Blockchain Gaming: An Introduction & Look Towards What’s Next in 2022
The global gaming market has seen explosive growth over the past decade and represents one of the fastest-growing economic sectors. Over 2.5 billion gamers and 700 million viewers of eSports have created a $180 billion dollar industry, growing at over 15% per year and contributing to many multi-billion dollar businesses across the entire value chain – including hardware (Nvidia, AMD), game-creators (Epic Games, Riot Games, Activision), and streaming platforms (Twitch, Huya). As giants like Amazon and Apple continue to invest in this space, momentum seems to be growing rather than slowing.
Traditionally, all of the value in the gaming industry has gone towards creators and intermediaries, while the gamers themselves spent hours playing the games without reaping any of the benefits. A new wave of gaming, powered by an evolving blockchain gaming model, flips the script, allowing users to be rewarded for their participation with ownership in the platform and protocol. This leads to higher engagement, higher network valuation, and potentially more “stickiness” as it is referred to in the industry. Axie Infinity, the posterchild for crypto gaming, earned over $1.5B in revenue during the year of 2021, showing the world that blockchain gaming is not just a fad. Since then, many indie blockchain gaming studios have emerged as companies like Illuvium, Star Atlas, and Splinterlands continue to attract attention at an exponential rate. What all of these platforms have in common is the implementation of what is being referred to as the “play-to-earn model” within their game environment.
This did not go unseen by traditional gaming studios. Existing gaming companies have started experimenting with the blockchain and are going to either release brand new blockchain titles of their own, or incorporate elements of the blockchain into their existing games. Recently, EA Games called NFT and blockchain games the 'future of our industry', and many other traditional studios have already begun exploring options. For both new companies and traditional ones, the two easiest ways to incorporate NFT's and blockchain gaming into games are (1) through the skin model popularized by Fortnite and (2) through the creation of virtual land that is attached to in-game economies backed by crypto tokens.
The Skin Model
In the traditional gaming space, skins have been a mainstay of gaming revenue. Fortnite grossed over $50M through the sales of just one set of skins (via a partnership with the NFL) and generates over $5B in revenue per year. League of Legends grossed $1.75B in revenue in 2020, with most of the revenue generation coming through the selling of in-game cosmetics, or “skins” as these digital identifiers are commonly referred to.
In blockchain gaming, these skins will be NFTs backed by the blockchain. Instead of being limited to use in only one game, these NFTs will be moveable to other games run on the same blockchain network (or even others as bridge platforms advance). In other words, if a gamer stops playing one game, they will be able to move their wearable digital identifiers to other games and Metaverse environments. Many predict this will lead to the popularization of “digital avatars” in which our “skins” are as valuable as all of the personal branding decisions so many people prioritize every day. As an incentivization tool, many games will support all kinds of “digital wearables” while charging fees in the form of in-game currency. Creators of the NFTs (such as the NFL & Fortnite) will like receive royalties from every resale, written into smart contracts that are supported by the blockchain. As this space develops, creators, intermediaries, and players are all incentivized to take more direct ownership of their experience through the adoption of NFTs.
Although there is current backlash from gamers against traditional studies incorporating NFT’s (see Ubisoft), I strongly believe that, with a clearer explanation of the value of NFT’s for skins, and proof that it isn’t all a cash grab, this model will be extremely successful.
The Play To Earn Model
Play-to-earn is a phrase that you cannot get away from in the world of blockchain gaming. In essence, it’s exactly what it sounds like – you play the game to earn. I’ll explain what it is with an analogy to traditional gaming:
Blockchain gaming companies like Axie Infinity are now attaching their metaverse environments to traditional Role Player based games through the hybridization of digital land ownership, playable characters, and an entire in-game economy where the currency exists in form of crypto token created by the game developers. The goal of these games is to have everything be player-owned via NFTs, from land to in-game characters and items. Traditionally, major role player based games like Pokemon, Runescape, or World of Warcraft, built in-game economies, but did not allow for any FIAT currency transactions between players. Because these games were limited to the fees based on in-game memberships, players were allowed to trade freely amongst each other for FIAT currency, causing the developers to lose business. This is mainly because their in-game currency had no real-world value, making royalties upon repetitive sales worthless.
