Jan 5, 2020
Tackling the Most Important Challenge in Games and Web 3.0— Interoperability
Author’s note: I wrote this article more than a year ago (December 2018). Some of the references or links may not be accurate anymore, but I believe the general message of the article still holds true.
Game developers today are forced to optimize for the attention economy. This inescapable reality has stifled innovation — building up artificial barriers that trap virtual economies behind closed platforms, incentivized ads and loot boxes.
Interoperability is the sledgehammer that will tear down these walls.
There was a time, not so long ago
when games didn’t have microtransactions.
Back then, the only way to earn something was by actually playing the game. Players completed quests, defeated enemies and opened treasure chests to receive their hard-earned Rupees, Gils and Zennies.
Games were designed to be primarily single-player— winning the game meant finishing the game’s story. Virtual currencies, in turn, also had a singular purpose: to purchase more powerful virtual items our hero needed to defeat the final boss.
Then the Internet happened.
The Internet freed games from their physical walls. We can now play with anyone, anywhere. As games became connected experiences, our virtual items now didn’t just exist in our own instanced spaces — they now have value to other players.
Game developers embraced this new paradigm, allowing players to trade items with each other and creating a free market with supply and demand.
Virtual items have evolved into virtual economies.
As it turns out though, virtual economies, like real-world ones, are prone to exploitation.
Game theory has this concept of rational choice — in an economy with enough agents, an agent will tend to do the selfish thing. Players will inevitably find the most cost-effective way to win in a game.
This human behavior led to the emergence of grey markets; unofficial third-party sites where players buy virtual items using real-world money, instead of spending time and attention earning them.
Game developers weren’t prepared for this disruption.
Games were still being designed around a fundamental principle: players should earn more powerful virtual items the more they play the game. Grey markets allowed players to skirt this rule — It was like throwing a wrench into a game’s finely balanced economic systems.
As this was happening, Web 2.0’s dominance of the attention economy was in full force. Google, Apple and Facebook, through the effective use of variable rewards, have successfully conditioned users to spend the maximum amount of time in their apps. Tristan Harris notes:
If you’re an app, how do you keep people hooked? Turn yourself into a slot machine.
Game development doesn’t happen in a vacuum, and slowly but surely games also started optimizing for the attention economy.
To get more and more players playing, games started becoming free-to-play. Like slot machines, in-app purchases coalesced around loot boxes — virtual items paid in real-world money with variable rewards. And, to monetize the millions of players who would didn’t want to spend a single cent, incentivized ads were plugged in to get money from advertisers willing to pay for a player’s attention.
Game developers started building walls around their virtual economies.
Items and currencies are now untradeable and account-bound. Games aren’t designed around a compelling narrative anymore, but around a meta-game that’s designed to keep players playing their game forever.
Instead of tackling the complex problem of open markets, a game developer’s rational choice was to follow the trends of the attention economy.
Lehdonvirta and Castranova’s book on Virtual Economies states it better:
In many cases, the primary purpose of a virtual economy is not even to earn revenues directly, but something more subtle yet equally powerful: to attract, hold, and manage attention
Web 3.0 and Interoperability
While game developers were building walls around virtual economies, blockchain pioneers were breaking them down.
The current Web 3.0 decentralization movement is a reaction to the problems plaguing Web 2.0. Entrepreneurs and technologists have come to realize that the current power structure of the Internet is untenable, and that remaking it via blockchains and open protocols is one way of putting power back into the hands of the user. With incumbents controlling the Web and nascent blockchain technology though, this is an uphill battle.
Last year a major shift happened with the rise of cryptocurrency — This new type of virtual currency allowed real-world value to start flowing into Web 3.0 startups, blurring the lines between virtual and real-world economies.
The adoption of ERC-20, a token standard, was another major crack in the walls separating virtual currency and fiat money.
With a common open standard comes interoperability. ERC-20 allowed users a way to exchange one cryptocurrency for another, increasing their value via network effects. The standard’s openness further allowed blockchain developers to more easily create tools and apps to utilize cryptocurrency.
Now, Web 3.0 companies and pioneering game developers are starting to apply the same technologies and principles on virtual items. This new class of virtual items, Cryptoitems, also have real-world value and are interoperable in different game economies.
Cryptocurrency and the ERC-20 standard weakened the foundations of the attention economy walls. A third strike from cryptoitems can be what finally makes them come crashing down.
