But What Does It Do? — EnjinCoin
The cryptocurrency space has become an increasingly crowded market with many tokens offering novel solutions to large problems. There are brilliant individuals looking to disrupt a plethora of markets, but many interested investors struggle to understand exactly what utility their tokens provide or the real potential impact on its market.
In my “But What Does It Do?” series, I aim to explain what market a coin is targeting, speak about the purpose behind a coin, and then provide direct use cases for how it may be implemented or what additional functionality it brings to its respective market.
Today’s entry will be about EnjinCoin: a project that seeks to disrupt gaming’s microtransaction system and provide persistent ownership, transferability, and utility to the gaming market.
Publishers and developers in the gaming industry were struggling to adapt to a market that was resistant to up-front price increases for games, and many users are simply unwilling to spend any up-front costs on games in the mobile industry, so they turned towards Mixed-Revenue models with microtransactions in order to monetize or create additional revenue streams for their games. Before defining how this model works and explaining its advantages and caveats, it is important to understand how this market evolved.
Many games formerly could be categorized into 1 of 3 revenue models, Buy-to-Play, Free-to-Play, or Subscription Based.
In the traditional Buy-to-Play model, consumers would purchase a game up-front and this transaction would be the only source of revenue for the company. Today, this category primarily consists of singleplayer, story-driven games, but it also includes titles such as Mojang’s Minecraft.
In the Free-to-Play model, consumers are given the core game and then have the option to purchase additional characters, cosmetics, lives, or various booster items (increased experience rate, higher damage, etc). This category includes many mobile titles along with many major eSports titles such as League of Legends, DOTA2, Smite, and Paladins.
In the Subscription Based model, consumers would either purchase a game up-front (as in the Buy-to-Play model) or be given free access to the base game, but in order to continuously play the game users would have to purchase some sort of subscription plan to retain access. This category was the first example of Games as a Service (GaaS) and provided an ongoing revenue stream for developers. This category is primarily composed of Massively Multiplayer Games (MMOs) that connect hundreds to thousands of users to a persistent, living environment that continues even while an individual isn’t playing. This category includes giants World of Warcraft, Black Desert Online, and Star Wars: The Old Republic.
Now enters the Mixed-Revenue model. This approach combines many aspects from the above models to expand GaaS across all 3 categories. Principally, it adheres towards providing real-money markets found in Free-to-Play games by offering additional items, cosmetics, or other utilities in game for real-money purchases. These transactions have been dubbed by the industry as “microtransactions” and allow games to create additional revenue streams that exist beyond a simple Buy-to-Play model. Examples of games transitioning towards or exhibiting Mixed-Revenue models include Valve’s Counter Strike: Global Offensive, Blizzard’s Overwatch, and Activision’s Call of Duty: WWII. These games have up-front costs for consumers, but they also permit users to make in-game purchases for cosmetic items and additional utilities that realize this additional revenue generation. This has tremendously helped in alleviating the rising costs for game development in a market resistant to pricing changes and has, as a whole, been massively successful for companies adopting GaaS.
While this model is decent for the industry side of gaming, it can be extremely bad for consumers. If a game goes offline, it’s the sole discretion of the publisher or developer to refund purchases, and there has been no legal precedent requiring this action. This money invested is now a sunk cost for the consumer, and they have no means recuperating any percentage of their investment. Many companies also issue their own currency in-game that prevents currency-movement between games, and it’s possible for funds to be essentially “stuck” in a certain ecosystem. Finally, what if a user decides that they’re simply tired of playing a game and wish to play something else? All of the money they spent towards a certain game is lost, and like in the example of a game going offline, they simply have to realize this loss.
What if I told you there was a model for microtransactions that alleviated all of the shortcomings for consumers while also providing even more revenue for publishers and developers? In comes…
EnjinCoin seeks to address this model by applying direct ownership of goods acquired through microtransactions through a blockchain (Ethereum-based ERC20) solution. To begin to understand how this approach is better than the current state of the market, we will quickly explore some of the functionality of EnjinCoin and then apply this knowledge to the anti-consumer scenarios in the section above.
