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Good or bad for the industry?
Big gaming studios are seriously stepping into blockchain gaming, even though most players are outright opposed to it, calling it a scam from past experiences.
So what’s behind it? Really just another cash grab? And if done right, is blockchain tech for the industry good or rather bad? Let’s check it out.
In 2021, blockchain games attracted a ton of funding, spiking in 2022 but then flamed out a bit in a year later. Despite this cooling off, major studios continue exploring blockchain tech like never before:
Ubisoft is developing RPG ‘Champion Tactics’ in which you can truly own your in-game items.
EA Sports and Nike want to add virtual items into EA Sports games with Nike’s SWOOSH platform.
And Square Enix also has its blockchain projects. They’re also advising on blockchain game ‘Cross the Ages’, invested in a Bitcoin gaming startup Zebedee and they sold their Western studios, including two very popular IPs, to Embracer Group for $300M, to fundtheir blockchain initiatives.
And while Steam keeps saying ‘no’ to blockchain-based games, Epic Games is okay with them. Last month, the ESRB slapped the ‘Adult-Only’ label on blockchain games just for using blockchain. Epic doesn't agree with just rating a game 'Adults Only' because it uses blockchain, so they updated their EGS policy to allow them on their store.
All this, while many gamers still push back against blockchain games, seeing them as cash grabbing pay-to-earn schemes with Ponzi-like structures that just take the fun out of gaming.
But what exactly happened? Why the backlash?
To understand the backlash, let’s first understand blockchain tech. I promise, I’ll make it very simple:
Imagine a network of computers. Each computer is a combination of hardware and software, connected to other computers. Let’s call them nodes.
Now in this network, services like banks and social media platforms operate their own nodes. It's like a central library where one librarian (the bank) has control over all the books (the data). That’s why we say it’s a centralized system. When a transaction is made, like you wiring me money or subscribing to my channel… the librarian records it in the book. The record can only be changed by the librarian.
Now the downside is that if the library is at risk, the entire system fails. It’s a single point of failure. Also, since the bank controls everything, it can easily manipulate everything, so we have to trust the bank. In a decentralized system, you trust without the need to trust anybody.
…in a decentralized library, we don’t have that librarian anymore. Instead, each library (node) has a copy of every book (a ledger). When you wire me money, every library updates its book or ledger with this transaction. So if something happens to one book, the others still have all the information. This way, everything is kept safe and can’t be easily changed because you’d have to change all the other books kept in all the other libraries. Once a page in a book is full of transactions, it’s sealed through a complex mathematical problem by these computer nodes. Once solved, it’s sealed and a new page is created and linked to the previous page forming a chain of pages (or blocks), and voila you have a blockchain; again, all this is not stored in one single node but copied on all participating nodes worldwide.
Now these two are the biggest use cases of blockchain tech. Cryptocurrencies, like Bitcoin, are digital forms of money operating on blockchain tech. Regular money like dollars or euros could use blockchain tech too, but that’s tricky because central banks run these currencies and they like to keep things under their control. Blockchain tech is all about spreading that control out, which doesn't really jive with central banks
And NFTs (non-fungible tokens),well first of, they are not JUST jpgs of ugly monkeys. They are unique digital items, like songs, digital art, or in-game items, that you can buy, sell, collect. Each NFT is one-of-a-kind and can’t be exchanged like-for-like, which is why they’re called ‘non-fungible’.
Now how does this all apply to gaming?
Well, if done right, games that use blockchain tech genuinely would have the following 3 features:
True Ownership: In traditional games, your in-game items are rented. You buy and own them, but they are still controlled by the game developer. So you never really own them. But in a blockchain game, these items are yours for real, because they're registered on the blockchain across all nodes, confirming your ownership. Unlike centralized databases, decentralized means game developers can't alter these items unilaterally. For instance, if you own a powerful sword, blockchain tech ensures that its stats cannot be nerfed at the whim of the game company for balancing purposes. They can’t just tweak the stats because once the stats are added to the blockchain, the information is stored across multiple nodes in the network, just like in my library example.
Or imagine an MMORPG where your sword evolves based on your actions. You defeat a boss, and it becomes "Pikachu’s Bane”. Then you sell it to another player, who defeats another boss and the sword becomes "Raichu’s Slayer." As it’s being traded, it becomes a popular item with its own unique history and stats. So it doesn’t solve a problem per se, but it adds an extra personal layer on top of the game.
Decentralized Gaming Economy: In a decentralized economy, the economy isn't controlled by one main game developer, but by all the people who play the game. When you trade an item, it's like we're all updating our own little record books. This means the game maker can't just go wild and make more game money or more items to help themselves. It's all out in the open, so it's fairer for everyone.
Portability: Imagine using Cloud’s Buster Sword in Fortnite. It’s the idea of portability where you can move one NFT from one game to another. This isn’t possible in traditional games because they are controlled by centralized servers. And since blockchain is decentralized, no single game dev is in charge, which could make more devs want to join and collaborate. Right now, this more of a big idea than reality, but game makers and blockchain folks are trying to make it happen.
Anyways, sounds all good in theory, but this is not how game companies utilized the blockchain. None of the games really implemented these three core features of blockchain and were instead just cash grab gimmicks to sell cryptocurrencies.
