Blockchain and the Gaming Industry
Blockchain has long been hailed as a potentially revolutionary technology for the payments industry — thanks to its impressive security, transparency, and flexibility.
These same properties also position blockchain as a disruptive force in dozens of other industries — including the medical, crowdfunding, agriculture, and entertainment industries. But while blockchain has a huge range of potential applications, its use is still purely experimental in most cases.
But that’s not the case for the gaming industry, where blockchain is already making a considerable impact, changing the way players interact with their favorite games and think about the value and utility of their in-game items.
In-Game Economies Are Changing
In-game assets and currencies have recently become one of the primary ways many games are monetized — with many free to play games deriving much of their revenue from the sale of these assets.
Games like Fortnight and PUBG: Battlegrounds pioneered the free to play model, and both have managed to consistently net over $1 billion in yearly revenue largely from the in-app purchases of items like skins, outfits, and other types of equipment.
However, while the developers and publishers of these games are getting rich from the huge volume of in-game items they sell, the players are left with the short end of the stick. Their in-game items generally cannot be sold or traded, and usually don’t have any value outside of the game itself (barring black market account sales).
Blockchain technology is beginning to change that, by enabling players to truly own their in-game assets for the first time through a process known as tokenization. By tokenizing in-game items on the blockchain, players are free to do whatever they like with their assets — whether that be sell, swap, leverage, or simply collect them.
Blockchain-powered games like IOI Trade Race Manager are beginning to show the extent of this capability, by allowing players to truly own their characters, cars, and tracks as unique non-fungible tokens (NFTs). These NFTs can be either used within the game, traded on various NFT marketplaces (e.g. OpenSea), or be brandished as part of a collection.
Image courtesy: IOI Trade Race Manager
Moreover, thanks to the transparent nature of public blockchains like Ethereum and Binance Smart Chain (BSC), users can be certain that their assets are provably scarce, and that they have a genuine chance to land rare items by playing or purchasing them in-game as part of randomly assigned packs (e.g. loot boxes, boosters, chests, and more). Players can easily verify the total quantity of different assets on the publicly available blockchain ledger — delivering some much-needed transparency to the digital collectibles industry.
The Dawn of Play to Earn
Traditionally, games were either purchased through a one-off payment, paid for by in-game microtransactions and/or advertising, or accessed through a subscription-based billing system. In any case, users had to pay to play the game — either with their money, attention, or time.
But thanks to blockchain technology, this model has recently been flipped on its head with the advent of a new genre of gameplay to earn. As its name suggests, this model allows users to earn by simply playing the game, and it’s picking up considerable momentum in developing countries like Vietnam, Thailand, and the Philippines, where some users are earning a respectable income.
The play to earn model is primarily associated with Axie Infinity — a popular battle and trading game running on Ethereum. By playing the game and participating in tournaments and challenges, users can earn as many as 100–300 of one of the game’s native tokens (Smooth Loving Potions) per day. As player-owned tokens, these can be sold on external exchanges or used for further participating in the Axie Infinity in-game economy — such as by evolving Axies.
Extrapolating on from this, it isn’t unreasonable to assume that at some point, a wholly community-owned game will be live — one in which the players, governors, and builders are one and the same. Indeed, this is the long-term goal of Axie Infinity, which expects to be completely DAO operated by as early as 2023.
Other games, like Pocket Arena, have also developed a functional play to earn model. The platform is unique in that it allows game developers to integrate its play to earn features with their existing and upcoming titles. Like Axie Infinity, Pocket Arena allows players to earn in-game items backed by cryptocurrencies and NFTs, which can be freely traded in the surrounding Pocket Arena economy.
Image courtesy: Pocket Arena
This model is made possible by smart contracts, which allow developers to create balanced micro-economies surrounding their in-game assets by controlling the rate at which these assets are earned, distributed, and traded. As you might expect, a careful balancing act is required to ensure incentives remain high, while controlling the inflation of the native tokens and in-game assets.
With novel games set to expose blockchain and its capabilities to potentially hundreds of millions of gamers in the coming years and an increasing number of popular game studios looking into the technology, it may not be long until most games have a blockchain-enabled economy.
The gaming industry is frequently among the first to introduce novel and oftentimes experimental technologies — as has been seen with the meteoric growth of virtual reality and augmented reality-based games.
As an incredibly efficient way to store and disseminate data, as well as process transactions, blockchain represents an attractive technology to game creators and publishers looking to not only cut cost overhead but also improve the experience for their users.
With decentralized file storage networks like Filecoin and BitTorrent now available, and smart-contract-based marketplace places and content delivery platforms now commonplace, game developers no longer need to rely on centralized intermediaries to deliver their games to users. As a result, they will soon be able to avoid the 15%-30% revenue cut charged by digital distribution services like Valve’s Steam Store or Apple’s App Store.
In turn, developers will enjoy boosted revenue, allowing them to create better experiences and provide a better service to their users.
But more than this, blockchain also enables powerful anti-piracy and IP protection systems through the use of smart contracts. These can be used to automate IP licensing and royalty distributions, while practically eliminating fraud and piracy through the use of digital identifiers and cryptographic proofs. The technology also provides new ways to automatically reward gamers — such as by automatically sharing some of the game’s revenue with top-performing players or enabling powerful affiliate models.
Smart contracts can also be used to automate the delivery of in-game items, such as by automatically unlocking NFT-based rewards periodically to improve player loyalty, while unlocking new ways to incentivize engagement.
With Axie Infinity recently recording $1 billion in all-time trading volume, blockchain-based gaming NFTs frequently selling for six-figure sums, and the potential market size numbering in the tens of millions of users — blockchain doesn’t just boost efficiency, it makes good business sense.
About Master Ventures
Master Ventures is a blockchain-focused venture studio helping to build the next generation of blockchain-based Web 3.0 system innovations within the crypto industry. Launched in 2018 by Founder and CEO Kyle Chassé, the company’s ethos can best be summarized in the acronym #BeBOLD: Benevolent, Open, Love, Decentralized.
Master Ventures co-creates with entrepreneurs and businesses worldwide to turn the best ideas into innovative and disruptive products. They do this by investing as strategic partners through offering advisory services to the projects they believe in. To date, Master Ventures has invested in over 40 crypto projects, including the likes of Kraken, Coinbase, Bitfinex, Reef, DAO Maker, Mantra DAO, Thorchain, and Elrond.
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