A lawsuit in DC is scrutinizing TikTok's alleged exploitation of children through the use of casino-like virtual currency.

• The District of Columbia's attorney general has filed a lawsuit alleging that TikTok is exploiting children financially by operating an unlicensed virtual currency similar to poker chips at a casino.
• Several state attorneys general, both from different political parties, have accused TikTok of deceiving its users about the app's negative impact on young people, leading to lawsuits being filed against the platform.
• The lawsuit claims that TikTok's virtual currency and livestreaming feature negatively affect children, with the former causing financial exploitation.

One allegation against TikTok, brought forth by a group of attorneys general, specifically accuses the company of misusing its virtual currency.

On Tuesday, TikTok was accused by Brian Schwalb, the attorney general for the District of Columbia, of exploiting children financially through the operation of an unlicensed digital currency, similar to poker chips at a casino.

On Tuesday, a group of 13 state attorneys general, along with Schwalb, filed lawsuits against TikTok, alleging that the app deceived users about the negative effects of the app on the mental health and well-being of children and young adults.

TikTok is accused of violating the district's money transmission laws by not obtaining the necessary licenses to facilitate financial transactions through its livestreaming tool using its in-platform virtual currency, which is said to harm children and exploit them financially, according to Schwalb's suit.

The lawsuit claims that TikTok allows children to buy virtual tokens, TikTok Coins, with real money, and the company takes 50% of the revenue from these purchases. The suit also states that children can easily conduct financial transactions because they can easily bypass TikTok's weak age-verification tools, which the company is aware of but fails to address.

Users can purchase digital "gifts" using TikTok Coins and send them to other streamers on the app, who can then exchange them for real money.

TikTok allegedly takes a commission of up to 50% from these transactions without obtaining the required license.

TikTok did not respond to a request for comment, but previously stated to CNBC that it disagrees with the claims made, many of which it believes to be inaccurate and misleading.

Gabriel Robins, a professor of computer science at the University of Virginia and an expert witness in tech-related patent lawsuits, stated that social media companies like TikTok have been taking inspiration from the video game industry to create large online marketplaces featuring digital currencies.

Robins stated that federal and state laws safeguard children from financial risks because they lack the necessary experience to make informed decisions.

"If the appearance is made to be attractive, cheerful, and innocent-looking, it becomes easier to deceive children," Robins stated. "The children are unaware that their funds are being swindled, or that their parents' funds are being defrauded."

The D.C. TikTok lawsuit may prompt other platform companies to reevaluate their economic transaction definitions and regulations, according to Brooke Erin Duffy, an associate professor at Cornell University's department of communication, in an email.

TikTok is making money off young people's addiction to "digital nicotine."