Real ownership of digital goods is at the heart of EnjinCoin’s offerings, and this is realized through creating a standard payment system that is functional across games and publisher ecosystems. Items are minted using EnjinCoins and have a direct value tied to the cryptocurrency. This allows the item to be tied to a user in an ecosystem outside of the game an item exists in, and this evolution of item ownership allows players to trade items across games.
Look at the following visuals to understand how this model differs from traditional game-based ownership:
Through creating an ecosystem above individual games, EnjinCoin has provided massive value through its direct ownership of goods, but the coin also has another major advantage that benefits publisher, developers, and consumers alike.
Melting is another incredible feature of EnjinCoin as it allows users to “exit” a game altogether. This process allows the developer and user to “recover” some of the value of an item by destroying the item and converting its value to 50% of the original EnjinCoin price. The developer is able to choose what percentage of this recovered price goes to themselves and the user providing an assurance to players that their item will at least have some value in the unfortunate event that their game goes offline or the user simply loses interest.
Now that some of the technology behind EnjinCoin has been explained, let’s re-visit some of the scenarios in the last section and how they play out differently with EnjinCoin’s platform.
Scenario 1: A multiplayer game loses its playerbase or the developer announces they’re shutting down the servers.
As sad as it is, sometimes games just don’t quite draw the audience they hoped they would, and it becomes impossible for the company to keep the servers online. Previously in this case, users lost all of the money they had invested in microtransactions in this game. Not only is this a terrible feeling for the consumer, but both developer and publisher of this game as well as the industry at large may find decreased spending due to consumers’ previous bad experiences with losses like these.
But with EnjinCoin…
Now users are able to melt their items down and receive some amount of the cost they paid for them. They’re better off as they’re able to recover some of the cost they paid towards items, and the industry is better off as consumers fear of losing everything they paid for in other games has been alleviated. This especially helps small development teams targeting niche markets as users are more likely to spend money on microtransactions despite possible failures of any individual game.
Scenario 2: A user has purchased one company’s in-game currency but doesn’t have enough to purchase an item or wishes to spend their money elsewhere.
This is a very frequent and unfortunate reality for many gamers. They find that specific increments of in-game currency must be purchased, and now they’re stuck with some balance in the game that they either can’t spend without buying even more in-game currency (exacerbating the problem) and can’t transfer to another game to purchase something else. This money is locked into an ecosystem and is a loss to the consumer.
But with EnjinCoin…
Now users are able to sell their in-game currency for another game’s currency due to the value of EnjinCoin backing each minted currency or item. They will never have stuck funds within an ecosystem and are able to fluidly move across game titles and ensure that their purchases always have their maximum value.
Scenario 3: A user has decided to move on from the game they are playing
Many gamers will reach a point where they are satisfied with the game they’ve played and are ready to move on to another game. With our current model (see the chart above if you need a refresher), the user loses all of the value of their purchases due to the locked ecosystem of a game. This may dissuade future spending in other games due to the feeling of having permanently lost value on microtransactions.
But with EnjinCoin…
Now users are able to “exit” a game and either trade their assets for items in other games, directly for EnjinCoins, or melt the item and receive EnjinCoin if there are no markets for the items. The user receive at least some value for their investment, and they keep their confidence that spending money on microtransactions isn’t solely a sunk cost.
EnjinCoin provides some incredible answers to some of the biggest frustrations in the games industry. It has managed to find a balance between making microtransactions consumer-friendly (through real ownership) while also encouraging spending in games due to increased consumer confidence in the long-run value of their purchases. These scenarios are just a few of the cases gamers, publishers, and developers currently experience, and the number of additional applications of blockchain to the industry are much wider than the breadth of this article.
To keep up with the EnjinCoin project, check out their website here.
Disclaimer: Please do not take any of my articles as direct investing advice. The purpose of the “But What Does it Do?” series is to view applications of blockchain to industry and to uncover some of the value coins may have that potential investors don’t see at a first glance.