Blockchain and gaming are an excellent combination to create value for developers and players in an industry infamous for using dubious business models and practices.
While blockchain gaming was a niche market for early adopters a few years ago, gamers all over the world are increasingly embracing it, especially after the recent non-fungible token (NFT) boom.
As a result, blockchain games are growing their player bases quicker than ever, with the most popular platform recording as high as a million active users.
In this article, we will explore the essentials of blockchain games as well as how the wider gaming industry is embracing this new concept.
Problems in the video gaming industry
Despite the majority of players disliking the not-so-ethical microtransactions that provide an unfair advantage to those who spend money on in-game items (in fact, only 1.3% prefer them in games), the pay-to-win model has become a widely popular practice among video gaming publishers.
According to Statista, 22% of global game developers used paid in-game currency to monetize their titles. At the same time, the revenue from microtransactions-powered free-to-play games exceeded ($22.7 billion) premium console earnings ($17.8 billion) in 2020.
And, while non-cosmetic loot boxes, bundles, and other in-game items designed to give an advantage to the players owning them were exclusive to free-to-play games in the beginning, many full-price AAA titles have also integrated microtransactions and the PTW model to generate an additional source of revenue in the past few years.
For that reason, it has become more challenging for the average player to enjoy a fair, microtransaction-free gaming experience, even after paying the full price for the base game and downloadable content (DLC).
What makes this worse is that microtransactions take place in the centrally controlled marketplaces of publishers. While the studios take home 100% of this revenue in most cases, gamers don’t have real ownership over the in-game items and currency they purchase or collect, as their accounts can be banned, frozen, or restricted for any reason at any time.
For the same reason, once they have purchased an item, they can’t trade it with others – at least officially. While publishers prohibit such activities, gray market sales have been booming lately in the video gaming industry, where users can usually acquire in-game currencies and other assets for a fraction of the original costs.
Furthermore, even if a publisher has a massive ecosystem of gaming titles, users can’t transfer or reuse their in-game items in another game. As a result, when an IP gets abandoned by developers, players lose all their collected or purchased assets.
From Pay-To-Win to Play-To-Earn
From unethical monetization methods and centrally controlled marketplaces to a lack of real ownership over in-game assets and gray market sales, both players and developers have to cope with numerous limitations of the current video gaming landscape.
Fortunately, blockchain technology and cryptocurrencies provide an efficient and sustainable solution to the above problems.
Simply put, blockchain games are video gaming titles that incorporate DLT networks and non-fungible tokens to offer a much different experience for both players and developers than traditional IPs. They achieve this by tokenizing in-game assets as NFTs, such as land, armor, weapons, mounts, potions, crafting elements, and even the game itself.
As NFTs are digital assets residing on a blockchain that are unique, irreplaceable, and limited in quantity, they provide real ownership over users’ in-game items. Most importantly, they can be easily authenticated and tracked on the distributed ledger.
After collecting, earning, or purchasing them, players can move NFT assets from one game to another compatible solution, store them in self-custody wallets, or trade them with others via the publisher’s marketplace or secondary markets.
As a result, blockchain gaming has introduced a new, more consumer-friendly business model called play-to-earn (PTE) to replace the controversial pay-to-win in terms of game monetization.
With PTE, players earn in-game NFT assets or rewards in the native (fungible) cryptocurrency of the developer by simply playing the game and completing quests or challenges. For that reason, it’s an attractive model for users who prefer to expand their gaming collections without fearing that they would lose them due to the publishers’ policies or actions.
At the same time, PTE offers a way for gamers to convert their in-game assets into real money, which has helped the impoverished, the citizens of developing nations, and those who have lost their jobs to make a living. For example, in the Philippines, the members of a rural community played the popular blockchain game Axie Infinity to generate an income that is multiple times higher than the minimum wage in the country.
That said, distributing in-game NFTs and cryptocurrency rewards for gamers doesn’t mean that developers generate less revenue. In fact, we can observe an opposite scenario taking place within the blockchain gaming industry.
According to Token Terminal, Axie Infinity has become the blockchain solution – both within decentralized applications (dApps) and DLT networks – that features the second-highest revenue generated from fees. By taking a cut from all transactions (e.g., breeding or trading Pokémon-like creatures called Axies or selling land) via the two native tokens of the platform, Axie currently makes around half the income from transactions ($330 million) as the whole Ethereum ecosystem ($650 million).
