In this article we cover the basics of blockchain gaming, common criticisms and where we see the industry heading.
Gaming has emerged as a strong use case for NFTs and even cryptocurrencies as a whole. Blockchain gaming was one of the breakout segments of crypto in 2021 and is continuing to grow bigger as time goes by. Traditional game developers are dipping their toes in the space and large amounts of capital is flowing in. The potential of the industry has attracted founders such as Justin Kan, co-founder of Twitch, to start his own blockchain gaming related start-up, Fractal.
As with other areas in crypto, this emerging trend has been met with skepticism and pushback. In this article, we aim to give an overview of what blockchain gaming is, address some of the criticism and discuss where the future of the industry is headed towards.
Blockchain games or more commonly known as crypto/NFT games are games that integrate blockchain technology into their games, typically in the form of having cryptocurrency tokens or NFTs in the game. In most cases, in-game currencies are cryptocurrencies and skins or playable characters are NFTs. Blockchain games typically handover ownership rights of in-game assets over to their players instead of keeping it within the walled gardens of the game ecosystem. Players are free to sell the in-game currencies and NFTs that they earn by playing the game whereas in traditional games, players are typically not allowed to do real world trading of in-game assets.
While such advantages already exist in games such as Counter-Strike:Global Offensive, where users are able to sell their skins on the Steam marketplace, it’s not a widespread occurrence. Majority of the games today don’t allow their players such freedom and it boils down to the incentive structures. Game developers today are incentivized to create monetization loops even in paid games, usually in the form of in-app purchases, as they earn by selling items to their player base. In blockchain games, game developers can earn by simply taking a cut of the trading activity done between players and focus on creating the best game possible.
The properties of blockchain games have given rise to a new type of game: Play-to-earn. Play-to-earn games are essentially games that allow their players to earn an income of sorts just by playing the game. This is enabled by the nature of blockchain games where users are able to freely sell the in-game currencies they earn for fiat currencies on any exchange that carries the tokens. Axie Infinity led the rise of play-to-earn and blockchain gaming in general, hitting a peak of almost 3M daily active players and generating $1.3B in revenue during 2021. The revenue was generated by taking a cut from in-game activity and not by selling items to their player base. Players in developing nations such as the Philippines were able to earn more money playing Axie Infinity than they were working their “real” jobs. Many of such individuals had difficulties finding jobs due to the pandemic and turned to Axie Infinity to tide them through the challenging period.
Axie Infinity’s revenue
Players are able to earn money by selling in-game currencies, which are cryptocurrencies,
they’ve earned from playing the game for fiat currencies. These transactions are typically facilitated by centralized exchanges such as Binance where players transfer the cryptocurrency onto Binance, sell it for their relevant fiat currency and withdraw it to a digital wallet/bank account. This freedom allows gamers to extract some of the economic value that they have created by playing games and cash out without any restrictions. In some cases, the cryptocurrency itself receives mainstream adoption and real world merchants start to accept it as a form of payment.
Games have the ability to attract a significant number of users relative to the blockchains user base. Here are a few examples of such games across blockchains like Ronin, BNB Smart Chain, Polygon and Avalanche.
*Note: This is not an endorsement of the games mentioned below. It’s simply showcasing their activity and popularity.
The leader in the category, Axie Infinity, propelled blockchain gaming into the mindshare of crypto natives and the general public alike. The game is a turn-based card game that is commonly described as a Pokemon-esque game. Instead of Pokemon, players battle using a team of Axies which are NFTs and each team consists of 3 Axies. In-game currencies earned from playing the game are cryptocurrencies. Depth of gameplay and game mechanics are expected to change once the new major game update, Origin, rolls out. Axie Infinity can be played on both a computer and a mobile device.
Mobox is a browser game that incorporates elements of DeFi yield farming and NFTs into a farming type game and is built on BNB Smart Chain (BSC). Players are able to earn tokens or NFTs by completing quests or tasks in game and offers an array of game modes for players to explore.
The game is among the top 5 known entities by unique addresses on BSC and top 10 in number of transactions over the last 7 days as of 22 March 2022.
Crabada is an idle-game that’s playable on both mobile and desktop, with plans to expand into PvE and PvP active game modes in the near future. Similar to Axie Infinity, users will be required to have a team of 3 crabs in order to participate in the active game modes.
Crabada ranks first on Avalanche in terms of number of transactions, having 4 times the number of transactions of the second largest known entity, Trader Joe.
Pegaxy is a PvP style horse racing game where players compete amongst 11 other players in hopes of ranking within the top 3 of each race. The game is currently only available on desktop but aims to push out a mobile version later this year.
Pegaxy ranks high in both users and number of transactions on Polygon, sitting within the top 3 for both categories.
The set-up process for most blockchain games is similar to that of any crypto decentralized application. Users would need to have a crypto wallet set-up in order to interact with the game. Crypto wallets are digital wallets that allow you to have custody over your cryptocurrencies. You can think of them being the crypto equivalents of digital wallets like Cash App if you’re in the US or GrabPay in Asia.
There are usually a couple of additional steps depending on the game but the entire process can be broadly described as such.
Majority of the games that are out now are desktop based and aren’t mobile friendly at this point in time. However, in the future we likely see mobile versions of such games and mobile focused games emerge.
