For the past few years, Gregory Bylos has been doing pretty well out of Minecraft. His company, Mineplex, runs a server network for fans of the massively successful construction game. As well as giving players all over the globe the chance to build in the same worlds together, Bylos and his staff have developed a range of custom Minecraft modes, challenges and maps. Here, you can play things like Castle Siege, which turns Minecraft into a full-on fantasy war game, or Super Smash Mobs, which re-creates the Nintendo fighting game series Super Smash Bros – but in Minecraft.

It's immensely popular. Over one million people a month come to Mineplex to experience the company's modifications and community features. "Almost 25 percent of all PC Minecraft accounts ever bought have played on Mineplex alone in the last eight months," says Bylos. That's a lot: there are 100m registered users, over 14m sales on PCs.

But there's a problem. Mineplex, like hundreds of other Minecraft server providers, may be breaking the End User License Agreement (EULA) provided by the game's developer, Mojang. Now the previously benign Swedish studio is putting its foot down, and a fissure has opened up across the once peaceful Minecraft community.

The beginning of the war

The trouble started on Thursday 12 June when Mojang posted a statement on its website, responding to some Twitter disagreements about the extent to which server companies could monetise their custom Minecraft content and services. Mojang spokesperson Owen Hill explained that server providers could accept donations from players, as long as these payments were not exchanged for items or power-ups that would give players advantages in the game world.

He also stated that servers could charge players for entry, and for personalisation items like cool hats and silly pets, but could not charge for items that would affect gameplay, such as powerful swords or potions. In short, Mojang wanted to prevent servers from offering players a "pay to win" model to customers.

But the server providers balked – and a Twitter storm ensued. With days, there was a hash tag #saveminecraft, which would be seen by over 500,000 users. There were dozens of unfavourable comparisons between Mojang and monolithic video game publishers like Electronic Arts and Activision, the latter often criticised online for their highly restrictive digital rights management and user license agreements.

The grievance many Minecraft fans had was simple: although these terms had always been present in Mojang's Minecraft EULA, they had never been enforced over the three years since the game's launch. Mojang had always fostered a laissez faire sensibility; it had pushed Minecraft as an open platform, freely customisable by both players and server providers. But now it was tightening the leash. And people were angry.

Two days after the announcement, Marcus 'Notch' Persson, creator of Minecraft and founder of Mojang, took to his personal blog to defend his company's stance. "Some privately run Minecraft servers do charge for in-game items, for xp boosts, for access to certain game modes," he wrote. "Some of them even charge quite a lot. I don’t even know how many emails we’ve gotten from parents, asking for the hundred dollars back [that] their kid spent on an item pack on a server we have no control over. This was never allowed, but we didn’t crack down on it because we’re constantly incredibly swamped in other work."

The issue of balance

The problem is that while there are no doubt dozens of Minecraft server providers who just want to make money from charging players to acquire advantageous in-game items (and Mojang is surely right to crack down on them), there are plenty who claim they offer a more nuanced service. The likes of Mineplex, Hypixel and The Hive all run competitive player-vs-player matches in which participants can pay for "ranks", essentially packages of in-game abilities, such as speedier movement, better armour, or a wider range of magical potions. But these ranks are balanced so that none has a clear advantage over each other – they're just different.

"For instance, one of our games focuses on small free-for-all matches between four players," says Bylos. "Each player chooses a Minecraft character to play as, and all kits are balanced with pros and cons – so a character that can do more damage may be slower, whereas a character that can fly short distances may have weaker damage." This model is very common in multiplayer online titles, including the hugely successful team-based battle game League of Legends, where players purchase different classes of character, each with different strengths and weaknesses.

In an open letter to Notch, Bylos argued that Mojang was making the business model untenable for large server providers such as Multiplex, with large staff and infrastructure overheads. "I personally discussed our rank system with a member of your business team at Minecon last year and he confirmed we were in compliance with the EULA," Bylos wrote. "The only rule was to not sell Mojang IP (ie. access to a diamond sword), which none of the large networks do."

