What is blockchain gaming?
As a “next generation computing platform”, blockchain enables entirely new functionalities in the gaming world: first, the ability to trade digital assets between games, and, secondly, the ability to trade digital assets between gamers directly. These two new functionalities offer entirely new open marketplaces and ecosystems, allowing gamers and game developers to usher in a new era of inter-connected games. Since gaming, first and foremost, is about fun experiences and addictive gameplay, the blockchain games that will succeed will be the ones that successfully balance compelling gameplays with the new economics embedded via blockchain. The balance is tricky because the games have to be fun while also balancing new functionality, which shouldn’t detract from the fun gameplay itself.
The promise of blockchain gaming
Try to imagine a gaming universe that allows a lot more opportunity for gamers to participate in the creation of the gaming world itself. In this universe, games have well documented public API, and it’s easy to build useful tools for the communities that play the games. Even more importantly, assets acquired in one game may be traded for assets from other games, or even used in other games directly. All of this is enabled “for free” by building games on the blockchain.
Additionally, blockchain enables programmatic enforcement of business partnerships in the world of blockchain gaming. An example is the OpenSea revenue share system: any company building on OpenSea gets to benefit from secondary sales of their items on the OpenSea marketplace. A symbiotic relationship like that is difficult to enforce in a world where digital assets are isolated to particular ecosystems and can’t interoperate natively.
1. Early days in blockchain gaming space
Over the past several weeks, I had the privilege of chatting with some of the best teams who are working in blockchain gaming space.
It’s really early in the blockchain gaming evolution. In fact, the blockchain games that exist today were not built by game developers, as evidenced by the quality of existing games. Outside of gambling and Ponzi schemes, there are perhaps only two dozen credible projects that actually have the necessary talent and experience to get this industry to the next level. Out of them, four teams raised larger series A rounds targeting anywhere between 100,000 and 1,000,000 gamers for each individual game. Clearly, at the level of blockchain infrastructure today, it’s not possible. Several of these teams are actively looking for chains that will help them deliver.
More importantly, the rest of the traditional gaming industry is sitting on the sidelines believing it’s too early to join the space. Why is that?
Usability and scalability of blockchain infrastructure are big bottlenecks today. Not only the existing blockchain games seeing 97–99% drop off rates on onboarding, but, once the usability is fixed, the infrastructure will need to be able to scale across millions of gamers.
Even solving for usability and scalability will not be enough to convince the traditional gaming industry to move into new space.
There needs to be an ecosystem of tools available for game studios coming into space and being able to quickly building games for a new paradigm. Without these tools, the rest of the industry wouldn’t bet on the nascent blockchain space.
The next 2–3 years will be all about building out such infrastructure and tooling.
2. Four items preventing the mass adoption today
Today, the game developers market is enormous: Unity ecosystem alone has some 12 million game developers.
In order for a large fraction of these developers to enter the blockchain gaming space, they will have to be open to the following:
- A shift in mental models around game development (ceding developer control over game rules)
- Getting used to a lot more complex economics
- Traversing the UI barrier, making the blockchain itself invisible
- Understanding the limitations and unique advantages of blockchain
2.1 Change in developer mental models
When it comes to game development philosophy, the existing mental model emphasizes centralization, from infrastructure to actual game development. Prior to millions of game developers joining the space, this mental model has to be adjusted.
The new model favors gamers in that there is provable ownership of digital assets. In order for us to move to the new way of operating in a big way, some of the game developers need to get on board with this model. The new model is fairer to gamers.
Additionally, most game developers today think of their audiences as walled gardens. Most believe they have built their audiences and they’re afraid to lose them. Having any kind of value and asset transferability between games requires an open mindset. A mindset that considers all games a part of a larger ecosystem where game mechanics and economics work collectively together and where a tide lifts all boats.
2.2 Change in the economics of game marketplaces
The important shift will be the transition from a centrally controlled economy to a free market economy. A centrally controlled economy has to worry about managing all of the variables of the economy, whereas a free market one leaves the complexity to open markets. While a free market might technically be more “complex”, the management of that complexity can be handled by free actors in the system and is guided by the invisible hand. This may prove to be a better system for games than full central control.
Coming from an infinite resource world where publishers can at any time create lots of different items, the blockchain introduces a much more complex marketplace from an economics standpoint.
As a blockchain game developer, you’re thinking of items not only available in your game, but also of the value of your item once it starts trading outside of your game.
Modeling such economics becomes a lot more complex, but I am sure we will start seeing open source versions of economic standards of marketplaces of the future emerging in the coming years.
2.3 Change in UI patterns
What is clearly visible in the early days of blockchain gaming is that there is also a challenge with UI.
The early blockchain games are targeting the crypto community by providing an option to purchase the game on crypto marketplaces (e.g. OpenSea), which requires pre-existing knowledge of “what blockchain is” and “what cryptocurrency is”.
