Introduction

Blockchain is finding implications in practically every industry nowadays, and the gaming industry is by no means exempt. We hereby continue our series of reports devoted to blockchain implementation in particular industries, which started with our earlier article “Blockchain in Sex Industry”. The Gaming industry is rapidly developing, but it’s still highly fragmented, with a lot of communication issues among the main participants.

With the current capabilities of decentralized solutions, gamers can receive more for the energy spent in virtual worlds. And as gamers become more satisfied, the same happens with the remaining industry participants, growing the market as a whole. Blockchain technologies can provide opportunities to facilitate unlimited communication between gamers, game developers, and other parties on mutually beneficial terms.

In this article we go back to the roots of blockchain games, covering all major concepts. We will also cover the dominant issues which face the industry and introduce blockchain solutions for them, using the biggest projects as examples.

Gaming industry market size

The gaming market is booming, with a total revenue exceeding $100 billion. There are more than 2.3 billion active players in the world, and this number is growing rapidly. We should redefine how we think about this industry. This is not purely about playing anymore. Most games now provide consumers with entertainment on three different levels: playing, viewing, and creating. Game studios are evolving into all-around entertainment companies, erasing the boundary between gaming, media, telecom, and traditional sports industries. Below, you can see the revenue breakdown per segment.Image 1: Global games market forecast 2016-2020. (Source: Newzoo)

E-sports revenue streams are changing

The e-sports industry is continuing to expand its huge base of passionate followers across the globe. E-sports is now entering its maturity phase, with big investments from various endemic and non-endemic brands. Sponsorship budgets are reaching new heights, and international media rights, trade, and franchising are starting to heat up. Below, you can see the breakdown of these segments.Image 2: E-sports revenue streams. (Source: Newzoo)

This impressive growth rate doesn’t come with stable infrastructure already in place. Therefore, this area has been considerably monopolized resulting in communication issues, which in turn is attracting many projects with blockchain solutions to solve these issues. We will discuss these issues and the existing solutions later in this article, but first, we should start with an overview of the different gaming economies within the industry.

What types of games are we talking about?

Not all games are created equal, so not all of them are blockchainable. There are, largely, two types of games from a monetization standpoint:

  • The “pay-to-play” model (i.e., players pay real money to get access to the game)
  • The “free-to-play”, which come in various forms, such as freemium, pay-to-win, etc. The monetization depends on how the in-game content is distributed among players and how it affects the game balance.

In the modern gaming market, developers often use a combination of these techniques to attract users and to retain their attention. The most widespread model is free-to-play since it does not have any entry barriers. The same model enjoys the greatest interest among blockchain projects since it is based on a large number of microtransactions inside the gaming universe. But rare are projects that concentrate on one particular game; usually they tackle issues with the infrastructure in general.

Therefore, when talking about blockchain implementation in gaming, we must distinguish the two main areas: games created on the blockchain from scratch and existing gaming infrastructure utilizing blockchain technologies to solve existing issues. We will discuss these two types separately in this article.

Games on the blockchain

This phenomenon has been widely publicized recently thanks to the CryptoKitties project, a game about collecting and breeding digital cats. Еtheremon is pretty much the same idea, but with Pokémon. There are a lot of similar projects popping up in this area.These games play around with a few core properties of blockchain technology, such as immutability and fungibility, to create entertaining content. Such games should be seen more as educational projects aiming to attract people to the community. CryptoKitties is not about gameplay at all. It’s also not about solving some of the bigger problems of the gaming industry, like a single point of failure, as its code is closed and owned by the creators. Therefore, if CryptoKitties were to shut down, the users would still own “something,” but it wouldn’t be a little kitten anymore… it would just be an abstract bunch of tokens without the service.

Of course, it also works as a decent cash-grabber, thanks to its pyramid structure. All cats are unique, and if your cat’s not unique enough for your tastes, you can add some fancy accessories. The purity of the cats bred in CryptoKities and their generation (their proximity to the progenitor cat, called Genesis) significantly increase their value as the system grows. CryptoKitties use the non-fungible token type ERC-721, which is critical for unique collectables.

The most expensive kitties are constantly selling at price tags of over $100,000, and the total amount spent is over $23M USD as of mid-April 2018. Recently, CryptoKities raised $12M from venture capital firms.

