Why blockchain gaming needs a transformation now
…and 3 ways it can appeal to the mass market
The global gaming industry is worth ~$336bn, as per BITKRAFT estimates, which is more than the combined markets for movies and music. 2021 was the year for blockchain gaming.
- 📈 Blockchain gaming usage increased by 2,000% from Q1 2021 relative to ~10% growth of the gaming sector as a whole
- 🔥 1.22m UAW (unique active wallets) in March
- 🌎 50% of all wallets were connected to games relative to only 45% of wallets connected to DeFi protocols
There is no doubt that gaming has become an instrumental driver of blockchain adoption and usage.
However, those who engage with blockchain gaming fall into two categories: crypto natives who want to experiment and those chasing monetary gain. Blockchain gaming is only a multi-billion dollar opportunity if it can successfully on-ramp traditional web2 gamers who are not crypto native nor wholly incentivised by money. But the truth is, it’s not fun nor straightforward enough to meaningfully capture share from traditional gaming. If it remains this way, the potential for blockchain gaming has been reached. It needs a transformation.
And it needs it now. The bearish macroeconomic environment has provided the gaming sector with the perfect opportunity to outcompete the broader entertainment sector. Gaming is a relatively recession-proof sector, as they provide a high return on investment given the longevity of its entertainment value, offering the perfect substitute for more expensive entertainment activities as consumer spending declines. For example, US video game sales grew by 18.5% to $21.3bn in 2008.
Why should we even care about blockchain gaming? (Feel free to scroll down if already familiar)
Let me preface this by stating that many games have clearly just added clickbait phrases to their branding, such as “NFT gaming” and “P2E”, to draw attention. This occurs with all new technologies, and blockchain gaming is no exception. These are likely the same culprits guilty of centering the blockchain element as the core value proposition of their game which is also a rookie mistake. Nonetheless, the value of having a game on the blockchain lies in the ability to enable true ownership of in-game assets, support interoperability between digital assets, and facilitate earnings in gaming. Ultimately, it aligns the incentives of developers and players, who both benefit when the game becomes more popular. As the gaming industry continues to pivot toward in-game assets being a significant revenue source and critical feature of gameplay, blockchain’s capabilities could become incredibly valuable.
💪 Ownership. It enables true ownership of any in-game asset. Previously, any player with any asset merely held a licence to it for use within that game and solely within the parameters the game developers saw fit. Blockchain provides players with verifiable ownership through NFTs, enabling them to trade or own it under a secure, trustless and decentralised structure. Gamers also highly value nostalgia and history: being able to own the same skin that once belonged to their favourite streamer could be very valuable to them. Current in-game economies find that fiat transactions occur outside the game, leaving developers unpaid. Blockchain can allow developers to meaningfully capture portions of these transactions in a safe, instant and reliable manner.
💫 Interoperability. Currently, in-game digital assets have no use case outside the game they were created for. While we are far from seamless interoperability, blockchain could theoretically enable the interaction of assets between applications underpinned by the verifiable ownership it endows players. Assuming other games are compatible with these NFTs, it would dramatically boost the utility of these in-game assets, even beyond the actual gaming itself. Transfer of digital assets would translate to transfer of digital personality, style and identity, empowering gamers to express their individuality in a new culture within gaming, and the digital world overall. This is one of the many reasons games have the potential to become powerful social networks. Interoperability is a more challenging case for developers as it would involve opening up their IP, but the slew of new users it brings on, in addition to asset liquidity, would benefit the entire industry.
💰 Democratises earning in gaming. Theoretically, who wouldn’t want to earn money doing something they enjoy? Previously, earning in gaming was an exclusive club open only to professional esports players, popular streamers and game developers. Blockchain gaming provides players with a gradual monetisation stream the more they play. It is worth noting the unsustainability of the vast majority of P2E models, which I will touch on. Gaming DAOs go one step extra by offering players with limited finances the necessary assets to join the game. This also speaks to embarrassingly high barriers to entry that currently exist.
“We see gaming being one of the biggest opportunities in web3 to have ever existed”
- Robbie Ferguson, President and Co-Founder of Immutable
I must stress how important the blockchain aspect of the game remains secondary to the overall experience. While blockchain can clearly augment the experience of numerous existing games, it is not suitable for all games. For example, those which do not rely on in-game assets, such as instant games, are unlikely to benefit. It also causes potential issues, for example, the anonymity it provides makes it hard to track and punish players who violate codes of conduct.
3 ways to on-ramp the mass audience into blockchain gaming
- Gameplay, gameplay, gameplay
To convert web2 gamers into web3 gamers, the industry needs to focus on the number one priority for video game players: we just want to have fun. As consumer spending declines, the gaming sector has demonstrated its resilience during economic uncertainty, with most gamers still playing games, albeit spending less on in-game assets. Roblox reported 9% growth in DAUs in the quarter ending 31 March 2022 vs 31 December 2021 while Activision Blizzard reported flat growth in MAUs in the same period. Furthermore, game dApps registered an all-time high activity level with over 1.23m UAW interacting with blockchain games on average during April, representing 1% month-on-month growth, despite the collapse of the crypto market.