Creating A Cryptoitem Future
Cryptoitems will affect game virtual economies the same way that ERC-20 has affected token economies, and both game and blockchain developers have to be ready. While there is great potential for game developers, the dark side of crypto can also rear its head once we apply it to virtual items.
This will be a difficult road — blockchain and Web 3.0 players are notoriously tribal (Tony Sheng’s piece on mass movements explains this tribalism perfectly), and building interoperability will need the consensus of a whole industry.
There are four common hurdles that companies and developers will all need to tackle to bring about technology and user adoption:
1. Create open protocols and game development tools
Similar to ERC-20, Cryptoitems will need an open protocol to enable interoperability. We have several competing standards now with ERC-721, ERC721X and ERC-1155, but we need an open protocol that will allow games to be played across each other.
Ideally this protocol is blockchain-agnostic, and maintained in an open-source manner by both blockchain and game developers. This is an enormous task, and having a consortium of companies similar to the Khronos Group might be a good model.
Additionally, game developers will need tools to build games around these items. They will need to be as easy to use as AWS and the Google platform to achieve mass adoption, and integrated with popular game engines such as Unity and Unreal.
2. Shift from thinking in funnels to creating sustainable game economies
Today’s games are built around funnels: the majority of players are expected to churn, and the goal is to monetize the ones that do stay. A game’s source of sustainability is a drip of revenue through ads and in-app purchases.
Cryptoitems will force us to rethink this model — Players now come into a brand new game with a whole set of virtual items. Economies from different games are now interoperable.
With these new variables, how do we ensure the game remains balanced and fun?
We can look at past games for reference, and one that’s a good fit is the collectible card game genre. The genre has historically been about acquiring the virtual items first (in this case, collectible cards), and meticulously balancing the game to be more about skill rather than how many virtual items you have.
Both game developers and players have recognized this, and some of the early cryptogame successes such as Zombie Battlegrounds and Gods Unchained are collectible card games.
With cryptoitems though, design doesn’t stop with the game genre.
With an interoperable game economy, there are more agents involved than players. Traders will play the market more than the game, and aim to earn profits from the movement of goods. Collectors are driven to complete sets and are motivated by scarcity.
The economy needs to be sustainable for them as well.
There may be other agent roles we can enable in the economy. For example, Creators are able to add content to a game, especially if they are incentivized to do so (The Steam Workshop is a good reference).
As game designers shift from funnels to economy design, we may discover a few more.
3. Build user-friendly interfaces
Crypto UI has massively improved since just 6 months ago, and the user experience issue is steadily being solved.
But for interoperability to be mass-market the UI has to be dead simple. I shouldn’t need to have to copy paste a long unintelligible string to move cryptoitems around. This core design of wallets need to evolve or cryptoitems may go the way of RSS readers.
Eventually browsers and phones will have their own wallet, and just like IP addresses gave way to URLs, public keys will give way to usernames.
We see the beginnings of this with browsers like Brave and Opera integrating crypto wallets, and the EOS blockchain making use of human-readable account names. We need to continue this momentum until the UI is as simple and secure as sending a text message.
4. Re-imagine game design and storytelling
Lastly and more importantly, we need to rethink the way we’ve been making games and forming narratives in them, taking this new reality of open economies into account.
Cryptogames have to be more than just collectible card games and speculative trading.
Interoperability detaches items from a game, and makes them move a step closer into the real world. These items aren’t owned by our virtual character, but by us ourselves. We are now the heroes in the narrative. What are the stories we can create with such a world?
Two years ago, hundreds of monster trainers gathered in Central Park to capture a rare Pokémon. This wasn’t a virtual Central Park with virtual characters, these were real people actually flinging Poké balls (though admittedly virtual ones, for now!) in NYC.
Virtual economies started bleeding into real ones — Since Pokéstops are real-life establishments, being tagged as one had a positive economic effect on a store or restaurant.
Now the developers of Pokemon Go are going to start allowing players to nominate Pokéstops, adding an interesting level of governance and putting power into the hands of the players.
Pokémon Go showed us a glimpse of what’s possible once the walls between the real and the virtual are broken down. Once we bring in open economies, what new emergent gameplay and economic systems will we be able to discover?
Imagine 15–20 years from now — all virtual items are interoperable cryptoitems, games are jointly governed by players and developers, and virtual worlds weave not only in and out of each other but also unto the real world.
This can only come once we solve the interoperability problem, and it will be up to both game and Web 3.0 developers to bring about this promising new future.