But let’s go back a little into the past, where games like this all start. The first attempt to merge blockchain technology with gaming resulted in HunterCoin back in 2014. It was a simple, online multiplayer game, where players collected coins in a virtual universe, with some p2p battles over resources. This however, was mainly a ‘proof of concept’ and it had many drawbacks.Spells of Genesis was next. It’s a trading-card game that includes arcade-style gaming aspects. At the time, the card trading games market was already heated with Hearthstone from Blizzard, along with many other small competitors. ‘Spells of Genesis’ broke into the empty crypto market, raising 934 BTC during the ICO. Thus starting a new wave of crypto-gaming, with dozens of projects popping up on the market from then on.

The next step was to create closed universes with in-game cryptocurrency. Here are just a few:

  • Beyond the Void – RTS (real-time strategy) game with MOBA (multiplayer online battle arena) elements
  • Lordmancer 2 – MMORPG
  • Skara – game development studio with its own digital universe

These games are digital universes with in-game currencies for trading digital assets and buying content. This approach, however, is a little controversial. Implementing the blockchain into these types of games definitely offers some advantages, but until their currencies operate in a closed ecosystem, they will not achieve mass adoption. They either need to look for partnerships with other games, shifting assets back and forth, or search for additional use-cases outside the games for their coins.

Currently, we are right at the beginning of this trend, with a number of technical problems inherited from the blockchain ecosystem, such as scalability and speed. The set of games available is highly limited, and the blockchain is almost unusable for real-time games. As blockchain infrastructure evolves, it’s likely that we will see a growing interest in implementing blockchain into some gaming mechanics to increase trustworthiness, but we are not there yet…we need the ecosystems first. So, let’s try to consider the possibilities of using blockchain in the current gaming infrastructure.

Possibilities of blockchain in gaming

Regardless of the latest innovations in blockchain field, the gaming industry has been actively developing for decades. However, it is quite centralized, with the main resources concentrated in the hands of the top publishers. There is a lack of trust in this area, with a massive information overdose.

Here are the main problems faced by key market participants:

  • Gamers don’t have a collective infrastructure to play any game they want, either at the professional or the amateur level. Only the top games have solid ecosystems.
  • Brands spend enormous amounts of money on sponsorships and advertising but still have no close contact with prospective millennials.
  • Game developers spend a huge portion of their total income to find the right publisher.
  • Publishers are struggling to attract their target audiences, throwing at gamers tonnes of irrelevant advertising.
  • Gamers’ data is insecure, with a lack of privacy even for top players, which negatively influences their performance in tournaments.

With that in mind, let’s talk about the possibility of blockchain applications in solving these issues.

Payment methods

One of the obvious blockchain implementations in gaming is payment methods. The blockchain can be used for all kinds of in-game microtransactions, such as trading items, purchasing games, and managing subscriptions, all with next to zero fees. Some projects are attempting to issue specific in-game cryptocurrencies solely for payment purposes, such as GameCredits for example. Basically it’s just another wallet, optimized for gamers.

Play-to-earn gaming experience

Players spend enormous amounts of time playing their games with literally no return. All they receive for getting high scores on the leaderboard are a few stars, labels, and new frames around their avatars. And all this stuff is not even stable, as the game developers can shut down the server, change the rules, or just clear the history in the next patch.

In general, blockchain could provide ordinary players with the ability to monetize their gaming efforts. Some projects, like Game Machine and GLDFY, already give players the ability to “mine” crypto on powerful gamer PCs. They use free PC resources, while available, for mining, in exchange rewarding users with tokens and game items. PlayKey incorporates a revolutionary solution through cloud gaming. This project allows players with slow PCs to play the latest games using cloud resources. The service is based on a fixed monthly subscription. The project already has a working business with high server capacity, but now, implementing blockchain solutions allow gamers with powerful PCs to rent out their hardware during idle time in exchange for tokens.

Gamers could also earn tokens for completing quests. Developers can offer tokens to gamers for completing different tasks (like installing or earning in-game points). The setup encourages mutually beneficial cooperation, where gamers are rewarded and developers get to promote their games.

Some gaming ICOs, like Bountie, promise to pay tokens just for winning while others incentivise all in-game activities. But the purpose is always similar: to connect the gamers with the game developers.

