Insert Coins to Begin: An Intro to Decentralized Video Game Currencies

Stu @ Radicle
Feb 22, 2018 · 5 min read

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Following up from last week:
Last week we updated our report on Decentralized Prediction Markets and received a friendly tweet from Mike Dudas (co-founder of Button, crypto-enthusiast, and founder of The Block, what looks to be a crypto-focused community and media startup):

An Intro to Video Game Currencies

In the coming week, we will release our report on crypto and the video game industry. In discussing possible use cases and for what end-markets crypto assets could be used, people seem to be overlooking a core demographic that already use a similar technology: gamers. In the meantime, we lay out why the video game industry may be susceptible to new cryptocurrencies. Particularly because: Gamers are no strangers to digital currencies.

Gaming currencies not only have value in the game, but also in real-life.

Native gaming currencies have been a common mechanism in games, enabling gamers to turn their gameplay into digital rewards. With internal currencies, gamers can buy or acquire new skills or weapons, enhancing their gameplay.

While most games have had some form of internal currency, the gaming virtual economy only really took off in the early 2000s with the introduction of World of Warcraft (WoW), The Sim 2, and Second Life. WoW even introduced a virtual auction house, creating a micro-economy for virtual goods only useful in the WoW realms. Beyond gameplay upgrades, gamers could now use the respective internal gaming currencies to purchase virtual cosmetic items.

But these virtual items only have value in the game, right? Wrong. The first sale of virtual goods for real money was made in 1997 by Iron Realms Entertainment. In 2007, the conversion rate for WoW gold to USD was 1000 gold to $255 on the black markets. Games like League of Legends realized the potential and started to sell virtual in-game items in exchange for real cash. In 2015, League of Legends generated $1.6b in revenues just from selling those virtual in-game items.

These examples are only the tip of the iceberg. Gamers have been spending billions of dollars on virtual goods since.

As WoW increased in popularity, so did the demand for WoW’s currency. WoW gold “farmers” actively played the game for the purpose of accumulating digital currencies. These farmers would later sell WoW gold back to gamers in return for real-world currency on the black market.

“Farming digital currencies” — sounds a bit like “mining,” right? Placed side-by-side with cryptocurrencies, gaming currencies exhibit similar traits. Cryptocurrencies and gaming currencies are both:

These similarities are practically begging gaming companies to shift to crypto. The gaming industry is already catching the eye of crypto-entrepreneurs — as well as some hopeful corporations. Enter Atari SA — the gaming pioneer known for nostalgia-inducing games like Pong, Pac-Man, and Space Invaders. Roughly two weeks ago, on February 8th, Atari SA announced its plans to introduce a entertainment-focused cryptocurrency as well as develop projects for crypto-casinos. Since the announcement, the company’s stock has increased by 35% to $0.69 (as of yesterday), making headlines across mainstream media outlets.

(Atari SA isn’t the only legacy company attempting a move into the crypto space. Just last month, we saw imaging technology company Kodak announce a crypto initiative — sending its stock skyrocketing, increasing 245% over the first days. Kodak’s stock is still 110% higher than what it was before the announcement.)

While some may see this crypto-pivot as another legacy brand struggling to stay relevant, it’s unwise to ignore what Atari is attempting to build. The reason Atari’s crypto-strategy might fair better than Kodak’s is that Atari has a user base of gamers. Unlike photographers, gamers have been nurtured to use digital currencies — they’ve been nurtured to earn digital currencies and nurtured to purchase virtual goods with digital currencies.

Moreover, there are a ton of gamers. There are 2.2 billion gamers globally, playing a mix between mobile, console, or desktop games. One of Atari’s recent games, Rollercoaster Tycoon Touch, amassed 7.5 million gamers at its peak.

At time of writing, Atari has provided limited details on the purpose of its eponymous “Atari Token”. Based on the announcement, it appears that Atari will integrate its Atari Token such that it can be used across its ecosystem. That is, the token won’t be limited to just one game. In regards to the “crypto casinos” term used by Atari, the company might also allow its user base to place bets on eSports events using its Atari tokens.

For Next Week

Radicle is exploring potential use cases for gaming cryptocurrencies in our next report (to be released in the coming week). In our research, we have identified some cryptocurrency projects focused on gaming and eSports betting:

Gaming has many subsets. So far, we have mapped out three primary use cases for gaming cryptocurrency:

As a starting point, Radicle’s report will focus on cross-platform cryptocurrencies.

However, as networks go, not only gamers need to be willing to adopt such a solution, but also game developers. While gamers seem like a susceptible demographic to adopt cryptocurrencies with little-to-no education required, our report will also dive deep into how and why game developers would adopt such a solution — whether its to acquire new gamers, retain current gamers, or introduce an additional way to monetize. In our report, we will explore whether these are robust enough problems in order to instantiate a crypto network.

Stay Tuned!
Rad.Crypto


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Stu @ Radicle

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