Free-to-play Isn’t Free Enough (or How I Learned to Stop Worrying and Love Blockchain) Pt.2

This is the second of three posts on our motivations for starting Forte, a new company formed to accelerate adoption of blockchain technology in the games industry. These posts are oriented toward my blockchain curious friends in the games industry, and try not to assume too much blockchain / crypto native knowledge or jargon (except where necessary).

Part 1 | Part 2 | Part 3

Most of us transact multiple times per day in ways we barely think about, but with broad agency. We wake up in shelter we own or rent, pay to heat, and pay to equip with electricity. Without thinking, we make choices about how much heat we want, or what we use electricity for. We wear clothes we bought from a world full of merchants with global supply chains. We consume food and drink we buy & store ourselves, or on-the-go from local merchants, again, often with global supply chains. Most of the complexity that underlies this behavior is hidden in plain sight, but we use mental models to manage the complexity based on what’s at stake (morning coffee vs. saving for college or retirement). Part of the reason we relieve ourselves of agonizing over small decisions is that we have a market of options that drives competition and price discovery, giving us confidence that we’re paying at least relatively fair prices. Currencies facilitate this with minimized friction as both a trusted medium of exchange (of value) and a store of value.

Game currencies, items, and property don’t work like this. They exist and are nurtured at the pleasure of the publisher who serves as sole supplier, market maker, and central bank of this value. I say “value” because players absolutely do value their in-game property. They spend the same money that pays for their shelter to acquire in-game items and abilities and the same time that creates their livelihood in pursuit of progress in the games they play. The best publishers (again, kudos to Blizzard, CCP, Supercell and many others) make their best effort to respect this investment of time and value, and manage their trusted position of sole supplier, sole market maker, and sole digital merchant for this property. Still, the price discovery or value exchanged is set by just one party, and flows with liquidity only one way.

Blizzard’s World of Warcraft tokens are exchangeable for in-game gold at partially floating rates

Some publishers also design their digital goods and services to be tradable or salable between players, and take on the incredibly challenging task of operating peer-to-peer marketplaces. Operating these marketplaces is tremendously difficult — technically, operationally, and in a fashion that’s compliant with regulations in the various domestic and international jurisdictions their players are in. In the United States and most other countries, we have licensing procedures for businesses taking on these functions to ensure compliance with sanctions, money laundering, gambling restrictions and other laws. The expense and time required to pursue these licenses and maintain compliant operations comes at an impossible cost for most game developers. Many of these laws were created to protect the integrity of national currencies and to protect consumers from fraud. This is a difficult task and the financial industry broadly is compensated to ensure trustworthy record keeping of property ownership, protect consumers from counterparty risk, and protect the integrity of currency.

“Trusted third parties are security holes” — Nick Szabo

As value (denominated in currency) is transacted at greater and greater volumes, across national borders, and secured by personal information (name, SSN, DOB, mother’s maiden name, security questions, passwords, PIN codes), despite being compromised many times over, managing counterparty risk has become more lucrative than ever for the financial services industry. It’s also more fraught than ever and difficult for consumers to trust. We’re all collectively the first generation living in a world with this challenge.

Blockchain technologies offer a class of solutions that have the potential to perform secure-by-default record keeping of property ownership in software using branches of mathematics (e.g. RSA cryptography in 1977) that are relatively new. The Bitcoin whitepaper, now more than 10 years old, has produced a decentralized software network that reliably and resiliently keeps value records for millions of accounts without anyone in particular (or trustworthy) at the wheel. Doing anything more interesting than adding or subtracting from this distributed ledger (database) is difficult. For example, asking this network to perform a calculation wherein the result informs transaction properties or subsequent transactions (which is often done with transacting value in other contexts) is not something it was designed to do. It’s a purpose-built distributed system that biases toward security first and foremost — that’s why we’re not using it to buy coffee and likely never will… at least not directly.

This began to change when the Ethereum blockchain became a public project. In contrast with Bitcoin, Ethereum provides a network with Turing-complete functionality via the Ethereum Virtual Machine (EVM) and began playing host to a number of very interesting experimental “distributed” applications (or dAPPs). Unfortunately, riding the wave of hype that blockchains in general and Ethereum in particular created over the past few years, many blockchain projects and dAPPs made grand promises and failed to do the hard work required to create actual, enduring value for end users. ICOs became a huge thing and drew the attention of as many opportunists as technologists. People invested in things they didn’t understand and, predictably, real people were hurt financially while some made a quick buck and disappeared.

This bit of history is unfortunate, but not uncommon or difficult to understand. The internet’s growth from niche to mainstream scale in the late 1990s produced similar stories. In addition, the internet was initially very hard to use. Browsers had to get better (thank you Netscape). The protocols needed to improve and adapt. Security was fraught and people were afraid to buy things. Real capital investment in fiber, routers, and cell networks were needed to provide broad access and reliable throughput. Despite all these huge early gaps in capability, usability, and performance — and despite the early days of overhyping, overpromising and even outright scamming — real, enduring, world-changing value was created atop the internet’s foundational protocols. Eventually, there were incredible improvements to infrastructure and ultimately many new and incredibly useful and valuable applications were built… some of which were networked games :)

It’s hard to tell, but today it feels like we’re at roughly the mid-1990s level of maturity for blockchain networks like Ethereum, that are capable of performing computation and transacting value in a trust-minimal fashion. Because the work ahead of us in blockchain networks lies almost entirely in software improvements (rather than the extraordinary cost and expense of laying fiber and building physical networks in the 1990s), we’re probably short years rather than decades from global applications adopting this network infrastructure, making it easier for developers and end users to work with.

What does blockchain technology have to offer game developers (a notoriously scrutinizing and savvy audience)? Blockchain technology offers us the ability to run game economies in a far more flexible fashion: players can transact directly with each other, apply their own value judgments to find price discovery, and be rewarded for things done for other players, or the publisher. Blockchain accomplishes all this without onboarding the tremendous difficulty and expense of operating as a trusted intermediary to ensure players aren’t defrauding other players (counterparty risk), and in a legally compliant fashion. Value can flow many ways rather than only player to publisher, and a marketplace of options can help players build the confidence needed to have many of these transactions feel less cognitively burdensome, fading into the background of the game world’s experience (just as we all do in the real world). Admittedly, this is a baby step I’m proposing, but it’s a profoundly impactful one if you believe that more player agency can make for better games (all else being equal).

In our next post, we’ll go deeper into the example of “gold farming” and secondary markets, illustrating the demand for greater player agency in modern game economies and what that portends for future design possibilities with blockchain.

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