The online gaming industry is a huge market worth billions of dollars with its own perks and pitfalls. In 2020 alone, the revenue produced by this segment made up 18 billion USD with the overall number of participants totaling 932 mln of users. The pandemic has added its two cents by making people spend more time at home than usual and pushing these numbers even higher.
At the same time, this market is ruled by just a small handful of big companies such as Bethesda and Blizzard.
A high level of centralization in this niche leads to numerous problems while switching to the blockchain rails has the potential to resolve them all with a single blow!
With non-fungible tokens being on the rise, we’ve decided to research the application of this IT phenomenon in the gaming industry, what negative aspects of centralized solutions they can eliminate, and what new problems they bear.
Gaming industry switches to the blockchain rails
Games that rely on blockchain technologies can do that in different variations. Some of them only implement Bitcoin as an alternative means of payment to cover a broader range of users, some allow registering the ownership of gaming assets on the blockchain, some create a whole blockchain-based infrastructure and step aside to give users the possibility to govern most of the processes.
With that in mind, blockchain games can be divided into 3 major groups:
Minimal: asset ownership
The game itself may be fully centralized with all its infrastructure built upon a single server. However, the assets that players gain during the process can be registered on Ethereum or any other decentralized platform in a form of NFTs which would give users more control over their in-game possessions.
Medium: asset ownership + decentralized economy
The next level of blockchain penetration has its effect not only on the assets but on the whole gaming economy. Players can pick up the assets randomly generated by the game, generate their own sets of items, sell them on the built-in marketplace, make profits for that, and do any other applicable activities. At the same time, the game itself is still running on a central server.
Maximal: fully decentralized governance
Finally, games provide their users with full control by registering all their activities on the blockchain with the help of smart contracts in a transparent and immutable way which totally eliminates all the chances of cheating. Game developers, at the same time, partially lose control over their creation.
While these new elements may be quite interesting for tech-savvy users, it is still unclear what benefits they can give to the mass audience that is not so much aware of blockchain and cryptocurrencies.
Nonetheless, the benefits exist.
Let’s take a look at what is wrong with the traditional centralized approach in this industry and what blockchain has to offer in order to get rid of these inefficiencies.
The problems of centralized gaming
This industry, just like most of the others, is ruled primarily by a few centralized giants.
The largest companies that control most of the market shares include Blizzard, Nintendo, and Electronic Arts.
The capitalization of these 3 companies alone has made up almost $173 billion in March 2021, having grown by 20% since the last year.
This means that despite the introduction of blockchain technologies gaming is still very far from getting decentralized. Moreover, the level of its centralization only tends to grow in time as the key players of this market would never stand aside to share their profits with smaller blockchain-based startups. As a result, gamers have to deal with some very serious inefficiencies, such as:
Centralized systems represent honeypots to hackers of all sorts. While financial systems serve as the most obvious target (take the disastrous Equifax data breach that took place in 2017, for example), gaming servers can also fall victim to hackers’ attacks. Aside from gaming objects, these servers store a big amount of various data that has a high value on the black market such as players’ payment card details.
If you think that hackers’ attacks are the only threat that centralized gaming platforms have to stand against, you are sadly mistaken. Thus, the servers of Rust, one of the most popular PVP games played on Steam, were destroyed in a fire accident in March 2021. The team has responded proactively to the incident and has restored the data from backup in just a few hours. However, not all data could be saved and many players lost days of their progress in a real-time game with no chance of recovery.
Central server outage
Another negative aspect players face when centralized servers of their favorite games go down. Games don’t work, participants feel a big specter of negative emotions from frustration to anger, developers hurriedly make the fixes and roll out the patches.
No way to transfer objects between different games
Typically, each centralized game operates in its own universe, which means that all the objects a player gains in the process can only be used within the same game only.
While big and popular games provide users with built-in marketplaces for exchanging items, their smaller competitors don’t even consider such an option due to the low demand. Thus, users have no option to monetize rare objects that could be worth a good sum of money.
This issue is closely related to the previous one. The objects obtained on centralized platforms as well as the characters do not fully belong to the gamers.
Yes, you may have gained a rare sword during a quest thanks to your skills and luck, but as long as it is stored on a centralized platform, it is not your personal property. Even if the platform provides a marketplace, you would have to follow its conditions if you decide to sell an item.
How NFTs and Blockchains resolve these problems
Storing data in a distributed manner on a decentralized system gives a promise to eliminate the problems mentioned above. Indeed, tokenized gaming objects bear all the features of blockchain-based assets and therefore provide their users with all the related benefits such as:
Improved security: Decentralized systems by nature are more secure than their centralized alternatives. In order to make any changes in the records kept on a public ledger, one would have to gain control over the majority of nodes which is near to impossible, at least for large networks such as Ethereum or Tron.
100% uptime: Smart contracts executed on blockchain run as programmed with no downtime or risks of an outage.
True ownership: Tokenized gaming objects, as well as any other cryptocurrencies truly belong to users as long as they are kept on personal wallets.
Liquidity: As of now, this applies to the gaming objects registered as NFTs within a single blockchain. If you have an item registered on Ethereum, you can easily send it to any other user who has an ETH-compatible wallet. Cross-chain solutions are being developed as well, so gamers may hope to get a universal tool for buying and selling their items in the future.