For many in the Minecraft server business, Mojang is attempting to crack a nut with a diamond sledgehammer. Delyth Angharad runs a small family-friendly server called Minesquish and finances it with straightforward donations, but she understands the grievances of the bigger sites. "Mojang's main goal with the EULA rules is to prevent unfair extortion and situations like a player-vs-player (PVP) server charging a few hundred bucks for a diamond armour kit," she says. "That is fair, but under those rules, they're also preventing more balanced monetisation strategies."

Bylos sees the services provided by the server companies as an essential element of the Minecraft ecosystem. While many fans are happy to keep playing the basic "vanilla" Minecraft, many others like the custom modes and maps that Mineplex, Hypixel, and so on create and run. "I think Mojang does recognise the value we are bringing to their player community," he says. "Last year at Minecon we were described as the 'second tier of content', and that's really where we see ourselves. The top servers see more than a million unique players every month, and there are thousands of smaller servers beyond that. It would be hard to make an argument that we are not helping to keep players engaged and interested in Minecraft."

Is Minecraft Realms to blame?

But there is another wrinkle in this whole argument. In May, Mojang launched Minecraft Realms, a service allowing PC and Mac owners to set up their own private servers for up to 20 friends. The service costs £8 a month and is being touted as "the easiest way for you to host a Minecraft world online." Some members of the Minecraft server community suspect that Mojang's EULA enforcement, coming just a month after the Realms release, is a way to drive users toward its own product. A blogpost written by server provider Towncraft states:

If this EULA clarification was really about protecting players, Mojang would have stepped in against “pay-to-win” servers a long time before their Minecraft Realms service popped on the scene [...] Mark my words… Mojang can only sell so many copies of Minecraft before they need to find another way to monetize it. Realms was just a start.

Mojang's Nathan Adams has rebutted this on Twitter, suggesting that there is no comparison between a service that provides small groups of friends with a private server, and a larger business that provides custom content, maps and mini-games. However, as within any online games community, conspiracy theories are rife, and many feel that Realms is a Trojan horse for a more ambitious multiplayer offering from Mojang – one that would directly compete with Mineplex et al.

So what happens now? We asked Mojang for comment, but the company did not get back to us. It has given server provides until 1 August to comply with the EULA and remove features that charge players for skill items and ranks – however balanced they may be.

Some server providers are questioning whether Mojang has any legal right to enforce the user agreements after several years of not paying attention. According to Jas Purewal, founder of interactive entertainment law firm Purewal & Partner, there is no time limit on EULA enforcement, "like any contract, they can in theory become more difficult to enforce if there is a lengthy gap between the contract starting and the enforcement beginning, or if the developer says they won’t enforce their rights and then changes their mind after the game buyer has relied on that claim in some concrete way – in the UK, US and other common law countries this is called ‘estoppel’. Whether those arguments could be deployed successfully against the game developer depends very heavily on the detailed facts and circumstances of what was actually said and done and when."

It's likely that the server providers will comply with the refreshed EULA rulings, but there are concerns that the nature of these custom communities will change forever. The owner of the Stompzcraft server has even made a video outlining his concerns:

"At this point, we're examining our options and trying to get Mojang to discuss the issues they're facing and how we can help contribute to a solution that may be less damaging to the current multiplayer servers," says Bylos. " I do think we will survive it, but I think it will have a significant cost in terms of player experience. I know of a few major servers that are already putting ambitious projects on hold or canceling them altogether because of the new guidelines."

"The lead developer of the Shotbow Network had a particularly insightful comment a few days ago: 'I can only hope that Mojang listens to their community that loves them (a little too much) and trades out the sledgehammer for a scalpel.'"

UPDATE: Mojang has got in touch and referred us to Notch's interview with PC gaming site Rock, Paper, Shotgun. Here, the Minecraft creator gives a spirited and fair defence of the EULA enforcement, which he says is directed at servers offering pay-to-win content and at companies attempting to mix in-game and real-world currencies. He argues that the previous EULA was more restrictive, but is steadfast that "ranks" and "kits" are ways to pay for progress and therefore not allowed – whatever they may (or may not) add to the experience.

"Diversity is not a goal in and of itself," he states. "These rules definitely remove the option to sell powerups for your character, which is a limitation of diversity, but I consider that a very good thing. I feel bad for the people who have built businesses around this, though."

• Me, my son and Minecraft

• Minecraft: here's one I made earlier