Are people building blockchain gaming just fooling around, or are we at that pivotal Netflix vs Blockbuster moment where there’s about to be a technology-driven revolution in customer expectation and experience?
There are more than 1500 blockchain gaming projects out there, and none of them are as big as Epic, Ubisoft, Xbox, Nintendo or Tencent. The total gaming market in 2021 was valued at nearly 200 Billion USD. In comparison, the total market cap for GameFi tokens is only around 11 Billion USD at the time of writing.
The world currently has around 3 Billion Web2 video gamers, with around 2.6 Billion mobile gamers. According to DappRadar, the average daily users of blockchain-based games is around 1 Million wallets, mostly spread over Alien Worlds, Axie Infinity, and Splinterlands.
It’s like the blockchain industry has entered a boss fight. In gaming, bosses are way stronger opponents than the player has faced so far. Boss battles are the climax points and guard the entry to the next level or stage. Often, it takes a few rounds before you succeed, each time getting more familiar with the tactics and weaknesses of the boss.
Image Source Reddit
Since I work in the GameFi industry, clearly I am backing it as the long term winner. Bosses are there, after all, to be beaten - once you have a greater knowledge of the game's mechanics. Even if it takes dying a few times.
Since Axie Infinity led the way with its revolutionary game incentivization models, and its popularity in Asia, a lot of talk around blockchain gaming has been around the play to earn models. But just like tokens go up, tokens go down. If the P2E mechanism of the game is its main attraction, it’s not a sustainable model.
Whilst there could be a future work economy that’s based on play to earn, move to earn etc, the fundamentals of gaming is that it has to be fun. If it’s not entertaining, it’s probably not a game - it’s work. Boo hoo. So there’s got to be more to blockchain games than token based gamification to make it able to win this boss fight.
Here’s some of the benefits that I see blockchain as bringing to games.
NFT stands for non fungible token. Whereas fungible tokens are indistinguishable from each other (an ETH token is interchangeable for any other ETH token) non fungible tokens are distinct and thus can have an individual value.
So far, digital collectibles in games exist only within the game - if you want to sell your collection of skins, weapons or avatars, you’ll have to sell your whole account, and this could be against the terms and conditions of the game. Some people buy accounts like this, and get scammed.
NFTs are on the blockchain and the blockchain is a cryptographic ledger of ownership. Once you buy an NFT digital collectible, you are now the owner, separate to the game.
Most of the revenue of a game comes from sales of in game assets. Of the top 6 games, the business models of 5 are free to play (not subscription based like Minecraft) and they make money - a lot of money - from in-game sales.
If you said to their executives, how about we make it so players can sell to each other, and people don’t have to buy from the game any more, shareholders might come after you with pitchforks.
But let’s look at things from another perspective. Currently, the money that players spend in game is treated as an entertainment cost - when you buy in game cosmetics, you probably take it out of your monthly entertainment budget.
But would that change if you owned the collectible outright, you could sell it at any future time, and that the collectible from each season potentially even gained value over time as each collectible was limited in supply and became harder to obtain?
Under those conditions, it could be possible to see the initial purchase price not as an expense, but an investment. Would that change your spending habits in games at all? If the mindset has changed from expense to investment, that actually potentially unlocks a whole lot more value for the games industry, and that’s certainly a benefit that the blockchain industry is banking on to win players over.
In real life, when a creator makes a piece of art, once they sell it, unless there was a written contract that says otherwise, they aren’t due any royalty fees if the buyer then goes to sell it for 10x value. However, when minting NFT digital collectibles, you can put royalty fees into the token contract.
So, if a creator has a primary sale for $1, or even free, but codes a 5% royalty fee from future sales, they will make most of their profit not from the initial sale, but the ongoing royalties as the NFT circulates across the economy. So it becomes in the creator’s interest to foster a marketplace mindset where players buy collectibles to flip. It’s an unearned income stream that doesn’t end.
