S., he said.
“This is complicated but really important stuff. At the end of the day, blockchains can be really transformative, and they enable all kinds creative opportunities and economic opportunity,” Williams said. “If you don’t protect consumers and comply with regulations, it can be really problematic. And we’ve seen examples of that. The hacks and money being misused, money laundering happening in the space. The bigger it gets, the more important it becomes that things are done right and consumers are protected.”
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PTI is a full-service compliance solution for blockchain technologies and virtual assets, and it now joins an exclusive list of just 11 fully-licensed companies globally, such as Coinbase, PayPal, Square, and Robinhood, which have obtained both licenses in order to protect businesses and consumers that send and receive money electronically.
PTI CEO Scott Butler said in a statement that blockchain is changing the way we trade and transact, much like how the Internet changed commerce forever.
“For the last three years, we’ve been working really closely with regulators,” Williams said. “The issuance of BitLicense from the NYDFS is a culmination of that work to bring these tools that enable blockchain applications to operate at the scale of games, with millions, tens of millions, or hundreds of millions of players all around the world. And to do that in a compliant fashion. I think we’re the first company in the world to have that and to be licensed to be able to do that.”
What the licenses mean
The money transmittal license addresses the transfer of fiat currencies (like the U.S. dollar) and using them for any kind of e-commerce transactions. Like Western Union, you have to have a license to transmit money domestically or around the world. Forte’s PTI had to get licenses in every U.S. state to be able to be fully licensed.
The BitLicense is specific to regulating the transmission of value through blockchains and cryptocurrencies. New York is kind of the world standard for virtual currency licenses, Williams said. Forte had to walk regulators how games work, how they have virtual tokens and economies, and how they will work in the future.
“If you’re a large game company, and you’re operating in the U.S., you do need to be compliant over time, depending on your game design, and the token design,” Williams said. “That’s part of why we got our licenses. We offer a platform to do this through these licenses to enable publishers. They don’t have to do the compliance themselves, which is incredibly complicated and takes a long time to get licensed the right way.”
Forte is also engaging with regulators internationally the same way it did in the U.S.
“Whenever you have conversations with the international regulators, having a New York BitLicense takes you miles ahead in the conversation because they all look upon New York as it set a process in place and built an entire regulatory framework,” Pandya said. “Anytime you have that license, that gives you a leg up when you go international.”
PTI is a security- and compliance-first business that offers enterprise solutions for token issuance, custodianship, exchange, fiat, and virtual currency purchases. PTI was created alongside blockchain video game and brand platform Forte, founded by industry veterans Williams and Kevin Chou.
Forte’s platform allows game publishers and app developers to easily integrate blockchain technologies into their products, and enable features such as seamless, embeddable token wallets, NFT minting and trading, payment rails, and other services built specifically for cryptocurrency and the management of digital assets.
Forte chief financial officer Bela Pandya said in an interview that it took three years to get through the application and review process. The company had to go to all of the U.S. states to get the money transmittal license, as well as overseas regulatory authorities. And it had to go through a similar process with the New York regulator.
Williams said he sees this compliance certification as setting apart Forte from its competitors. PTI is licensed to issue, custody, and exchange virtual assets, including cryptocurrencies and non-fungible tokens (NFTs), and handle both fiat and cryptocurrency transactions.
Forte will provide that service out of the box, along with other technologies such as minting NFTs, holding user money in wallets, and obtaining cryptocurrencies. It works with partners in the payment space and can easily add new payment types as needed, Williams said.
Three years of work
“Regulators have been looking at crypto and blockchains for a long time. And regulatory requirements have been increasing in the space and will continue to increase,” Williams said. “From the early days of Forte, we knew that if blockchains we’re going to be as transformative as we thought they could be, and have as much impact on games, they had to comply with important regulations around the world.”
To create solutions that would work around the world, Forte had to get permission from a variety of authorities that govern anti-money laundering laws. Forte isn’t focused on gambling-related games, and so it isn’t seeking gambling licenses. But it is making sure that game creators stay away from creating games that could be considered illegal gambling, based on rewards and randomness. Valve recently decided it would not allow NFTs on the Steam store, and that was likely due to concern about games being classified as gambling or being used for money laundering, observers say. (Valve hasn’t commented on that).
And it has to make sure that tokens purchased in games cannot be considered securities offerings. Securities laws require that certain investments require the buyers to be accredited investors, or those who have a knowledge of financial matters and a minimum net worth. Tokens that have stable prices are not considered securities, but those where the price can fluctuate — and where one player can sell tokens to another player for a profit — are securities that are subject to regulations.
If users own virtual items and can trade them for different values than they bought them for — potentially making a profit — and with money transferring around the world, then that is a regulated activity, Pandya said. If a token can’t be cashed out for real money, or if the price doesn’t fluctuate, the regulators aren’t as worried.
There is some competition. Linden Lab’s Second Life has Linden Dollars as a virtual currency in the virtual world. You can sell virtual goods for Linden Dollars and cash out that currency as U.S. dollars. But Linden Dollars are not a cryptocurrency. Linden Lab’s Tilia division has also obtained money transmittal licenses for e-commerce. PTI’s Butler came from the Tilia division, where he was chief compliance officer, and became the top compliance officer at Forte.
Working with game companies
Forte will work with its game development customers and review their game and token designs for compliance.
“We offer a platform that’s got a full end-to-end solution,” Williams said. “It can provide compliance, payments for fiat and for cryptocurrencies, the specifics of the game economy, and the blockchain tech needed to interoperate with other blockchains and cryptocurrencies.”
It can also handle tax compliance for both companies and consumers. In the Philippines, the government ruled that people playing play-to-earn games like Axie Infinity should pay taxes on their earnings in the game only if they convert it from the in-game currency to fiat currency.
Williams and Pandya said they hope that their work can help the blockchain game industry take off faster.
He added, “We hope that they can create global economic systems for people all around the world. And the bigger these things get, the more important it would be that they comply with important regulations like anti-money laundering laws and money transmittal requirements all around the world.”
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