Trusted rating & reputation

In addition to earning money in-game, players are looking to find friends to play with. All gaming universes struggle from a disbalance caused by a disparity between players’ skills. Accounts can be bought or hacked , meaning a high-level account could be controlled by a player without adequate skills. This problem could be solved by storing ratings on the blockchain, thereby creating a global player profile spread across all gaming universes. Players could trust this setup and find better gaming partners for professional teams or just for fun.

All the data could be encrypted and stored privately for different gaming tiers, which is very important for professional teams’ practice matches. Professional gamers are wary of the need for strategies remaining secret. As an example, Bountie provides sophisticated reputation mechanics, as described in its white paper.

Digital marketplaces and in-game virtual items trading

One of the main monetization mechanics in the current gaming ecosystem is done through selling virtual goods. The problem is, in most games these sales only happen in one direction. You can buy a magic sword in game, but you can rarely cash out, at least legally. The are many secondary markets where players can trade their virtual items and game accounts (however, this is always illegal and often persecuted by the publishers).

There are 400M online players who have already purchased in-game digital items for over $50 billion, according to WAX, the main project in this area. WAX originates from the developers of a business called OPSkins, which is based on trading virtual skins for major games. The phenomenon of these skins became widely known with Valve’s “Counterstrike: Global Offensive” game release. The project offers an abundance of possibilities to differentiate oneself by applying cosmetic improvements to one’s weapons. Some of these skins cost thousands of dollars.

Putting all of this on the blockchain guarantees a gamer true ownership of their virtual assets, allowing them to trade items between games and gaming universes. This allows users to easily switch between games without losing their virtual treasures. It also enables the creation of parallel gaming universes, offering endless possibilities to create games interlinked with each other.

In some sense, such technology makes digital items as valuable as real ones by erasing the boundary between real and virtual worlds. In addition to trading virtual items, the blockchain also offers the possibility to truly own and trade virtual land in game universes. This feature may not be a reality yet, but in the near future, it may become possible. It sounds strange, but virtual reality may become more interesting and saturated than the real world. In the absence of meaning in reality, caused by automation, people may migrate to digital worlds in search of a more diverse experience.

With blockchain users can create their own content within gaming universes and sell it on secondary markets. Currently, most fun add-ons are made for free by dedicated game fans. Now these assets can be pegged to their creators, generating additional cash flow.

In addition to all this, blockchain can add such properties as proof of asset scarcity, which authenticates the existence of unique items and prevents them from being duplicated. This enables digital items to gain and increase in value through its distinctness.

In addition to WAX mentioned above, which was a pioneer in the area of item-trading back in 2015, there are also other successful projects like Dmarket and Enjincoin, which both raised around $20M through their ICOs a few months ago. Enjincoin became well known for its massive airdrop among Binance (BNB) token holders.

Around 10 other projects are trying to enter the field of virtual item-trading with similar approaches.

Transparency in e-sports and сompetitive gaming

E-sports, or even broader, the entire competitive gaming market, requires transparency for due fairness and to prevent cheating. It could be compared to the prosecution of doping, which enhances one’s physical abilities in traditional sports, but in this case, the key parameters are programmable and hidden from the spectators eye. Game logic and success criteria could be placed on the blockchain to ensure that the competitions are fair and infallible.

Tournaments could be held on the blockchain using smart contracts for automated prize pools and wage payouts. There have been several huge scandals in the e-sports industry involving teams or other subcontractors not being paid after tournaments. Eloplay solves precisely this problem by putting the payments for all tournaments in smart contracts.

Game history can also be manipulated over a long period of time. Accounts could be hacked, stolen, or duplicated. In the digital age, it doesn’t matter who is sitting in front of the monitor; only the digital ID matters. Therefore, there is definitely a requirement for blockchain in trusted e-sports platforms to allow players to find teams and other players, practice games, and hold tournaments among other features. In addition, such platforms could monetize players’ esports activities using various reward mechanics. There are already several platforms suggesting complex blockchain solutions for the e-sports market.

  • ZoneX plans to provide complex e-sport infrastructure with a focus on tournaments.
  • DreamTeam directly focuses on gamer recruitment and team management.
  • Esports.com is creating its own token on top of existing infrastructure, using it as a payment and reward tool. However, this project has been accused of dodgy behavior.
  • GGRocket offers an alternative solution for casual players. It wants to create a coaching service where everyone can practice with professional teams, which would help casual players radically improve their playing skills. The project uses cryptocurrency for a mutually beneficial relationship.
  • Сhiliz is, in its own words, a “tokenized voice platform,” empowering fans to crowd-manage sports & e-sports organizations. It implements governance procedures on the blockchain for e-sports.
  • TwogNation is another good example. They are building an aggregator for the whole competitive gaming market through the tokenization of player’s data on the blockchain. With a sophisticated token economy, the platform is attempting to incentivize direct interaction between all the market participants and the gamers in an easy, mutually beneficial manner.

