Game Asset Ownership — Part 2: The Path to True Ownership

In the first article of this set, we looked at the history and evolution of the gaming industry, and the design problems related to players owning digital assets. In this second article, we’re discussing how blockchain addresses many of these design problems, making true digital asset ownership — as opposed to licensed control of a digital object possible. We’ll conclude this set with a piece about blockchain tokenization and the innovative new economic models that tokenized assets can enable. Together, these articles provide context for the ways in which digital asset ownership can literally “change the game” both for developers and for players.

We noted in our last post that players clearly want to be able to buy, sell and trade digital goods — but developers have not had the technology to be able to provide players with real ownership.

This is where blockchain can fundamentally alter the way that game economies operate.

Whereas traditional games effectively license digital assets to players, a blockchain game economy allows for the true ownership of a digital good, since that digital good is an asset whose link to its owner is written onto an immutable blockchain. When players — and the developer — have true ownership of assets, what that ownership confers is property rights. The unique features of blockchain technology can help grant and enforce property rights, and create a system that is trustless.

How do developers make money in a world with digital assets?

As we have noted, in traditional free-to-play game economies, the market that exists within games is unidirectional: Players buy virtual goods from the game developer, and can only use them within the game, by the rules of the developer, who in all but a few cases places restrictions on how they can be held, used and transferred. These goods typically serve either a specific function to help players advance in the game, or add to the cosmetic appeal of another in-game asset, such as a character avatar, an in-game habitation or in-game tools and equipment.

In games that do have marketplace features that allow player-to-player transactions, there is often a fee taken from the transaction value. An example of this is Valve’s Steam Marketplace, which allows players to sell weapon skins from Valve games like Counter-Strike: Global Offensive for Steam credits (usable only within the platform). Thirty percent of the cash value of the Steam credits earned for every skin sale is deducted as a commission for Valve.

The developer (and de-facto operator) of a free-to-play game — and even many games that aren’t free to play but have DLC, in-game stores or “loot box”-style mechanisms — drives revenues from item sales and transaction fees. When a game is able to attract a large volume of players, this is often very profitable.

However, eventually the inevitable happens: a small subset of players — the “whales” — end up contributing the majority of these in-game purchase revenues. The developers have no choice but to create new content, game loops, and currency sinks to accommodate this tiny sliver of the player base. Servicing the needs of a minority of the player base without alienating the majority becomes an almost impossible task; as a result, free-to-play can become “pay-to-win,” where those who can afford to spend money on functional add-ons and enhancements have an overwhelming advantage over those who can’t or won’t. We call this “the design problem”.

By contrast, in a game world with digital property rights, players have real and transparent stake in the item economy. Rather than just purchasing goods, they can earn and resell them, generating revenue that allows them to purchase more and better goods. Some players may get ahead by spending money; others, by spending time. The value of goods is driven by supply and demand, making those goods seem more fairly priced. Meanwhile, the eddies of supply and demand give developers clear data on what kinds of items players want, allowing them to align the production of their goods with the tastes of their consumers.

All of this requires a system that removes trust from the equation entirely — something that blockchain technology makes possible, by creating immutable, transparent and redundant records of every transaction, obviating the need for trust.

For developers, this trustlessness means opportunities to participate in the growth of their game economies beyond simply taking a cut of every transaction. What does that mean in practical terms? Beyond monetization via direct sales or fees, developers can shape and participate in their games’ economy in a range of ways:

• Developers can set up fiscal policies, by determining rules for trading, fees and taxation that encourage economic growth. Developer and player incentives are more likely to be aligned to create the largest possible economy, because players are also owners in the economy, incentivizing them to evangelize the game, bring in new players and stay engaged with the game longer.
• Developers can use macroeconomic tools to encourage investments in the economy, such as setting rates of inflation or rewards for player actions — for example, developers could design a smart contract that grants in-game currency to high level players who “mentor” new players through their first time in a dungeon. And of course, developers can participate in content creation themselves to benefit from these same incentives.
• Developers can hold a reserve of game assets that grow in value together with the game economy, selling blockchain assets from this reserve. At the same time, developers are incentivized to not exploit asset reserves, since an excess in supply will lead to a collapse in pricing and thus value for everyone. [We consider the above in further detail in our future articles about marketplaces and principal trading.]

All of this can take place without altering the existing mechanisms by which developers generate revenues — they can continue to sell in-game goods that don’t exist on the blockchain, so developers are simply adding new tools to their toolbox in the process. And, as developers become stakeholders in game economies, their agenda is aligned with that of their players: Grow those economies as much as possible. Players engage more, evangelize to other players, and stay loyal to their favorite platforms — because they have skin in the game.

By enabling true ownership of goods in games, developers can empower players and incentivize sustainable game economy growth without losing control over how their games operate — but doing so requires them to understand the different ways in which digital assets can be created, and the ways they can shape gameplay and game economies and interact with one another.

That’s what we’ll begin to explore in our next article, which looks at tokenized assets and how they operate.

Interested in contributing to our Community Economics series? We’d love to hear from you. Comment below or email us at cec@forte.io

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