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Blockchain Games: May Decentralization Be Ever In Your Favor

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The crypto market has endured a difficult sobering year, proving that not everything needs to be on blockchain and that crypto is not going to replace traditional infrastructure overnight.

The industry is in a desperate need of a successful mass-adoption use case that will prove out an economically sound token model and show the cryptocurrencies are more than just crowdfunding instruments.

The gaming industry presents such an opportunity. It offers the best chance for the implementation of not just blockchain technology, but also a token economy. As such, the gaming industry will become the vanguard of blockchain adoption in the near future.


Mom, we are going to play video games!

SIMETRI Research

It seems only yesterday that Counter Strike and RuneScape were making their way across PCs. Kids would play on their home computers, forget about homework, get grounded and run off to the internet cafes and library computer rooms.

But it has actually been almost two decades. The internet cafes are a thing of the past, and the gaming world that parents across the world thought to be a waste of time evolved into $137+ billion behemoth.

While the adults were frowning, kids were playing with virtual currencies and digital items. The kids are all grown up now, and they understand the pain points that blockchain and cryptocurrencies address because they have been dealing with them in the game worlds for most of their adolescent years.

Security, transparency, digital economy… for anyone who spent their evenings mining gold ore, or hunting for rare items only to be frustrated by a lack of an accessible market to sell those goods, or worse, have them stolen – these are clear and tangible benefits.


There no need to reinvent the wheel

The market is already there. Players all over the world are mining, hunting and competing for items, which are then sold on a secondary market. The space is already worth billions when it comes to in-game items.

There are platforms some centralized, some blockchain based, like DMarket, which offer users the opportunity to buy, sell and trade their virtual goods. However, the centralized nature of the infrastructure in the industry, significantly stunts growth. The game publishers hold all the keys – they can wipe out billions with a single update, controlling everything from the legality of trading to inflation to the fundamental existence of items. Remember when Thanos collected all of the infinity gems?

Gamers and developers would love a gaming universe based on an open market economy, and equally as important, market dynamics appear to be pushing publishers in this direction.


GaaS is just foreplay before decentralization

Numbers show that game discs are on their way to becoming antique collectibles. Sure, that will not happen today or tomorrow, but the rapid shift to the GaaS model indicates that publishers are adapting to the new market landscape.

The fact that they are making more and more money from in-game purchases makes decentralization less of a threat. At the end of the day blockchain will need industry incumbents to be onboard (not in charge) in order to make significant headway in terms of adoption.

This is what makes adoption in the financial industry so challenging – it threatens the key players and hurts their bottom line, and few things are more dangerous than a wounded predator. In the gaming industry, blockchain plays into an already existing trend, specifically, a move towards in-game economy driven models.


So, show me the money

Blockchain-based games, like Crypto Wars, are already springing up, and according to State of the DApps, games are second only to exchanges in terms of the number of transactions.

 

Still, there will need to be a proven way for publishers to make money before anyone besides fringe indie companies and development shops enter the game. While it is difficult to predict with absolute certainty how the space will develop there are several key monetization trends.


Freemium – Natch

Selling in-game items should become even more lucrative for publishers with blockchain and NFTs. One of the things that started to erode prices of collectibles like baseball cards was the inflated supply – the companies started to print a seemingly infinite amount of rare card variations, undermining their scarcity and thus value. With blockchain and smart contracts publishers can programmatically ensure the market of a given quantity. This will make in-game items more valuable for players and push sales numbers, positively impacting the bottom line.

Furthermore, this will help spur the digital memorabilia market. With the e-sports space expecting to eclipse $1.6 billion in revenue by 2021, the value of items used by esports stars should also appreciate.

Also, in-game currencies naturally translate to cryptocurrencies enabling users to monetize their time and effort, and for publishers to justify prices. The blockchain concept of interoperability should facilitate cross-game exchanges.

Transaction fees

Publishers can host their own exchanges and charge small fees for transactions. This will enable them to profit from the secondary market operations and the appreciation in value of in-game items.

Value appreciation

This dynamic will be similar to projects having an ICO and holding back a portion of the tokens to be sold at a later time. The publishers can sell rare items in auctions to fund development and operation costs.

Economic incentives will be tied into governance

The blockchain industry introduced the concept network self-governance, which can be very beneficial for the gaming industry. Right now, if a publisher decides to shut down a game, change something or if the publisher goes broke, there is not much the gaming community can do to save the game.

However, if changes were introduced through decentralized voting using a PoS consensus mechanism this would give gamers more control over how their game evolves and create liquidity for the publisher. Voting power could be bought and sold depending publisher’s strategy and whoever would hold a stake would be financially motivated in the growth of the game’s ecosystem.

The selection of the development/publishing team itself could be done through a vote, similar to how it is planned in the Cardano self-governance model.

Publishers will find a way to quickly monetize their assets and a way to divest from games that they lose interest in, while gamers will gain greater control over their assets and their universes.


The wolves are fed, and the sheep are safe

Decentralization and tokenization in the gaming industry should be a rare win-win situation, and one in which blockchain is not revolutionizing but rather facilitating an already existing dynamic.

The gaming industry is big enough so that if blockchain finds real adoption there, it will have far reaching implications in other markets as well.

In industries where blockchain is threatening existing business models (read financial services), markets will try to stop or hybridize the key concepts. Hence, we have seen the rise of delegated models (read Ripple) that look oh-so-much like the incumbents that they are trying to replace.

However, when it comes to gaming, the industry giants have already started to adopt concepts that align with decentralization and token economy. So, it is the gaming industry that likely has the best chance of carrying the blockchain torch through these difficult times, without letting it be corrupted.


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DISCLOSURE

Authors at Crypto Briefing are invested in cryptocurrencies. The author of this post may be invested in digital assets mentioned here.

Ilya Abugov
Ilya Abugov
Ilya is Head of Product and Research. He comes from an investment analytics background, having worked as an equities portfolio analyst in the US. He also has international experience in management consulting and IT, including projects in the UK, Scandinavia, the Baltic region and CIS. He is interested in implementing analytic principles from the traditional markets to gain insights in the crypto space.

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