As e-sports transform gaming into a spectator sport with a huge audience, traditional betting services are becoming more and more relevant in this field. Of course, the betting mechanisms are plagued with a lack of trust and efficiency, with hidden reward-payment processes. Thus, it’s not surprising that several blockchain projects have come up with more trustworthy solutions. FirstBlood and Skrilla cut out the middleman, for example, allowing for transparent betting.

Digital rights management (DRM) on the blockchain

As usual, all that is designed for good eventually ends up being exploited. The same thing happened with DRM. The evolution of DRM began with the Famicom disk system created by Nintendo back in 1985. Then we saw CD keys, then programmable anti-cracking measures, and then always-online DRM restrictions and the hate-waves around them. But it has always just been another puzzle for pirates and a real pain in the ass for honest players. All games and consoles, sooner or later, get hacked.Game rights can be placed on the blockchain to ensure a particular player’s ownership of a game. This is not only a much more trustworthy and transparent DRM approach, but it also seems to be more effective against piracy. Blockchain startup Triforce provides, in addition to other blockchain features for gamers, anti-piracy solutions for game developers.

Other projects in the area

There are a bunch of other gaming platforms on the blockchain that combine all the trends mentioned above into a single platform. They effectively try to connect the main market participants by cutting out the intermediaries.

Flux is a compilation of almost every blockchain proposition for the gaming industry discussed above, so it could be considered a good combined solution.

Bestmeta enables, in addition to common gaming-platform functionality, the issuance of personalized tokens for any gaming star. Other users could buy these tokens to financially support their favorite e-sports teams or those expected to perform well.

Refereum is another interesting example. Concentrating on streamers, it provides them with extended referral programs based on smart contracts. Another project also connecting gamers and developers with the help of multilayer referral programs is Abyss.

The well-known Crytek, along with other game developers, are trying to jump on the crypto bandwagon by issuing its own Crycash cryptocurrency, with similar features and economic incentives for token holders like other gaming platforms.

Some projects work specifically in the mobile market. Alax is a blockchain mobile-game platform for emerging markets, content creators, and gamers alike. Some projects even concentrate on a particular region with their blockchain proposals.

GameProtocol is a kind of crypto crowdfunding platform for small game developers. It directly connects early adopters of indie games with the developers, cutting out the platform’s middleman.

Chimaera is a gaming studio and platform for creating games on the blockchain. Basically, this project is trying to rebuild the HunterCoin concept described at the beginning of this article. Chimaera focuses only on games in which the blockchain is applicable, like turn-based games, endeavoring to create decentralized autonomous universes in various settings. This project is quite unique, with a range of interesting ideas, and is definitely worth checking out.

Conclusion

So, is it possible to have a decentralized and open-source game on the blockchain? And do we really need one, other than to simply prove that it’s possible? CrypoKitties and other games like it could help us answer these questions. Maybe we just need to concentrate on existing gaming infrastructure and provide transparency and trust.

The gaming market is booming, opening up new possibilities for innovations. Such fast pace development however, can’t come without corresponding drawbacks. The whole market is fragmented and highly monopolized by a small number of big publishers. They provide the infrastructure but also dictate the direction in which industry heads.

There is definitely huge potential for decentralization on the market. Our study has shown that there are more than 50 blockchain projects already on the market trying to solve some of the issues in the gaming industry. There are also some scams, of course, as in any field, but the overall quality of these projects is considerably high.

The existing big players will resist such changes as long as blockchain does not have a critical mass of followers to bridge the wall. We however, consider the gaming industry very dynamic and ready for such changes. Most game enthusiasts hail from the Y and Z generations, which are considered the most flexible and progressive. This will draw additional resources to the industry from non-endemic brands targeting this audience. The field is heating up and becoming increasingly complex, and it is going to require additional clarity among participants through decentralized solutions.

It appears gaming might just become one of the first industries to achieve mass blockchain adoption. We can see, at least, all the necessary prerequisites are there.

 

 

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