By 2022, we’re all getting a bit tired of “the man” in our lives - whether it’s big corporations, big government, big pharma, and centralized power and authority in general. We can add big gaming to that list. One of the main attractions of blockchain is that it can gain a life of its own, as a decentralized machine, that is strongest when it doesn’t have centralized authority to maintain it.
Since COVID, the average person is becoming more and more conscious that all these digital subscriptions go into the hands of a few. During the two years since 2020, the world’s ten richest men more than doubled their fortunes from $700 billion to $1.5 trillion —at a rate of $15,000 per second or $1.3 billion a day.
$10 a month may be pocket change, but if a corporation is farming $10 a month from millions of people, it’s a method that smacks of treating large scale human populations as a new form of domesticated agricultural cultivar. As much as we like Amazon, what will it take to put the reward for the product back into the hands of the creators?
Whenever humans face a situation of scarcity, we adapt, and do something different, to reintroduce conditions of abundance. According to Oxfam, if the world’s top ten richest people were to lose 99.999 percent of their wealth, they would still be richer than 99 percent of all the people on the planet. As it stands, “they have six times more wealth than the poorest 3.1 billion people.
Where the market is looking at the gaming industry being worth USD 339.95 billion in just the next 5 years, I don’t think that the creators are going to take it lying down. According to DappRadar, VC investment in blockchain gaming, will be hitting $12 Billion by the end of 2022.
If you distribute fan art, fan videos, or fan lore from your favorite games, it would probably violate the original creator’s IP to make money from it. But with NFTs, you can have terms and conditions that allow the owners to profit from their fan creations. Given how dedicated many fan communities are, if fans have the ability to make money from their contributions, and in fact, a share of that value can go back to the original creators, that will open up a whole new market in the gaming industry.
Gartner predicts that by 2026, 25 percent of people will spend at least one hour daily in the metaverse. Currently, those metaverse experiences are based on Web2 technology - where we are the consumers, not the co-creators, or co-owners of content. But that will rapidly change.
97% of executives in the gaming industry believe it is the center of the metaverse. The gaming industry has made its impact by creating immersive digital proto-metaverse experiences like Fortnight, Roblox, and Minecraft. Nearly 40% of gamers between 10 and 20 played in these virtual words in 2021.
The attraction of virtual worlds is interactivity. Players can take control of their experiences in the game. I believe that blockchain technology allows ownership over in-game experiences to be taken to a whole new level.
Matt Dion writes about an emerging genre: Massive Interactive Live Events, or MILEs. Early MILEs provided a platform for huge numbers of participants to simultaneously experience a shared simulation. I can imagine a genre of MILEs game gated by NFTs where the tokens enable different levels of interactivity and influence.
The other potential force for impact is DAOs. So far, DAOs have taken off in the blockchain gaming worlds as both investors in new game technologies (like PathDAO) and as gamers Guilds (like Liberty Gaming) that run scholarship programs so gamers can play without needing to own the NFTs.
What if game governance tokens, though DAOs, allowed you to have a say in the design of the gameplay, characters, weapons, and plot, of your favorite games? If you were not only able to play the game but have an influence on the experience itself, would that be more fun, engaging, and immersive than a game simply sold to you as a finished product?
Decentralized autonomous studios could take this to the next level - games that were built by a DAO from the ground up, without any form of centralized control.
Blockchain technology is generally open source that allows rapid innovation. We are yet to see open source gaming, but in principle, if all the mechanics of a game were on the blockchain, this would allow the rapid development of new games and gaming technology. Anyone could take the code from a game, improve it, and release it as a new game. As this is so far from the current funding models of the gaming industry, it will be a while before we see this beyond niche communities - but the potential is there.
Here I’ve written some of my ideas for why blockchain gaming is the next evolution of virtual worlds, digital gaming collectibles, and even games development. In the next installment, Part 2, I’ll share some insights into investing in the blockchain gaming industry and the future of gaming.