Deep Dive Research
05 May 2022
In the first article of this set, we observed the history of gaming prior to the introduction of blockchain technology and pointed out key issues that emerged over time. In this second article, we’re diving into how blockchain resolves some of those issues and even presents new qualities of the player experience that we never knew we needed. We’ll also touch on some of the issues and hurdles that blockchain gaming faces today, before concluding this set with a final article about the developer’s experience in this transition to GameFi and how the developer can make all the difference.
Blockchain fundamentally changes the way players can interact with the games they love, and the first, most obvious, benefit that emerges is the prospect of true ownership over digital goods. As mentioned previously, games, as they are today, preclude the opportunity to genuinely custody and control in-game assets due to the difficulty for developers to monitor the transfer of these items in a safe and transparent fashion. Blockchain solves this key issue with one of its fundamental characteristics: immutability.
Immutability is the inability to transpose or alter past-recorded information. That means that information added to the blockchain can never be changed or removed. As a result, when an individual transfers cryptocurrency or a token, for example, an ERC-721 NFT, to another person’s wallet, that asset has moved and will not move again until the new recipient chooses to do so. Wallets and private keys, as long as they are securely maintained, prevent any external party from touching the content that they contain. In the context of games, this manifests itself as a real transfer of ownership from the developer to the player, and along with that transfer of ownership comes property rights.
The introduction of property rights that are implicitly and inextricably tied to assets on the blockchain is what truly makes ownership possible. As mentioned earlier, prior to the advent of blockchain technology, players could only access in-game items according to the terms of the developer or the third-party marketplace in which they existed; as such, players could not sell their items to recoup costs, and players introduced risks of fraud. Property ownership allows players to do a multitude of things with their items, whether that be selling, trading, buying, altering, upgrading, or publicizing and monetizing – as long as such actions don’t infringe upon the copyrights or intellectual property rights of their creators. This opens up a whole new world of possibilities for ways to play and ways to earn as a player.
With new actions that can be taken as owners of in-game assets, players can, for the first time ever, earn real money by simply playing the games they love. And the specific mechanisms that allow for players to earn an income are numerous. Player purchases prior to the advent of blockchain games had already accounted for over $100 billion dollars in spending every single year. These are now not merely expenditures, but asset investments. An investment, like in any economy, provides the owner with the opportunity to become an entrepreneur, using the assets to generate further income.
A great example of this is in the game Axie Infinity. Arguably the largest and most salient blockchain-based video game thus far, Axie Infinity was and still is one of the hallmark titles that brought the concept of “play-to-earn” into the homes of many gamers worldwide. In the game, players must purchase three or more Axies, the in-game playable axolotl-inspired creatures, to compete in battles with other players. The rewards elicited from these matches, Smooth Love Potion or $SLP, are actual ERC-20 tokens based on Ethereum. This is a legitimate cryptocurrency that provides in-game users with a variety of utilities, including, but not limited to, breeding new Axies (which are also valued in $SLP), purchasing the governance token $AXS – which can be used to purchase new Axies – or, most often, trading it on other decentralized exchanges (DEXs) for other cryptocurrencies and even fiat currency.
The potential for earning real money struck a chord with players in the Philippines in particular, as they found that they could often generate a greater income by playing Axie Infinity than by working a typical wage-paying occupation. It grew to such popularity that the cost of purchasing an Axie skyrocketed to thousands of dollars per Axie. The advent of guilds, third-party player collectives, and the introduction of incredibly wealthy and heavily invested “whales” entered the Axie Infinity ecosystem, all eager to purchase, lend, sell, and trade Axies to earn wild profits. Ever since, the play-to-earn space has become a veritable investment strategy for gamers and nongamers alike.
Blockchain games and their players also benefit from the underlying technology of blockchain designs outside of gaming. As previously mentioned, assets on the blockchain, by design, are entirely immutable, and the history of these assets on the blockchain is fully transparent for anyone to independently verify. As a result, players have explicit and fully accessible evidence of any asset they may consider purchasing or selling.
This asset provenance provides users with accurate and unchangeable information that delineates the history of any asset’s previous owners, its authenticity, and its previous uses and previous pricing. Collectible items in the real world require thorough and often painstaking verification from a reputable third party before their value can be confirmed between a buyer and a seller. With the blockchain, this process of verification happens almost instantly because the information that characterizes the value of the asset cannot be changed. It is engrained by the blockchain’s smart contracts into the literal fiber of its being, its token ID.