Perhaps the most common criticism from mainstream media and gamers alike is the environmental concerns of blockchain technology and NFTs specifically. While operating blockchains do consume energy, the actual impact to the environment is largely overblown due to the reasons below.
A common fear from avid gamers is that blockchain games feel more like work than a game. Games are meant to be fun and entertainment is the core focus. There’s an extremely fine line between a game and a job and adding in a “earning” component can easily lead to games feeling more like work. Even the term play-to-earn, implies that the main reason for playing the game is to earn. This is something that developers, players and investors alike have started to realize. Blockchain game developers have started to shift their focus and goal towards play-and-earn. The focus has shifted towards creating a game that’s fun and enjoyable and the ability to earn is just an added bonus instead of a core component to optimize for.
Admittedly, most blockchain games in their current form are not as well made or as enjoyable as leading games on the market. However, this is a function of how new and nascent the space is and not reflective of the long term potential of blockchain games. As more mainstream developers come in and crypto naitive gaming teams gain more experience, the quality of games being produced will reach parity with that of traditional games. The main difference will be that blockchain games have the added benefit of handing ownership of assets over to the players and empowering them with the freedom that comes along with ownership.
It’s no secret that the crypto industry and NFTs in particular has its fair share of scams and dishonest actors. A level of caution is definitely needed when navigating this new space. Most games are still in their infancy stages and should be assessed accordingly. The quality of a project is highly dependent on the team behind it and there’s a significant number of projects and teams that are actively building legitimate games. Projects like Axie Infinity, Aurory and Mini Royale: Nations have high quality teams and are backed by some of the most reputable investors in the space. It would be unwise to dismiss the entire industry due to the handful of bad actors and ignore everything that’s being developed.
With traditional games implementing NFTs in the form of skins, it’s understandable that it looks like a tool for game developers to extract more value from their player base. The volatility that exists in the broader crypto markets leads to gamers being concerned that having cryptocurrencies and NTFs as in-game assets will lead to speculation on the prices of the assets. These concerns are valid and will be areas where game developers have to keep an eye on and are things that can be fixed overtime. An example of a system to prevent NFTs in games from feeling like a cash grab is how Axie Infinity structures their incentives and gameplay. Axies, which are NFTs in the form of digital pets used in the game, are created by breeding 2 Axies together. This process is done by players in the game and not the game developers. Players are therefore buying Axies from other players instead of the game developers. Shifting the creation of assets to the players instead of the game developers, allows players to be the ones to be the main benefactors and earn from the sale of such assets.
On one hand, we have traditional game developers that make amazing games but aren’t adept at incorporating crypto, NFTs and its benefits into games. On the other hand, we have crypto native game developers that are adept at incorporating crypto and NFTs but not as experienced in making good games. As more traditional game developers dip their toes in the space and crypto native developers get more skilled at building good games, the quality of blockchain games will rise over time. Similar to the rise of mobile gaming where the first few games launched were of lower quality and today we have mobile versions of League of Legends, PUBG and Fortnite just to name a few. High quality blockchain games that are focused on being enjoyable games will get built in time to come and users might not be fully aware that they’re playing a blockchain game once the onboarding process gets smoothened out. There won’t be the need for a separate term and blockchain games will be known as games.
The incorporation of ownership over in-game assets creates a new added layer to gaming guilds. Gaming guilds and clans are a vital part of some of the most successful MMOs in history. By allowing a more fluid flow of value created from gaming, guilds in blockchain games have the ability to grow and evolve into something much bigger than what they are in traditional games. Currently, the influence of a guild and the range of their activities are largely confined to in-game activities. Blockchain gaming guilds however, have the ability to function more like corporations or companies in the real world. Due to the earning aspects of blockchain games, guilds can be revenue generating entities and members can have progressions similar to that of a career in the real world. You can grow from a member into a manager, with a group of gamers under your guidance. Your responsibilities can extend beyond in-game activities as well. For example, you can do marketing for your guild to attract new players or community management to keep existing members engaged. The end game is no longer confined to in-game progression but can involve activities that develop real world skills.
In current play-to-earn games, gaming guilds provide services such as scholarship programs. Most play-to-earn games today require players to have some form of upfront capital investment (buying in-game characters etc). This acts as a barrier to entry and scholarship programs help alleviate that. Guilds will lend out the required in-game assets to players and in return receive a portion of their earnings. The most prominent guild in the space is Yield Guild Games.
Current incorporation of crypto and NFTs into gaming are largely additions of the technology as an afterthought or do not create an experience that is unique. This leads to skeptics questioning the necessity of having the technology in gaming. As more experiments get conducted, new innovative ideas and concepts will emerge. There will be games that require blockchain technology to function and these games will offer new experiences to their players.
Building a good game is extremely difficult and developers looking to create a blockchain game have the added challenge of accounting for the different dynamics introduced by NFTs and cryptocurrencies in games. The quality of existing games aren’t on par with traditional games and we have yet to see truly innovative gaming experiences from blockchain games. However, the incentives structures created by handing over ownership and power to the player base coupled with the talent following into the space should not be dismissed. We’ve a long way to go before we see blockchain games reach the success of games such as World of Warcraft or Fortnite but it’s more a question of when and not if.
How do you see blockchain games evolving over time? Are they just a fad or the start of a new trend in gaming? Hopefully this article helps you form your own impression of the sector and if you’re interested in a more in-depth article that covers the case for blockchain gaming, check it out here!