The sad reality is that current activity still represents a massive decline since November 2021, when token valuations were at their peak. Weekly active users of top Ethereum games fell by 96% between November and May. As seen in the chart, which considers the token valuation of the largest 10 play-to-earn games by market capitalisation, blockchain games typically go through a boom-and-bust cycle. Virality and hype draw attention to the game for those who are opportunistically aiming to benefit from token appreciation. When it inevitably reaches a peak, user count drops, which further depresses token valuations. Obviously, the state of the overall crypto market plays a huge role, with most gaming tokens reaching a peak in November 2021, in line with BTC and ETH. However, the lack of fun gameplay means most users stop playing once the bust occurs, leaving the ecosystem with no stability whatsoever. This is symbolic of monetary incentives fuelling the majority of interest in blockchain gaming instead of any genuine desire to have fun.
2008 was a fantastic year for Nintendo consoles (DS and Wii), benefitting from the penetration of previously untapped consumer segments looking for cheaper entertainment sources. The broader gaming sector can benefit from this trend once again, with blockchain gaming taking a meaningful share of the pie if it can also provide this entertainment value. This is why I am much more excited by blockchain projects that incorporate intricacies into the game design which have been proven to be fun, for example, SolChicks taking inspiration from Diablo and Darkest Dungeon but with its own spin by focusing on cute chickens. The blockchain element of the game whereby users can earn needs to be secondary to the actual gameplay. Gaming veterans understand this, while crypto veterans do not. Having a solid team of traditional gaming veterans is essential.
“We believe that games should be fun. Rather than turning people’s favourite hobby into ‘work’, we focus on fun and compelling gameplay while still empowering players with ownership and utility”
- Justin Hulog, Chief Studio Officer at Immutable
As the gaming sector has rapidly consolidated in recent years, it has become clear it provides serious competition to other entertainment. From Netflix admitting Fortnite is a more threatening competitor than HBO and announcing several games tied to popular TV shows to Epic Games acquiring music store Bandcamp, the gaming industry is developing a growing bond with entertainment. Concurrently, gaming business models are evolving from retail sales models closer to SaaS (or GaaS) businesses. Gaming has a chance to capture a significant portion of digital consumption time and increase its valuation, resembling multiples closer to highly sought-after SaaS valuations. New players such as Rainmaker Games seek to capitalise on this opportunity.
In the medium term, I predict a flight to quality whereby the industry will converge to the same focus (and hopefully quality) of traditional games with the blockchain element attached. With VC cash drying up, there will likely be fewer overly ambitious projects with no value proposition nor traction creating noise. There exists a massive opportunity for traditional fan-favourite games to be placed onto the blockchain. Gamers are loyal to the characters and stories they love and would be more willing to experiment with blockchain gaming. Awesome companies supporting this transition are heavyweights Forte and newcomers Catheon Gaming, among several others.
2. Social gaming
Online multiplayer gaming dramatically increased the value proposition behind gaming. Networks such as Xbox Live and PSN transformed gaming into massive social networks. Spending time with your friends, family, and even strangers where you can compete and cooperate in a fun way is an experience every consumer segment values. This remains true even throughout recessions. For example, in 2008, online consumer spending on Xbox Live increased 84%, with the community rising to over 17m members.
Blockchain gaming is yet to nail this component of gaming. Not only are the games not even fun, but they also lack the protocols to efficiently connect users together to keep the social element of gaming alive. We need a solution which offers the opportunity to maintain a social network throughout blockchain games. Users should be able to see which of their friends are online, what game they’re playing, what in-game assets they have, what quests they’ve completed, and message each other. Games are robust social networks which are being underutilised in the blockchain space. One fantastic company which is creating infrastructure to combat this trend by allowing users to carry over their social network across dApps, including games, is CyberConnect, a social graph protocol.
3. User experience
Let me clarify. People just want to have easy fun. Blockchain gaming is guilty of an absurd number of pain points in the average customer journey, particularly for those new to web3. First, I have to download a new compatible wallet and then spend hundreds of dollars to purchase the necessary NFTs to be allowed to start? All this for a game that is not even enjoyable? Games such as Axie boast high retention purely from user desire to make money. This dynamic will not on-ramp the mass market. There is an urgent need to improve the simplicity and user experience of the customer. We need gaming wallet solutions which offer a complete overview of all tokens and in-game assets where we can filter by category (e.g. weapon, food etc.), game, value etc. We need gaming-focused neo-banking solutions which easily interact with wallets and fiat-to-crypto on-ramps.
This is an issue rampant all throughout web3. We need to keep all complicated and overly-technical processes on the backend with a clean, simple and easy-to-understand user interface. Product teams which have mastered this have driven the most engagement, such as Flint.
Blockchain gaming has strengthened the tie between gaming and economic wealth, creating a need for more infrastructure at the intersection of gaming and fintech. While blockchain may be trustless, people still need to trust the overall concept, particularly when their money is at stake. Several startups are building the necessary infrastructure to support this, such as Ugami and Mana.
Final thoughts
Blockchain gaming is far from perfect, and we all know it. Fortunately, we have some of the best minds in the gaming industry now focusing their efforts in the space. I believe that, in 5–10 years, the way we interact with blockchain games will look markedly different. It should be a simple, transparent customer journey leading to a fun experience, reinforced by high-quality gameplay which caters to all customer segments. This will give blockchain gaming the stepping stone to meaningfully engage with other areas of the overall gaming sector, such as esports and live streaming. With consumers holding on close to their wallets in the next 2–3 years, there is no better time to take advantage than now.
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