The use of blockchain (or distributed ledger) technology for games (a.k.a blockchain games) and token-based digital collectibles is on the rise. The overnight popularity of CryptoKitties was as significant to raising the awareness of digital collectibles as Pokémon Go was to location-based AR games. However, the ecosystem extends well beyond CryptoKitties, and is growing rapidly. The ecosystem includes cross-platform crypto currency and tokens, digital asset marketplaces, digital collectibles, decentralized virtual worlds and more. A significant amount of investment is going into this space. Blockchain gaming startup Forte has announced a deal with Ripple’s Xpring crypto currency platform to invest $100 million in game developers who make games based on blockchain technology. While the opportunities in this space are real, there are a number of legal issues that can arise depending on how a company implements its offerings.

Given its nascent stage, little attention has been paid to the legal issues surrounding blockchain games and collectibles. Some of the advantages of blockchain games (true ownership of digital goods and the ability to take them outside the game and freely buy, sell and trade them) can lead to potential legal issues. For example, depending on how these games work, there are potential gambling issues to consider. The pre-sale of digital goods, in certain circumstances, can raise securities law issues, even if the are not exactly an ICO. FinCEN has issued guidance on the applicability of the Bank Secrecy Act to convertible virtual currency.

Given the technical innovation happening in this space, we are seeing more companies file patents. The patentability of games and blockchain technology in general is very misunderstood. We still hear developers express the belief that games cannot be patented. That is not exactly true. There are thousands of patents on game mechanics, game features, game technology and other aspects of games. Crypto currencies and blockchain technology are rapidly emerging as disruptive technologies. As has happened with many new technologies, particularly disruptive ones, the number of patents being filed is rapidly increasing.

Blockchain games and collectibles hold great promise. As the pioneers who are innovating in this space hit on the right formula to make this work at scale and create great games, copycats will emerge and replicate these successful approaches. Filing patents now can help mitigate this. Many of the advantages of blockchain games and collectibles may have the undesired consequence of complicating certain legal issues. The SEC is still focused on the aftermath of the ICO bubble. It has not been very focused (at least publicly) on this space. Don’t repeat the errors of those who are suffering the consequences of having done illegal ICOs. Obtain an analysis of the legal issues and ensure your legal compliance.