Instead, blockchain needs to be abstracted away so new functionalities (e.g. true digital ownership) are available for the larger gaming community, not just blockchain crowd. A good example here is Neon District, which does the custody for the gamer until they are ready for blockchain, only at which point gamer opts in to have their digital assets (in Neon District’s case, Plasma Bears) available in a decentralized way.
2.4 Understanding the limitations and unique advantages of the blockchain
Game developers need to understand how the new way of building games is different from how it’s done today. The blockchain powered backend is slower and more costly but does come with a set of new unique properties, such as social scalability and trust. This new property enables the creation of new markets (where markets didn’t exist prior) and/or replacing networks with markets (which is to say, removing the person in charge of the network and allowing the community to participate in a peer-to-peer exchange of value). As it relates to gaming, this new property allows for the creation of open ecosystems and marketplaces, where the true ownership of digital assets emerges as a byproduct of blockchain properties.
3 Product capabilities required for mass adoption
Now that we’ve covered some of the philosophy change, UI change, economics and education that needs to happen prior to mainstream adoption of blockchain games, let’s dissect the product requirements needed for such a mainstream adoption.
3.1 User-friendly software
The biggest bottleneck in adoption is the onboarding flow. When we talk to applications across gaming, they’re seeing anywhere between 97% and 99% drop off rates on onboarding flows.
Which indicates that demand for applications exists, it’s just that users struggle to finish the on-boarding process.
Some of it has to do with regulation (KYC process, more on it here) and cannot be much improved, but the rest of the onboarding process and ongoing usage of digital currencies and blockchain is possible to improve.
For instance, users shouldn’t need to understand wallets, gas fees and private keys. For gaming projects that are coming from the mass market, the current usability doesn’t make much sense.
Additionally, fluctuation of gas prices is suboptimal for users, to put it mildly. Thus, currency stability is important. Important to notice that new generation wallets avoid gas fees altogether: Dapper and Argent are good examples.
Finally, gamers should provide a better experience than Metamask. Ideally, gamers don’t even know they use decentralized infrastructure for some of the functionality.
Scalability is a challenge for teams who aim at getting millions of customers. Gaming executives are excited about the idea of putting a game like WoW with a full economy on blockchain and then pump millions into advertising. That’s the world they want to be in, but that’s not feasible at all today.
Additionally, finality should be on the order of a couple of seconds in order to provide appealing game experiences.
How do you solve for both throughput and latency?
Many companies today address latency and throughput by resorting to Layer 2. This is the most viable approach today, but it has its own limitations, both in terms of what can be built and how involved users need to be to stay secure. Is it possible to get higher throughput on Layer 1? One of the main approaches to solving layer 1 scalability is taking the playbook from the database world, where the research and implementation of sharding started ever since the 1980s. Blockchain sharding is a lot more complex primarily for two reasons: malicious actors and consensus across thousands of machines.
“Blockchain sharding 101” content that I like can be found here, with more advanced topics around unsolved problems in blockchain sharding can be found here.
Finally, one of the most advanced approaches focused on solving the problems outlined in the article above was proposed recently on Ethereum Research here.
3.3 Developer-friendly Tools
When it comes to development experience, it’s also suboptimal in the blockchain space today.
First things first, we noticed some blockchain protocols taking decentralization to the extreme and building software and tooling in a decentralized fashion. This approach produces tools that aren’t as well integrated if compared to tools built via centralized engineering effort and might have versioning problems since the same teams do not own documentation as readily.
When it comes to blockchain gaming specifically, if blockchain can allow game developers to build great games, they will enter the space. Ease of deployment is critical: game developers should be able to go and deploy games without having to struggle.
Needless to say, allowing for having reusable UX that developers can add to their own games is very important. It’s something similar to Unity Asset Store but reimagined for blockchain gaming.
Additionally, given computing constraints specific to the blockchain industry, resource management done well is critical.
4. What is important for game development studios?
When I talked to gaming studios, several important criteria stood out.
In order to appeal to gaming developers, underlying infrastructure builders need to treat NFT standard as a first class citizen and prove to the gaming community that they’re building with game industry requirements in mind.
For example, when it comes to integrations, needing to have Unity integration for asset store is a must.
4.2 Digital Asset Bridges
ETH Bridge that has economics on Ethereum but execution & state on a more scalable network. Having scalable protocols to be interoperable/compatible to Ethereum to some extent will solve a lot of problems today for dapp developers, and attract more people to build on newer layer 1 protocols, as well in the long-run will build a stronger decentralized Internet together.
4.3 Interoperability of Smart Contracts
What early successful blockchain games witnessed is that there is an emerging behavior of various developers building contracts on top of other contracts, leading to composability and faster innovation. For example, some of the developers who saw the popularity of CryptoKitties decided to build contracts on top of existing DapperLabs contracts, examples being KittyHats and KittyBattles.
From the product standpoint, it means that the interoperability of smart contracts is a must.
4.4 Side chains & cross-chain communication
Some of the gaming studios started to look into side chains, since side chains provide short-term scalability solution, simplify the cost and might facilitate cross-chain or layer 1 chain agnostic concepts.
