The Paradox of Gaming Network Effects

Suzanne Leigh
NEAR Protocol
Published in
10 min readMay 6, 2022

--

Before blockchain, service providers managed the mutable assets in video games, leaving no room for user control. As a result, in-game asset trading was rare, and those games that did facilitate trading did not really offer a solution for users to own their newly acquired treasures.

The 80s gaming scene was dominated by MUDs, a.k.a, multi-user dungeon games. Adventure game enthusiasts slobbered over the multiplayer real-time RPGs — the rich lore, fantasy creatures, and compelling mechanics. Mix that with a bit of RNG gameplay and P2P scenarios, and it would paint a very familiar picture of the Metaverse as we know it today — but for the lack of one incredibly attractive feature — Blockchain in-game economies.

The Game Chain

Since Bitcoin’s whitepaper in 2008, colossal innovation has burgeoned on top of blockchain technology — the introduction of Ethereum, smart contracts, DeFi, DAOs, NFTs, the Metaverse…

We’ve since witnessed the emergence of blockchain gaming — the advent of CryptoKitties, EtherBots, Hashcraft — the growth of Axie Infinity, and the birth of gaming guilds such as YGG or Merit Circle — and GameFi — the crossroads of community gaming and decentralized finance.

The relationship between game and chain allows assets to float freely on the distributed ledger, facilitating effortless transfer between participants. Additionally, asset tokenization has created solid ground for a balanced market economy to germinate, bolstering the intrinsic value of assets within gaming ecosystems.

The blockchain cultivates organic neoclassical game economies, providing security and real-asset value to the game, while the game itself adds to the blockchain’s utility and adoption.

The Blockchain Gaming Market

Despite a market downturn, global events, and security issues (such as the Ronin Bridge hack), Q1 2022 still reflects a 2000% explosion in blockchain gaming, attracting 1.22M Unique Active Wallets (UAW) in March 2022 alone — 52% of the industry’s activity for the month. DappRadar estimates that $2.5B was invested into chain games and their related infrastructure in Q1 2022, putting 2022 on track to reach $10B in annual investments.

DapRaddar estimates $10B annual investment in Blockchain Games and their infrastructure

Blockchain gaming is having a moment. The synergy is palpable. Blockchains and games — a perfect symbiosis!

Yet, even in the face of its current promises of disruption, blockchain gaming infrastructure is merely at the beginning of a longer trajectory. As a result, blockchain gaming has some challenges to address before it can live up to the paradigm shift it is expected to bring to the global gaming markets.

Following, we’ll look at the bottlenecks throttling blockchain gaming’s scalability, threatening the sweet spot of adoption — network effects.

Game Value Depends on Users

The intrinsic value of a gaming project is directly related to the number of its users — As the number of a platform’s users increases, its application value increases. In this respect, Web3 games have an advantage over Web2 games when it comes to bootstrapping network effects.

For Web2 platforms, it’s challenging to bootstrap from a cold start because both the number of users and the application value of the platform to those users are low. With the tokenization of assets introduced by Web3 games, as long as investors and gamers recognize the future value in a protocol and its token, participants are initially drawn to the platform because they can earn tokens by using it. In turn, the application value of the platform increases.

When Scaling Works Against Blockchain Games

However, user growth, precisely what a new platform needs to succeed, can work against games built on Layer 1 chains like Ethereum or Binance — The more users there are, the less value to a single user due to overcrowding. We call this an anti-network effect.

What is an anti-network effect?

Octopus Network defines an anti-network effect as a mechanism whereby an increase in users leads to a decrease in utility. In short, anti-network effects are caused by network congestion.

Compared to the hundreds of millions of mainstream gamer traffic fast approaching the blockchain gaming industry, Ethereum can only handle 15–30 transactions per second in its current iteration.

With the rapid development on Ethereum, the proliferation of on-chain transactions causes overload. High gas fees and disrupted transactions are the most agreed-upon annoyances for users. On-chain transactions can become slow and expensive.

While the DeFi wave of 2020 and the NFT frenzy of 2021 gave insight into the congestion problems on Ethereum, a recent Tweet by Yuga Labs says it all.