While it might seem feasible that any asset owner, having full custody of the asset as previously mentioned, could change the asset’s history or its value much like removing browser history or pricing an item on an online marketplace, it actually is impossible. The reason for this is that certain elements of blockchain assets, both for games and for other applications, are dictated to remain a certain way since their inception. These aspects remain on the blockchain where they are immutable – long-since processed inputs of data that cannot be removed and cannot be superseded in any way without the involvement of smart contracts, whose functions are also immutable and pre-determined by the creators of the NFT assets.
Beyond ensuring that in-game assets behave according to some critical rules, smart contracts provide nearly endless possibilities for other functionality that can promote new and novel ways to play blockchain games. In an effort to promote the adoption of a new game, garner a better relationship with the community, or support a more immersive experience, developers can use smart contracts to reward players for a variety of activities.
This alone represents a brand new expansive category of revenue generation for players. Veteran players can be rewarded for assisting novice players through key game progressions. Wealthy players can be rewarded for renting high-utility assets to less wealthy players. Users can be rewarded for even developing tools, models, and scripts to enrich the in-game worlds. Users might even be able to one day develop their own NFTs for use within specific game universes and earn a royalty from the sale of those items. The possibilities are truly endless.
Finally, blockchain technology, in specific the mechanics of tokenomics and decentralized governance, grants players a voice in the decision-making processes that deal with the games they play or the in-game institutions in them. Prior to blockchain gaming, ardent players had few avenues to communicate the changes they wanted to see in their games. These were limited to either reporting bugs or dysfunctional game mechanics via a single-way report system or by resorting to community forums both on the game developer’s domain as well as on social media platforms. While companies certainly still try their best to handle queries and respond to players as much as possible, it is an impossible task for a game developer’s support team to handle hundreds of thousands of complaints each day. Even if that were possible, consolidating the requests for disparate changes into a single update that accounts for all the players’ wishes is even more ludicrous.
Governance, manifested in decentralized autonomous organizations (DAOs), allows players to have a direct hand on the changes that should be made to the institutions that enact action in their communities by allowing players to vote democratically, either among themselves, for example, in an in-game guild or player collective, or for the game at large. Since players can equitably have a say in the direction of game-changing updates, developers receive a cohesive response from their players, thus making the task of improving the game infinitely easier. Consequently, trust between players and the developers is constantly built upon itself, resulting in a game that, for lack of better words, grows by itself.
While playing games on the blockchain certainly sounds as dandy as it does futuristic, there are some massive hurdles in the way of its mainstream adoption, and some of those hurdles are not a matter of technological innovation; they’re an issue of the way blockchain games are developed today.
First and foremost, there are, as briefly mentioned, some key technological hurdles that prevent blockchain games from achieving huge player populations and an engaging multiplayer experience. One of these is speed; blockchain games right now are built on relatively fast blockchains but still cannot meet the demands of certain game genres like competitive shooters.
Another issue is scalability, which deals with the sheer volume of players and their transactions. Blockchains struggle to handle high volumes of data throughput in times of congestion, leading to processing times that span minutes – a length of time that is more than long enough to turn a player away from a potential action in-game.
And most importantly, the cost of playing is exorbitantly high for most popular games. Many games require the purchase of NFT characters to play, but these NFTs can begin at a floor price of over $1000 USD. Even for players who are able to play via a scholarship from a guild, a third party that purchases and rents out these expensive NFTs for a portion of the in-game profits, there are some steep gas fees that are lost just to execute transactions on the blockchain. This, more than anything else, can deter players from joining a new game project.
Fortunately, in recent years, there have been astounding developments in the Layer 2 sector, which provide novel solutions for processing data much faster than before. Immutable X, which leverages innovative zero-knowledge rollup, or ZK-rollup, technologies, is a leading project in the blockchain gaming space that allows Ethereum-based games to perform faster, cheaper, and at scale like never before. While many competitors exist within the space, each endeavoring to retain qualities that are deemed desirable in blockchain applications, such as decentralization and security, the developments thus far have been incredibly promising.
In our final article, we’ll analyze the process developers employ to design games and discover how blockchain technology augments their designs. We’ll conclude with a discussion of what we’d like to see in GameFi moving forward and what we think it will take to get there.