In 'CryptoKitties' for example, you could buy, collect, breed, and sell virtual cats as NFTs. It was a sensation and made headlines when a cat sold for US$172,000. However, the excitement was short-lived as many found that their investments in these cats weren't as valuable as they initially thought.
Compare that to Axie Infinity, a Pokemon-inspired game, where players breed, raise and battle creatures called Axies. It became super popular, especially in the Philippines where many earned a living by selling Axies. While the game didn’t go away, the in-game economy however suffered when the players were breeding way more Axies than demanded. So their value dropped. And after a massive hack the game suffered even more financial losses.
Many more such examples, where blockchain games are more about speculation and earning money than actual fun gameplay. They are not fun-to-play anyways but rather play-to-earn games. A lot of P2E games aren’t games at all. They are just badly gamified finance ideas or Ponzi schemes disguised as games.
Our friend Gabe even said “Blockchains as a technology is a great technology”, but with so many bad actors in the market, Steam won’t allow such games.
“…There was some illegal shit that was going on behind the scenes, and you're just like, yeah, this is bad. Blockchains as a technology is a great technology, but the ways in which it has been utilized are currently all pretty sketchy.” Btw, Mojang and Rockstar Games too, banned NFTs and crypto.
Gabe Newell
But lo and behold, that didn’t stop Ubisoft to drop Quartz in 2021, offering 'Digits' - fancy customizations in Ghost Recon Breakpoint. But, they didn't utilize blockchain to enhance gameplay, offer true ownership or in-game trading. A centralized database could have done the job just as bad. The launch didn't go well, facing a lot of dislikes, and Ubisoft soon stopped supporting the game altogether.
With all this sketchiness, and the industry’s history of microtransactions and loot boxes, it’s no surprise that gamers are hostile towards these games.
In fact, out of every 4 such games, 3 fail. In 2023 alone, 70% of those became inactive. Again, no surprise knowing that these games are made by blockchain companies, not experienced gaming studios.
So there have been some fraudulent blockchain projects, but are all blockchain games then inherently Ponze schemes?
Play-To-Earn, Play-And-Earn, Play-To-Own, Blockchain and Crypto games are all being lumped together, but there are differences.
In Play-To-Earn games, players can earn real things like crypto or NFTs through playing, but the catch is it needs new players spending money to keep going. The money new players spend is then used to pay earlier players. If new players stop joining, there's no more money coming in, and the game just collapses. It’s a bad model and mainly for those who are into making money from gaming.
A healthier model is the Play-And-Earn model, like blockchain game Affyn. Here, earning is just a bonus, not the main thing. You play more for fun and the earning aspect is an option only.
And Play-to-Own games, there the focus is more on building up your digital collection of items over time. It's less about getting-rich-quick and more about enjoying the game and your growing collection overtime.
How studios profit from blockchain games
All different models for different audiences, with the focus on owning, trading & collecting. But then the question would be: How do game companies profit when players own and trade and sell these assets?
First revenue stream: They profit by initially selling unique digital in-game assets, very similar to the current model of selling games, skins and battle passes, but the difference is the expectation to sell more of these items, given that they are now more valuable as Blockchain assets.
Second revenue stream: they capitalize on something called a secondary market. It’s the virtual marketplace where players buy, trade, and sell their own items. Every time an item is traded, the company earns a fee.
And that’s where it differs from traditional microtransaction-driven games. Think of Diabolo III’s auction house but with a twist. In this blockchain model, the game makes money when players first buy the NFT and then each time it's sold to someone else. The goal here is to build a marketplace driven by the players, where each NFT gets its value from being unique and useful in the game, instead of just selling stuff directly to players all the time.
It's a new approach compared to regular microtransactions. But most importantly, the bigger reason why big gaming studios are seriously into blockchain is:
(A) They obviously want to stay ahead of the curve and lead the way in an increasinlgy competitive market. And by diversifying into blockchain, they can position themselves as market leaders in a very lucrative new gaming sector.
(B) And new faces means new money. Gaming companies are always finding ways to tap into untapped audiences, so with blockchain tech, they could pull in new gamers who like the mix of gaming and trading
Especially in Asia, blockchain tech might be seen as just a natural progression because the Asian market is way more receptive to adopting new tech. Also there is less stigma around blockchain gaming altogether. And with Japan’s Otaku culture, the country is very invested in this space. Sony for instance has even filed a patent to allow the transfer of NFTs between games and devices (VR, tablets, computers, etc.).
(C) And when you read headlines like this and this, well, you know where the investors' money goes, big gaming studios are sure to follow.
So is blockchain good or bad for traditional gaming? It's complicated guys. If implemented truthfully, focusing on true ownership, trading, and collecting, it could add a fresh element. But it could also push game companies to make more games promoting earning over fun. The key is finding a balance where trading and collecting are driven by the gamer’s interest, not by get-rich-quick motivation.
And most importanly, it's gotta be game developers taking the lead here, not blockchain companies. Blockchain companies making games is just stupid. And in any case, no one really knows yet what the best practice of blockchain gaming is. We’re flying the plane as we build it. Things still hav to be proven.
But let’s remember:
…but now, we don’t say that anymore, because we assume all games are online.(Robby Yung, CEO, Animoca Brands)
In a similar way, the real win for blockchain games will be when we don’t even call them 'blockchain games' anymore. They’ll just be 'games,' plain and simple. And whoever does it right, is going to lead the race.