TL;DR:
Reason 1: To monetise secondary, as well as primary, marketsReason 2: To increase the longevity of gamesReason 3: To maintain trust in an increasingly decentralised worldReason 4: To take advantage of new ways of fundraising and community buildingReason 5: To eliminate existing fraudReason 6: To provide easier and more secure in-game transactions
Reason 1: Monetise secondary, not just primary, markets
Typically, game companies have made money from the sale of game items by selling it to the gamer for the first time and that is the end of that. When gamers try to sell these items on secondary markets (typically in breach of the game’s end user license agreement — EULA), publishers receive no benefit.
This is a potentially lucrative market that they do not get a share of: Currently, the secondary trading market for ‘skins’ (decorative weapon add-ons in first-person shooter games) trading is worth $400 million annually.
The most expensive skin in Counter-Strike: Global Offensive — the Karambit Case Hardened Factory New for $100,000.
Historically, this is not something that publishers have stood for! When secondary markets were booming with sales of secondhand games, it didn’t take game companies long to shift to selling digital-only versions of their product. This enabled them to maintain market share, and because online channels and platforms resulted in greater audience reach, also increased revenue.
“But how exactly does a game publisher monetise secondary markets?”
Developers can embed certain rules when implementing the code for virtual game items. These can include baking in a fee that goes back to the game company every time a certain action is taken, including when an item is transferred from one player to another.
Clearly, freer and fairer policies will attract more gamers than others, however, with secondary markets rife with fraud, this is a way in which the game company can help to protect its gamers.
Further, different rule structures can incentivize or deincentivize certain in-game trades, enabling developers to maintain the vision of the game world and economy they are hoping to create.
Reason 2: Increase the longevity of games
With free-to-play now the highest grossing model of games where publishers make money from subsequent sales of in-game content, gamers are increasingly spending record amounts of money on items.
If gamers are willing to spend a lot of money on items that they do not actually own, how much more will they be willing to spend if they know that they can re-coup that value? We believe that publishers stand to gain from primary sales simply by activating true ownership.
When people are financially invested in a system, it is more likely that they will remain within it longer. This can be exemplified by My Second Life, a game which had a robust economy and facilitated real money transactions, reporting on its 10th anniversary that over $3.2 billion worth of virtual goods transactions had taken place on its platform.
Augmented and virtual reality are driving this revolution…
The rise of virtual and augmented reality games means that lines are going to be further blurred between real and virtual worlds. Virtual ‘possessions’ are going to feel increasingly real with users demanding that they comprise a genuine part of their real life assets.
According to VC Alon Bonder:
“Because virtual goods feel more real in virtual reality, they benefit from a higher perceived value…If users were willing to spend this much to experience virtual goods in a two-dimensional world, how much more might they spend to experience them in true VR? This would mean the difference between seeing an Armani tux on your desktop avatar and feeling like you’re wearing one firsthand.”
We want to facilitate seamless transactions such that someone who creates value for herself in a virtual world, say, by looting an enemy in a game can use that value to enhance their real-world situation, like buy a cup of coffee with her earnings the next morning.
Reason 3: Maintain trust in an increasingly decentralized world
There is no doubt that our world is shifting towards less, not more, centralization. In the wake of financial crises, realisations that algorithms are warping our information sources and unbridled anti-competitive measures taken by powerful online monopolies, people are increasingly avoiding centralized institutions.
It won’t be long before companies have to put forward a decentralized model in order to appeal to their customers.
Further, more and more companies are realising the potential for integrating games with blockchain technology. Currently, more than 70% of Ethereum applications are games and gaming transactions comprise over 26% of daily active users on the Ethereum blockchain.
More than $100 million has been transacted in crypto games over the past three months. These include games such as:
- Cryptokitties 😺— the highly popular cryptocollectibles game famous for causing major disruptions to the Ethereum network from volume of transactions and recently securing a $12 million investment from Andreeson Horowitz and Union Square Ventures.
- Etherbots 🤖_—_ a strategy battle game which sold more than $1 million worth of robots in its pre-sale and overtook Cryptokitties for transaction volume on the Ethereum network in the 24 hours following its launch.
- Cellarius ☄️— a game universe that leverages blockchain technology and user-generated assets to create a collaborative, fan-curated story. Watch the promo video here.
It’s not a case of if but when high quality built on blockchain technology will start to enter the ecosystem. When gamers start having a choice between high quality games— some of which offer them true ownership whilst others do not — which do you think they will choose?
Reason 4: A new way of fundraising and community building
This token model also enables publishers to take advantage of new ways of raising funds for games. Since its launch, Kickstarter’s ‘Games’ category is its highest-pledged category and projects have raised over $700 million to date — proving that a crowdfunding model for game development works.
If a game like Star Citizen, which has crowdfunded more than $159 million since November 2012 and provided supporters little more than the promise to access an epic game when it is released (still unreleased as of April 2018), how much more is the potential for blockchain games which provide tokens representing real utility within the game world, as well as financial value in the real world?
We detailed exactly how a game company would raise funds and build an engaged community on the Hoard platform in a previous blog post: Liu’s Game: A Story Of Game Financing in the Future.
Reason 5: Eliminate fraud
Fraud is a major issue within game economies. It is estimated that for every legitimate virtual item sold and downloaded, there are 7.5 virtual items lost to fraud.
Fraud undermines the trust and security required for full and free game economies to flourish.
Decentralized systems also means that there is no centralized point of vulnerability. Currently, online gaming platforms are susceptible to sybil attacks, illicit in-app purchase brokers and the use of fake or stolen credit cards. Steam reports that the number of hijacked accounts on its platform continues to rise.
Steam News - Security and Trading_We see around 77,000 accounts hijacked and pillaged each month. These are not new or naïve users; these are professional CS:GO players, reddit contributors, item traders, etc. Users can be targeted randomly as part of a larger group or individually. Hackers can wait months for a payoff, all the while relentlessly attempting to gain access. It’s a losing battle to protect your items._store.steampowered.com
Blockchain technology is the result of decades of research in cryptography and security and provides a new approach towards data storing and performing functions. It thrives especially in a landscape with mutually unknown actors that requires high security.
Some of the ways it can be used to increase security in games include blocking identity theft, preventing data tampering and stopping Denial of Service attacks. It can also eliminate double spending and unauthorised duplicate content.
Reason 6: Provide easier and more secure in-game transactions
Setting up payment systems, servers and the infrastructure required to handle trading of virtual content, as well as ensuring that their security, is expensive and, as stated above, fraught with vulnerabilities.
Increasingly, games are turning to blockchain technology to help solve these problems.
The Hoard platform will provide a decentralized gateway for transactions (and micro-transactions!) to be performed at a fraction of current credit card costs and merchant subscription fees. Smart contracts running on the Ethereum network will enable ‘smart transactions’, whereby buyers and sellers don’t have a pay a bank to hold funds in escrow and every transaction is stored immutably.
If you’re a game publisher, developer or an interested gamer, we’d love to hear what you think about these reasons. Please leave us a comment below 👇 or connect with us on Twitter or reddit.
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