When it comes to cost, on state channel only the two players spend resources or maybe also few intermediaries. In Plasma, there’s one operator. In contrast, in layer 1 blockchain every tx is validated by hundreds of machines.
I’ve heard several times from gaming companies that side chains alone won’t be a long term solution, because their security is too variable. Secondly, as a developer, you don’t get a good sense of security guarantees. Thirdly, the chance of them going wrong is too high. Lastly, even if the side chain ends up serving a good use case, interoperability ends up being a bottleneck.
Still, the world of the future will probably have a use in both scalable layer 1 protocols and side chains combined.
As a consequence, layer 1 needs to have side-chain first class support, and support atomic swaps. Importantly, if you can get atomic transactions available on the base protocol, this will be useful for cross-contract calls.
4.5 Infrastructure & Tooling
Some of the pieces of infrastructure are a must for a blockchain:
- Infura-like functionality (load balancing)
- Web and mobile wallet
- Stable and open block explorer
- Tools like Truffle that can simulate what happens on the main node
4.6 Monetization models
Monetization models are critical for designing the incentives around millions of game developers, studios and designers entering the space.
Some of the protocols today intend on embedding business models directly on a protocol level, allowing game developers and artists to get paid for the content they produced in the same way how musicians today get paid for their songs being listened.
Additionally, there has to be support for player/user-owned economies. Essentially, game developers will be able to raise funds for their games by selling items ahead of the game production or allowing gamers to become investors in a future game.
5. What is important for gamers?
Gamers have their own set of needs, such as compelling gameplays and option for centralized custody.
5.1 Option for centralized custody
Gamers today are used for centralized custody, and it would be good to give them a choice to be able to do centralized custody. Right now, there is no option for centralized custody on existing layer 1 protocols, for instance, Metamask exists for gamers at all times. I am aware of at least 2 really successful games that are moving away from allowing Metamask as a needed step for on-boarding. In any case, optionality for gamers is a must.
5.2 Compelling Gameplay
Compelling gameplay is critical since blockchain games need to balance both new economic model while still providing a utility for the game itself. Even if blockchain brings innovation on economics, the game should still have appeal for a mass gamer.
6. Various Approaches
Companies tackling the blockchain gaming space from multiple angles.
Some of the teams are focusing on getting non-blockchain indie game studios on board first, while later introducing them to concepts of true digital ownership and ways to implement the marketplace between the games of various game studios.
Other teams are focusing on bringing veteran AAA game development teams who built multi-million gamer titles and have them build blockchain games. For such teams, building one game is at least a $1M investment, making them very cautious around their infrastructure choices.
Lastly, some of the approaches involve investing large sums of money trying to identify games with large numbers of engaged gamers and porting them to the blockchain.
7. Who will benefit from the blockchain gaming?
If you look at app store revenues today, the sole game developers are getting crushed by giants, such as King.com, Supercell, and others. In fact, 94% of app store revenue goes to larger players, while indie game developers are left with 6% of the pie.
With the blockchain introducing new models for both digital ownership and game monetization, the indie game developers and gamers will be the ones benefiting from the shift.
7.1 Indie Game Developers
Blockchain promises to enable new business models, allowing indie developers to claim a larger fraction of the total revenue pie. More importantly, if the business model is embedded directly on a blockchain protocol level, it allows indie game developers to receive a portion of net revenue.
Allowing transferring items between games would enable building smaller gaming experiences to be viable. For example, a small dungeon-crawler RPG module could have an enchanted sword of dragon-slaying as a reward, which can then be used to progress further in a hack and slash monster-slaying level. Both might be too small to be viable as stand-alone games but would work as a part of a larger interconnected platform.
Since smart contracts and composability allow for smaller companies to build on top of each other, it requires fewer resources for the ability to participate in game development.
At the end of the day, gamers will win from the shift to the blockchain.
For example, new “play to earn” concepts allows gamers to produce game actions in exchange for a hope that the asset they might receive in exchange for their in-game action would yield some value in secondary markets.
Additionally, gamers will be able to become investors in games and overall will have better ability to affect game decisions vs. how they relate with games today when game developers are fully centralized.
Several of the problems described above are being solved in one way or another by many teams worldwide. Scalability is table stakes for all blockchains launching today, with Ethereum Serenity project bringing higher throughput to Ethereum within few years, and projects like Cosmos and Thunder launching recently, with NEAR, Polkadot and others launching later this year. End-user usability and developer friendliness are less discussed topics. Projects like Burner Wallet are great examples of how experience can look if the underlying protocol supports it. This great piece by Alex Skidanov (here is a video format and here is blog format) from NEAR goes into more details on how usability must be addressed for wider adoption.
Lastly, a couple of write-ups on what blockchain gaming is for further reading:
Thank you to Bowen Wang, Jane Degtiareva, Devin Finzer, Peter Kieltyka & Martins Bratuskins for providing feedback to this blog post.