Furthermore, while traditional video game stores like Microsoft Store, Playstation Store, and Steam take a hefty 30% cut from gaming sales, developers can create their own marketplaces for their blockchain games to avoid such high commissions (or avoid commissions completely).
At the same time, they can grow their user base by leveraging the play-to-earn model to offer NFT and in-game currency rewards for new players. They can utilize the same practice for existing gamers as an incentive to keep playing the game.
Also, the freedom to utilize in-game assets in any way they like allows developers to raise funds more easily for their titles. For example, the voxel graphics-themed metaverse The Sandbox raised $4.51 million by March 2021 through presales of virtual plots of land within the game.
The Rise of Blockchain Gaming
By now, we have explored how blockchain games offer real ownership over in-game assets while allowing both developers and players to generate extra revenue – along with many other benefits.
Now, the question is: what progress crypto-powered gaming titles have achieved so far in terms of adoption?
When there’s a new technology or a concept that is radically different from the existing solutions on the market, it takes time until significant adoption takes place among consumers (if it ever occurs). If we go back in time, only a handful of people utilized Bitcoin in 2009 after it was created.
However, despite the fact that crypto hasn’t reached most of the population yet, millions of users utilize digital assets to settle their everyday payments, grow their wealth, generate a passive income, and achieve financial sovereignty.
Blockchain gaming is in the same shoes.
While DLT-powered games have been around for some years, most of the early solutions haven’t managed to attract many players. In fact, the first blockchain game with a significant player base is the Ethereum-based CryptoKitties that managed to congest the smart contract chain’s network due to the high demand from users in 2017.
However, after the NFT boom earlier this year, blockchain games have started to gain traction again, raising $476 million – accounting for 9% of all video gaming investments throughout the period – in the first half of 2021.
According to DappRadar, while the number of active wallets interacting with crypto-powered games increased by nearly 600% from Q1 2021 to Q2 2021, the audience of the blockchain gaming industry surged to over 800,000 active users with a 121% growth between June and July.
However, while this is a signal of increasing adoption, we should note that DappRadar’s reports only considered the active wallets that interacted with the smart contracts of certain blockchain games. For that reason, the total audience of the DLT gaming industry is expected to be (significantly) higher than what the company measured.
In addition to the NFT boom’s impacts, the development and growing popularity of scalability solutions and high-throughput blockchains could be another factor behind the recent rise of the blockchain gaming industry.
For publishers to attract new users and keep existing ones playing their blockchain games, it’s vital to utilize a DLT network that features fast transactions and minimal gas fees. If they can’t achieve that, they risk losing their player bases as most gamers refuse to pay $50 in fees (or even $10) to buy a $10 in-game item.
A report confirms this phenomenon that measured an 83% fall in daily activity among the top five Ethereum-based games between January and February 2020, which was mainly due to the increased gas fees of the smart contract blockchain.
However, as Ethereum’s competitors like Binance Smart Chain (BSC) and Solana have gained traction lately along with significant progress in the development of layer-two scalability solutions, many blockchain publishers have moved their games to these platforms to offer transactions with minimal or zero gas fees for their users.
For example, while Axie Infinity uses the Ronin sidechain to achieve gasless transactions, the DLT-based 3D virtual world Decentraland has partnered with the Ethereum-based Polygon (formerly Matic) sidechain to improve the speed and decrease the gas costs of transactions.
At the same time, the blockchain gaming and NFT ecosystem provider Enjin launched the first release of its JumpNet Ethereum scalability solution in June (with the second release to launch soon) that offers instant, secure, and free on-chain non-fungible token and Enjin Coin (ENJ) transactions for users.
Blockchain Gaming Is Here to Stay, and It’s Getting Bigger
As there’s now a viable infrastructure built around blockchain games, developers can launch crypto-powered titles more easily as well as with more features and a much better user experience than before.
For that reason, we expect to see a significant increase in activity in the DLT gaming industry in the near future.
That said, top video gaming publishers won’t rush to launch their AAA games on top of the blockchain yet, as they already have full-fledged ecosystems with their own centrally controlled marketplaces and decent revenue flows.
However, blockchain gaming is an excellent way for smaller indie development teams to raise funds, generate a good income, experiment with new ideas, and grow their player base without teaming up with big publishers.
At the same time, larger publishers like Ubisoft are actively exploring the blockchain gaming industry to leverage the benefits of DLT tech. While we don’t expect to see them launching any AAA games on the blockchain in the near future, they may experiment with NFTs and crypto to develop smaller blockchain-based titles.