Yuga Labs Tweet

After a highly anticipated metaverse land sale by the folks behind BAYC, the platform apologized to the Ethereum community for congesting the Ethereum network. Some users paid up to 5 ETH in gas for a single transaction.

Network congestion is particularly fatal to blockchain games due to their increased microtransactions and greater interaction density. Furthermore, once the public chain is congested, gamers are likely to be hurt first compared to DeFi users, as Play-to-Earners are more likely to be price sensitive.

For the blockchain gaming industry to live up to its potential, it first needs to remedy the ever-persistent problem of network congestion. Yet, even with Ethereum’s PoS fast approaching, scalability still seems like a long journey.

We don’t want to kill Ethereum. We just want to be able to use it!

The congestion conundrum has led to the development of other EVM compatible L1s, erroneously termed “Ethereum Killers.” The irony of this label lies in the fact that it is only because of the value demonstrated by Ethereum that these technologies are being developed. I would venture to say that no one really wants to kill Ethereum. They just want to be able to use it.

Ethereum Layer2 scaling solutions are giving Ethereum Killer L1s some competition. Layer2 scaling solutions, such as rollups, are also not interested in killing Ethereum. On the contrary, they too are attempting to improve Ethereum — generally by moving computation off the main chain, performing the computations, and then storing proofs back on-chain.

Layer2 solutions come in many flavors and are in various stages of development. When something’s broken in blockchain, it just inspires more innovation.

The Limitations of Legos — Are blockchain games even fun?

For most blockchain game builders, the easiest route has been smart contracts in a one-size-fits-all application layer. Purely from an architectural perspective, smart contracts are great for very specific uses. While smart contracts have zero flexibility because all contract terms are predetermined, the composability feature of smart contracts allowing them to integrate with one another like so many legos is incredibly convenient.

However, smart contracts alone fail to deliver when it comes to complex decentralized applications, such as on-chain games, due to their lack of flexibility, limited set of cryptographic operations, immature programming languages, and security issues. Especially for smart contracts, the trilemma of blockchain — security, scalability, and decentralization — can’t be optimized simultaneously.

For instance, to guarantee the verifiability of application logic, public blockchains usually do not allow smart contracts to upgrade in a straightforward way. Essentially, projects built on the backs of smart contracts have mostly forgone governance sovereignty.

Composability is great in theory, but complex systems built across multiple dApps can suffer significantly during periods of increased use. Perhaps that is why developing and managing innovative gameplay experiences, complex story worlds, and game economies is a simpler task in centralized settings.

In addition, while the GameFi “Play-to-Earn” phenomena — coupled with the trading, lending, and leveraging of DeFi — have soared in popularity, the question of whether a game is actually “fun” or not is usually left out of the conversation in favor of a focus on economics and gain potential.

Whether or not all developers want to deliver more fantastic experiences to their users than the other guy, all developers want users. They want people to interact with their dApp. And I would even venture to say they want their application to be liked. They want their application to make the user say “Wow!” “WGMI!” “This dApp is epic!”

Play-to-Earn players certainly want to play more to earn more. But this has led to speculation that blockchain games are actually more of an “on-ramp” to the blockchain than a fascinating destination for the players.

Octopus Network’s One Chain per Game Solution

Octopus Network believes that the optimal way to build a blockchain game is to use an application chain — one chain for one game. The Octopus Network is a multichain network that launches and hosts Substrate-based, EVM-compatible Appchains.

An Appchain is an independent blockchain used explicitly for a specific set of custom-designed applications. Substrate supports a myriad of modules that developers can easily integrate into their Appchain, including an Ethereum Virtual Machine pallet, to build fast and user-friendly applications with low transaction costs.

Unlike smart contracts, EVM compatible Appchains allow developers to customize their applications in terms of governance structure, economic design, and underlying consensus algorithm. This means that the full stack of an Appchain, including networking, consensus protocol, node configuration, and so on, can all be optimized for specific use cases. And an appchain has self-sovereignty, governed by its own community.

But the significant benefit of an Appchain for gaming applications is the exclusive use of the chain’s processing capabilities — There is no need to compete with other applications, and gas is paid with the native Appchain’s lower transaction fees.