New financial opportunities: Gamers get a chance to use their NFT-based objects in blockchain-based financial tools. How about getting some DAI by pledging your gaming object as collateral? Or buying some NFTs with their price growth expectations? By the way, you don’t have to be a gamer for that as these tools can be used by anyone else and can become a good option for diversifying investment portfolios along with cryptocurrencies.
Play to earn: NFTs make it possible to make a real income while playing online games (more on this topic further).
The advantages provided by the new technologies are indeed indisputable. The recent introduction of Uniswap that has enabled users to exchange any ETH-based tokens directly has pushed the network usage upwards. A few big headlines about songs and pieces of art being sold for enormous sums in the form of NFTs have fueled the overall engagement further.
Google Trends shows an immense spike of interest in NFTs in February-March 2021 (that’s exactly when those thrilling headlines came out). The hype seems to have already died down since then, but it has not fully disappeared. It’s obvious that the technology has captured the attention of many projects and will be developed further.
Play-to-earn business model
This new model briefly mentioned in the previous section deserves to be explained in detail as it has the potential to become a real game-changer in the gaming industry, let the readers forgive this tautology.
In the past, the most common way to get a really cool game was to buy a license in a real or digital store. Once installed on a PC or on a console, such a game provided its owner with full access to its inside world but with the lack of upsells, it could hardly bring any more profits to the issuing company.
With the internet becoming more accessible and games distributed on CDs turning into relics, the industry has switched to the freemium approach. While the game itself can be accessed for free from a PC or a mobile device, it comes with built-in assets, characters, features, locations, and other items that can only be bought for a fee. So far, this model has proved to be the most successful generating billions of revenue.
The new play-to-earn model is very much similar to the previous one, however, it comes with some major attributes that make it stand apart and potentially become even more popular in the future. With this approach, players get real ownership of the in-game assets that they can sell to other players and get their reward. The higher your activity, the more assets you can win and thus make higher profits.
Combining this model with blockchain and giving users a possibility to earn crypto seems to be a logical next step in the gaming evolution.
Blockchain Cuties is a good example of such a game. It is in fact a replica of another more popular game, Crypto Kitties, and it comes with a similar set of features letting users buy, sell and breed their ‘cuties’. However, unlike its predecessor, this game has expanded its coverage by adding Tron, EOS, Matic, and some other blockchains with better scalability compared to Ethereum.
BlockchainCuties: players can operate with cuties based on the platforms with lower fees and higher transaction speed
Old-school gaming services move to blockchain
Despite all the benefits that the new technology provides, the market share of companies that focus on blockchain-based games only is still pretty small. The good piece of news is that small and medium-sized startups are not the only ones pushing the industry forward. Some of the old-school names have started to look in this direction as well by the partial implementation of blockchain-based functionality or developing brand-new games from scratch.
Sony and its PlayStation with years of experience in this industry and many successful projects behind its shoulders have developed a new game The Six Dragons powered by Ethereum and Enjin. In addition, the team relies on Chainlink’s oracles to make the process fully automated and independent of any centralized entity.
Atari, another giant of the industry focusing on home console video games, has recently announced the creation of two divisions, Atari Gaming and Atari Blockchain, with special attention to NFTs.
Counter-Strike also hasn’t stayed away from the cryptocurrency craze. The software company Zebedee has launched a separate server with an unofficial extension where players can earn BTC in their favorite classic game. Moreover, to overcome Bitcoin’s issues with high transaction fees and long confirmation time, the servers come with the support of the Lightning Network from the very beginning. Zebedee hasn’t stopped at that and has also released a whole set of toolkits for developers who want to implement crypto payments.
While small players are aplenty (DappRadar lists already close to 800 blockchain-based games at the time of writing), the impact they have on the industry is negligible compared to big players. If the technology will ever get a chance for mass adoption, it will happen thanks to these guys.
Not a silver bullet
Despite all the great benefits discussed above, blockchain still comes with a big number of inefficiencies of its own. We’ve discussed in detail the problems of real ownership regarding NFTs in one of our previous articles. In a nutshell, the list of concerns includes the following aspects:
Centralized URLs: The links to gaming assets as well as to applications, marketplaces, and all other elements of decentralized gaming still have to be registered on centralized services. If the owners of these websites go out of business, you will lose your gaming objects.
Centralized storage: Ethereum as well as all other blockchains have very low storage capacity and are not a fit for storing big files. Therefore, gaming assets have to be stored on centralized platforms anyway with all their consequences.
NFTs are a great step towards a more decentralized and secure web, but it is surely not a silver bullet as other aspects have to be covered before gamers would be able to enjoy their favorite games without all the centralization issues.
The future of NFTs in the gaming industry
The technology itself is really great and has the potential to resolve some of the problems that exist in the gaming industry, but also in other industries. However, it is no magic pill as blockchain in general and NFTs in particular still have a lot of technical issues and painful questions to be answered.
There’s no doubt, though, that the process will move forward. Now that NFTs have attracted the attention of big players, there is a bigger chance that new technologies will become available to the mass market players in the nearest few years.