New Age of Gaming: Blockchain Games

Key concepts and their relevance

Advancement in technology has revolutionized the gaming industry over the last many decades. We are currently at the cusp of another significant advancement in the gaming industry, and I am super excited about this trend. As the gaming industry moves from free to play to play-to-earn, it will change the dynamics of the gaming industry completely. This is why I have decided to start penning down my thoughts about it. 

While we will explore the history of the gaming industry in another post, I wanted to kickstart my journey of writing about what blockchain-based gaming has to offer and how it can transform the gaming industry. 

The gaming industry generated close to 160 Billion dollars in revenue in 2021. In the current setup of the gaming industry, players put in the time and resources to play games without much direct economic benefit to them. They buy a lot of in-game items, develop their characters, get to like zillionth level, etc. but can not monetize their skills or assets directly in the game. In fact, if they stop playing the game, they can’t do anything with the dollars and time they have spent on the game. So while the players do all the hard work in games and spend real dollars inside the games, they don’t get to own anything. While esports and online streaming provide some economic upside to the gamers, they are both limited to a small subset. Due to this, gaming is mostly seen as a resource sink (time and money) in the Web 2.0 (current internet) ecosystem. 

Web 3.0 ( Blockchain Era) stands to change the gaming industry fundamentally. In the Web 3.0 world, blockchain gaming will allow players to earn money while playing the game. In this new era of gaming, if players spend money on buying some asset, they will own it and will be able to sell it to other players within the game or outside the game. 

How will the gaming ecosystem evolve in the Web 3.0 economy: 

1. Ownership and scarcity of the assets: Almost all games today have in-app purchases, which drive over 50% of gaming revenue. These in-game assets are typically infinite in number and are sold to the players through IAPs. Even after paying for these assets, players don't really own these assets in Web 2.0 gaming. Blockchain technology will enable in-game asset ownership and digital scarcity. In Web 3.0, each asset will have a finite supply, and each asset ownership will be with players after the sale. When a player buys an asset, the technology will tie the asset to the player instead of the game, thereby protecting time/money investments players have made. Since the players own these scarce digital assets, players will be able to sell them to others and can keep them outside the game. 

2. Earn while playing: In the current state of games, players don’t earn while playing games. Instead, players try to monetize their gaming skills through streaming and e-sports. In Web 3.0, players will earn money while playing and can monetize their gaming skills within the game itself. Games will become economies, and players will have real economic output depending on how much they play and how good they are at a game. As players cross levels or complete tasks, they earn cryptocurrency that they can exchange for other crypto-assets or fiat currency.

   Axie Infinity is one such game that has become quite popular and has taken the Play to Earn industry by storm. In the Philippines and Venezuela, the income players could earn inside this digital world is higher than what their local physical economy can offer. To earn in the Axie Infinity, one needs to collect SLP tokens that can be traded on the exchanges and can be converted into Stable coin or Fiat. Tasks to earn SLP games are the same as what we have been doing in games today, like player-vs-player battles, Daily quests, etc. However, in this ecosystem, instead of all the money being accumulated to the gaming companies, it gets distributed between the company and players. Therefore, the better a player is in the game, the more SLP tokens they will be able to earn and will be able to make more money. 

3. Interoperability: Traditionally, gaming ecosystems are siloed, and one game does not interact with another game. The assets of one game can not be used in another game, but in the blockchain-based ecosystem, there will be projects that will complement each other, and users will be able to switch games with ease. They will be able to bring their digital assets, such as NFTs in the form of skins, avatars, or weapons, with them and use them in other games.

   The same can be seen in the DeFi kingdom. DeFi kingdom is a DEX where one can earn High APRs by having an NFT and that NFT can be upgraded by playing the game, and upgraded NFT, in turn, yields a high return in the DEX. This is an example where assets of a DEX can be linked to an NFT or game. In the same way, assets of one game can be used in another game. 

Key underlying concepts/ technologies that will help in making this a reality: 

1. NFTs: NFT is a technology that enables digital asset scarcity and ownership much like any other digital currency. NFTs can be stored in the wallet and can be transferred from one wallet to another. In Blockchain-based games, in-game assets will be converted into NFTs, enabling asset ownership. Like how in any RPG game, there are different types of assets like common, special, uncommon, epic, and legendary or 1star, 2 star, or 5 star. In blockchain-based gaming, NFTs will define the rarity. Games’ finest players will collect the rarest NFTs and will be able to sell these to other players. Players will be able to hold on to the NFTs even outside the game and will be theirs to keep even if the game stops working. 

2. Tokens: Tokens will be the currency around which the economics of the whole game will be built. Everyone participant of the gaming ecosystem - be it the team that makes the game, the community that helps support the game, or the players that play the game will be incentivized through these tokens. As the value of the token increases everyone benefits. This way we have aligned the incentives of everyone in making the game big.  As Charlie Munger says: “Show me the incentives and I’ll show you the outcome.” Players earn and reap the benefits for their hard work through tokens inside the game and will be able to exchange these tokens for real money through exchanges. 

3. Blockchain: Blockchains are open, permissionless, immutable. Anyone can interact with it and can build on top of it. Just like in legos there are building blogs and one can put a blog on top of another. In the same way, the very nature of openness and permissionless will allow one to build one game on top of another and make the gaming ecosystem interoperable. 

I believe blockchain gaming will revolutionize the gaming industry and will also help blockchain get adopted by the masses. Based on my assessment, the very concept of Metaverse will be powered by the concepts mentioned above and the metaverse will be built with the concepts of Web 3.0. Metaverse can also be thought of as more like a Second Life experience. Players create avatars to virtually represent themselves and interact with places, objects, and other players. Through blockchain, items could be transferable between different games and game universes, resulting in a digital multiverse.  

At the same time, the gaming industry will increase the blockchain users from 100m to 2B as well. Everyone in life is optimizing for fun and money. Blockchain gaming bakes fun into money and money into fun. 

The question that comes to mind is, if players start earning in the games, how will it impact the gaming companies? Will it reduce the overall pie available to the gaming companies? How will the user acquisition look like in this new ecosystem? 

We will continue to explore these topics in the subsequent articles.