The Octopus Network EVM compatible Appchain’s dedicated transaction processing capacity allows it to achieve 1000 transactions every second with fast finality. Thus, games built on dedicated Appchains have better performance and can process tens of millions of transactions per day to support blockchain games that reach millions of daily users.

Overview of the Octopus Network EVM Appchain

Open-source toolkits like Substrate and Cosmos SDK have made building an Appchain much easier and more cost-effective. Since October 2018, when Dr. Gavin wood built an Appchain in 30 minutes from scratch on Substrate, hundreds of crypto projects have been built on Substrate, and more Appchain projects are expected to emerge.

However, even though Substrate and Cosmos SDK have substantially decreased the development cost of Appchains, Appchain bootstrapping is still a complex and capital-consuming job for developers.

Octopus Network has solved this affordability problem and made an Appchain much easier to launch by providing flexible security, infrastructure support, cross-chain interoperability, a ready-to-be-engaged community, and unlimited scalability.

Security — Bootstrapping PoS security is time-consuming and laborious work. It typically takes several years and a few million bucks to bootstrap an independent Appchain with sound security. But Appchains in the Octopus Network can scale their security with demand. This decreases the cost of launching an Appchain by 100x and allows Appchains to launch in a matter of months instead of years.

Infrastructure — The Octopus Network’s one-stop infrastructure provides a complete infrastructure set for Appchains — including RPC Gateway, Appchain Explorer, Appchain Indexer, and Appchain Archiver. Once an Appchain is booted, developers just need to update the front-end configuration, and then the Appchain is ready to serve end-users.

Interoperability — Octopus Network Appchains enjoy out-of-box interoperability. Appchains in the Octopus Network are interoperable with Ethereum, NEAR, and any Substrate IBC enabled blockchains, such as Polkadot and Cosmos.

Community — The Octopus Network acts as a meta-community for hatching gaming communities — a focal point within the NEAR Protocol Ecosystem where Web3.0 game teams can display the merit of their platforms to attract a variety of supporters, such as players, investors, Validators, Delegators, and market participants — igniting network effects.

Scalability — The Octopus Relay, which operates the security leasing mechanism, is built on NEAR Protocol. NEAR Protocol has unlimited scalability based on sharding — it can accommodate hundreds if not thousands more networks and assets than Ethereum layer1, making it one of the most important Blockchain Internet hubs today.

With the resources and support from the entire ecosystem, NEAR is rapidly emerging as a formidable decentralized financial center. Octopus Network Appchains have the advantage of being born as self-contained decentralized economies without relying on centralized exchanges and can establish close symbiotic relationships with DeFi protocols on NEAR from day one.

EVM Appchains vs Ethereum Killers and Layer2 Solutions

The Octopus Network Appchain provides a more accessible and less expensive alternative to solving the Ethereum scalability paradox for blockchain games than current Layer2 and Layer1 “Eth Killer” strategies by simplifying the process of deploying Ethereum-based decentralized apps on Substrate Appchains.

EVM compatible Appchains in the Octopus Network promise the best of both worlds for game builders — the scalability, sovereignty, and flexibility of deploying on an autonomous blockchain, coupled with the advantage of migrating EVM smart contracts, so developers don’t need to code from scratch.

Developers can build off open-source projects in the EVM ecosystem while enjoying a unified Substrate for development bundling in a seamlessly aggregated tech stack and gain access to a vast interoperable ecosystem with easy access to the NEAR collection of DeFi and dApps.

For users, the advantages of an EVM-compatible Appchain include participation in a multichain, interoperable ecosystem, lower gas fees, faster settlement, same address formats, and easier operation process — the foundations for a better gaming experience.

The End Game

Despite the blockchain gaming mania, the sector is still fledgling. Underneath all of the GameFi hype lies a fundamental question — Without its present level of profitability, is the game’s design interesting enough to be worth playing at all?

Octopus Network believes that the gaming revolution is inevitable once the prohibitives at the core of blockchain gaming infrastructure are resolved. By removing the bottlenecks on security, scalability, customizability, and upgradeability, Appchains are leading a new innovation wave for blockchain gaming, unlocking a richer gaming experience through more complex mechanics, with the capacity to grow in-game economies — More power to the builders, more joy for the gamers!

Learn more about how to build an Appchain game in the Octopus Network.

--

--