The video game sector is huge. There are more than two billion gamers across the world — that is around 26% of the world's population. If you add the annual revenues generated by Hollywood and all the sporting events in the U.S., the obtained figures still won’t be enough to surpass the earnings of the digital gaming industry alone. Companies like Sony, Microsoft, and Activision, generate billions of dollars every year from selling games and related products, but thanks to blockchain technology now you can also earn money by playing metaverse-based games.
Until now, only the brands, developers, and artists involved in the production of video games were able to generate income, along with gamers who earn money by livestreaming or playing in tournaments, but the emergence of blockchain-based technologies like NFTs, smart contracts, and virtual gaming worlds may now be giving rise to a new play-to-earn (P2E) business model in the gaming domain. This new model allows players to earn financial rewards while playing a video game and through trading in-game items at different marketplaces on the internet.
How blockchain technology is revolutionizing the gaming industry?
Blockchain is a decentralized data recording system or a digital ledger that stores information in blocks that are distributed across a network of computers. These information blocks are secured using cryptographic hashing, a programming algorithm that can not be reversed, therefore, the entries made on a blockchain can never be altered. Moreover, every piece of data on a blockchain is visible to all the users on the blockchain network, which makes it a very transparent and trustworthy system.
The most popular use of blockchain technology is the transaction of NFTs and cryptocurrencies on the internet on different blockchain networks. There are approximately 300 million crypto users across the globe who together fuels an economy worth three trillion dollars, and all of it runs on decentralized blockchains. The use of digital currencies and tokens has become so popular that various games have launched their own in-game NFTs and cryptocurrencies that players can trade to earn rewards while participating in the game.
For example; the well-known blockchain-based game Axie Infinity is an online game built on the Ethereum blockchain. Players can earn cryptocurrency tokens such as Axie Infinity Shards (AXS) by playing the game. AXS tokens can then be traded on some crypto exchanges. The game also uses NFT monsters that can be bought, sold, traded, and bred to battle each other, earning their owners additional digital tokens.
Sorare combines fantasy football with blockchain in a game in which players can win Ethereum. The 3D action-adventure game Age of Rust allows players to search for Bitcoin and Enjin Coin, along with, "highly functional NFTs that also have millions of dollars worth of resale value, due to their incredible utility across the blockchain ecosystem.” In 2017, Age of Rust was one of the first games to use Enjin blockchain to mint and integrate NFTs that could be used for things like unlocking content.
Some interesting aspects and examples of blockchain technology in gaming are:
- Before the introduction of NFTs and cryptocurrencies in video games, all the characters, skins, weapons, rewards, and various other elements of a game used to be the property of the game developers. There was no way an ordinary player could retrieve or monetize any in-game items once a game was declared out of service or shut down by the developer, but now the rising popularity of decentralized games like Splinterlands, CryptoMines, etc is changing the scenario, and even many established game publishers are bending their rules to grab the maximum share of the decentralized gaming market.
In April 2021, American game company Atari decided to open a blockchain division that would focus on creating crypto and digital tokens for their games, and recently, video game giant Ubisoft also launched a platform named Quartz that would enable players to acquire ownership of several in-game items in the form of NFTs called Digits. The Digits will be available as in-game items like vehicles, weapons, and equipment. Each Digit will have its own serial number that can be seen in-game.
- Blockchain technology is giving rise to a new gaming economy. Play-to-earn-based video games which are also referred to as GameFi (an amalgamation of gaming and finance) applications have become more popular than traditional cryptocurrency DeFi (decentralized finance) services. A report from DappRadar, reveals that nearly half of the total cryptocurrency wallets in the world are linked to one or several plat-to-earn games.
Pedro Herrera, who is a senior blockchain analyst at DappRadar, claims that every day on average 100 million transactions are recorded from various blockchain games and many such applications are creating “micro-economies of their own”. Moreover, similar to various DeFi applications, blockchain-based games are also encouraging digital P2P transactions among internet users.
- By the means of smart contracts (digital agreements that are stored on blockchain), game developers are able to effectively employ regulations for the newly developing gaming economy, they can ensure a fair exchange of digital tokens in their games, and they are also able to generate extra income by charging a fee on various in-game trading activities.
The advent of blockchain has also given developers the opportunity to create ever-more immersive virtual worlds or metaverses, where users can not only play but trade virtual assets and experience virtual reality. The increasing acceptance of blockchain technology among developers can also be understood by the fact that 58% of game developers have already started using blockchain technology.
The play-to-earn gaming model has proved to be a huge success in 2021 in terms of attracting new users. Some blockchain-based metaverse games like Decentraland and Sandbox even allow users to buy and sell virtual real estate. In Decentraland, transactions are made with MANA, the game's native cryptocurrency, and proof of ownership of virtual property is verified via NFTs. In November, 2021, a plot of "land" in Decentraland sold for €2.1 million. Following the announcement, MANA crypto was trading at €4.06 a token, compared with €0.07 at the beginning of the year.
This rapid growth and earnings potential is the reason why this new blockchain-based gaming ecosystem is attracting not just ordinary players but also investors to become a part of the gaming economy.
Axie Infinity, which is one of the most popular games in this segment, has garnered sales worth $2.5 billion, and the Ethereum-based game is currently being played by 1.8 million gamers on a daily basis.
Is it possible to fully decentralize the gaming industry?
The gaming industry is already divided on the use of blockchain technology. In October 2021, the largest digital game distribution service, Steam, introduced a new rule that prohibited game publishers from introducing blockchain games on the platform. Many crypto enthusiasts and companies like SpacePirate Games, which was looking forward to releasing its new NFT-based game on Steam, were not happy with this decision.
Soon after Steam came up with this new rule, Tim Sweeney, programmer and CEO of Epic Games (a rival platform of Steam) said on Twitter, “Epic Games Store will welcome games that make use of blockchain tech provided they follow the relevant laws, disclose their terms, and are age-rated by an appropriate group”. However, apart from whether or not a platform shows interest in blockchain games, there are various other challenges that game companies need to overcome to make the gaming world blockchain-friendly.
For instance, how will developers ensure that games remain democratic, preventing scenarios where, for example, a rookie but wealthy gamer will not buy up all the important in-game assets (such as weapons, skins, accessories) and end up winning against experienced but not so deep-pocketed players? For example, Ubisoft is getting around this concern by making its Digit NFT's cosmetic-only, so they do not affect the gameplay in any way
Game companies would also be required to develop additional infrastructure to support the large transactional volume on their blockchain networks, and this could take a lot of time and budget.
Many gamers are still not familiar with blockchain-based innovations like NFTs, so the excessive use of such technologies in popular games could increase the barrier for new players to enter gaming. Another challenge for developers is to ensure that blockchain games, gaming platforms, and decentralized marketplaces are compatible with one another so that players can conveniently trade their in-game virtual assets across games and platforms.
Another issue may be whether some of these games are breaching rules against gambling. Sorare, for example, is currently under investigation by the UK’s Gambling Commission, which is seeking to establish whether the company requires an operating licence.
Though the NFT and crypto markets are growing at an impressive rate, for now, it would be too soon to predict whether these blockchain technologies would have a successful run in gaming or not. However, due to its immense potential to transform the gaming industry, its use is likely to continue to expand.