Now, with the introduction of blockchain technology, game developers can replace in-game currency with crypto tokens (such as SLP for Axie Infinity), take transaction fees for microtransactions between players (thanks to smart contracts), while also being able to collect revenue on the sale of new characters, skins, or any other digital identifiers sold as NFTs. This aligns incentives for both the game and the players, creating an environment where the game is incentivized to promote more sales of items between players, and players are incentivized to play more because they can earn tokens exchangeable for fiat. These tokens can then be used to perform certain actions in the game, leading to a value mechanism based on the tokens themselves. On top of that, players can own “virtual land” in the metaverse environments, where other players can “farm or mine” for resources on their land, while paying a fee to do so. The land, digital identifiers (or “skins”), and characters sold on these gaming platforms will all be NFTs backed by a blockchain network of the developers’ choice, all while interacting with traditional gaming engines.
While there are many variations of this “play to earn” model developing, one common theme revolves around the increased amount of time gamers will spend within the gaming environment. Now that the currency being traded within in-game economies can be exchanged for FIAT currency, the growth of this model seems inevitable.
6 Predictions for 2022
1. “Play To Earn” Will Become “Play And Earn”.
Often the term “Ponzi Scheme” has been used to describe games like Axie Infinity. Honestly, in its current state, that’s not far from the truth. Currently, people only play it because they can earn crypto tokens like Axie Infinity’s SLP, which is then used solely for breeding new Axies. These Axies are bought by new players to use to play the game. The problem with this model is that it only works if there is an endless stream of new users; once the growth stops, the value of SLP falls, as we have seen in the last few months. However, this problem can be fixed if they are able to execute upon the rest of their roadmap. When the entire gaming environment is built out and there are role playing game elements to that drive additional use cases for the in-game currency. This may allow Axie Infinity to become something that is actually playable to true gamers, rather than what exists now as an unfinished and unfun mobile battle game.
Most of these blockchain games are, at this time, underdeveloped games. They do not compare to the AAA blockbuster games that Activision, EA, Riot Games, and other major gaming studios produce. Most people who play these games do so to earn money, or because they are evangelists. In order for this industry to be sustainable, games must become fun to play – they have to be games that gaming enthusiasts want to spend time playing for reasons apart from monetary reward. As traditional gaming teams merge with the blockchain experts, games that will deliver a great user experience are on the horizon (i.e. Star Atlas & Illuvium). Once these games begin to come out, “Play to earn” will hopefully cease to exist and instead evolve into a “Play and Earn” model where gamers can have fun while simultaneously earning money.
2. Indie Gaming studios Will Beat Traditional Studios To Blockchain Gaming.
With this in mind, it is likely that indie gaming studios beat traditional studios to creating successful blockchain games as the industry attempts to pivot into this space. Although existing gaming studios, such as EA or TTWO, have all expressed interest in entering crypto gaming, they have too many factors to consider. There’s currently significant public backlash against the incorporation of NFTs into gaming, as it is seen as a cash grab. New gaming studios won’t have to worry as much about this and therefore can build, iterate, and deliver more quickly and efficiently than their larger competitors. These teams will have to consist of traditional game developers who understand how to build a solid game that is fun to play, as well as blockchain and tokenomics experts who can understand value of NFTs and how to create a sustainable token model for the game.
3. Innovation In Gaming-Specific Layer 1 And 2 Protocol Will Advance Rapidly.
It's no surprise to anyone that Ethereum, at least for the time being, won't be able to support blockchain gaming. Thousands of microtransactions happen in gaming every second -- there's no way that this can be sustained on layer 1 of Ethereum blockchain, where one transaction can cost over $100 in gas fees. On Ethereum, layer 2 platforms, such as Polygon and Immutable X, have stepped up to provide scalability solutions for gaming and NFTs. Other games on Ethereum, such as Axie Infinity, have chosen to build their own side chains for transactions. Layer 1 chains, such as Solana, WAX, and AVAX have emerged as leaders in NFTs as well, each providing much better scalability and sustainability to handle sheer volume of transactions required to support a blockchain game.
New gaming companies will have to choose where to build, and so will traditional gaming companies looking to incorporate blockchain elements into their games. Layer 1 and Layer 2 platforms that focus on speed, mutability of assets, and volume of transactions will ultimately define who the winners are in this space.
4. Interoperability Between Games Will and Must Be Developed.
Interoperability is the key to unlocking the revolutionary potential of blockchain technology. Whether it be interoperability within games on the same blockchain, or interoperability between chains, the ability to move assets from one game to another what some may think of as a tipping point. In order for blockchain gaming, the metaverse, and NFT's to truly take off, there must be ease of movement between one platform to others so that users are able to seamlessly move Gucci NFT bags from one metaverse avatar to their character in the latest smash hit video game. Currently, bridges have already been built to move assets from the Ethereum network to the Solana Network which seems promising. However, there also has to be interoperability between games themselves. Until developers realize that everyone in this process has more to gain by working together to make everything interoperable, it is difficult to imagine blockchain gaming achieving scale. The ability to move a digital asset from one game to another will be one of the most enticing benefits blockchain gaming can achieve over traditional gaming.
5. Massive Development In Tooling And Infrastructure Will Define This Year For Blockchain Gaming.
As blockchain technology is increasingly being inserted into games, I believe there will be a massive rush into tooling, applications and technology specific towards aiding the players and game makers in creating and facilitating this space. Prominent platforms and agencies, such as Manifold.xyz, already exist to collaborate, curate, and create NFT collections with artists. Marketplaces such as OpenSea and Rarible also offer the ability for artists and the like to create NFTs to sell. However, none of these platforms will be able to handle the incorporation of gaming assets as tokens. If we are to create NFTs out of all in-game assets, so that full ownership can be granted to players, millions of NFTs will have to be created on a daily basis. These NFTs will also have to be dynamic and easily created, as players level up their characters and items without needing to pay exorbitant gas fees. Tooling must be developed to sustain what is necessary for blockchain gaming to evolve.
Standardized rendering of gaming assets in the style of a particular game will also be necessary. While it would be ideal for a universal tool to is built that every game can buy or license, there might be a transitional phase in which each game develops their own tooling that allows for NFTs to align with the attached in-game asset, both from a strategic and scalability standpoint.
Gaming analytics platforms will be spun up out of users’ need to be able to aggregate and valuate the thousands of gaming assets being developed. In a space where assets can be worth thousands of dollars, people will want to easily keep track of them. Tooling will need to be developed for game creators to consistently airdrop NFTs to their loyal players so that they can sustain the level of activity need to support the platform and value attached.
6. DAO’s And Guilds Will Play An Integral Role In The Success Of Blockchain Games.
The power of communities cannot be understated in the space of blockchain technology. Discord has rapidly become the most important place to be for community building, and the same is true about blockchain gaming. With guilds like YGG (Yield Guild Gaming) and MC (Merit Circle) forming and becoming true forces to be reckoned with in the space, the importance of communities in forming games, game design, and game direction is becoming obvious. As game ownership also becomes decentralized towards token holders that actually care about the state of the game and its future, more decisions will be made directly by community members. To create this environment, tooling will have to be developed for DAO management so that treasuries and voting systems can be secured. As bigger entities enter the space, many more groups will form to improve game design, game economics, and worldwide user connection.
Author’s Note
I truly believe that blockchain and NFT technology has the power to revolutionize the gaming industry. The traditional funnel-down value accrual system that has dominated gaming for decades is coming to its end as we witness the redistribution of ownership to players and community members. As teams of industry veterans from the video game industry meet forward-thinking blockchain developers and economists, I have no doubt that blockchain games will be developed that bring us out of the current Play to Earn state, and into the world of “Play and Earn”, where gamers be able to simultaneously have fun while also earning monetary benefit for their time spent and energy given.