How on earth is trading virtual items in video games a $50 billion industry?
Take a look at this image. This virtual outfit costs $500.
Now, non video gamers out there might be staring slack-jawed in disbelief, or maybe wondering why the editor didn’t spot the accidental extra two zeros at the end of that number.
In fact, though, this is cheap compared to some similar items bought and sold by video game fans. For those who are unacquainted with the world of virtual items, the image above shows a skin, an in-game file that modifies the appearance of a character or item.
Generally speaking, these things are strictly cosmetic. They don’t make a player stronger, faster, better protected or functionally enhanced in any way. They do, however, look damn good.
More importantly, they look different. The world of online video gaming — due to its consumer mass market nature — can be somewhat uniform. Players are often forced to choose from a relatively small set of identical options when designing their characters. The result — everyone looks pretty much the same.
That’s boring and prevents gamers from visually expressing their identity or standing out from the crowd. That’s where skins come in — they provide video gamers with a way of customizing their in-game appearance.
Aside from being strictly cosmetic, skins differ from standard video game virtual items in one other important way. They are unique.
Skins represent exclusivity and sell for higher amounts because they are one of a kind. Skins offer an exciting way for players to show off their in-game wealth. With a prestigious skin, even players with poor stats can garner respect and admiration from their peers. For hard core video gamers, that community recognition is just as important in-game as it is in real life.
As a result, the video game skins industry is booming. It’s worth $50 billion today, and looks set to keep growing. Virtual items regularly sell for huge amounts — the highest ever being an astonishing $6 million (it was a virtual planet, but that’s still pretty impressive).
Collecting skins has developed into a phenomenon not unlike the way the rich and glamorous collect watches, shoes or rare pieces of art. It draws players to games they wouldn’t otherwise look twice at, and creates a compelling reason to keep playing.
There are other reasons, too, why trading virtual items is such a big deal.
Primary and Secondary Markets Are Both Big
The primary market for virtual items — composed of video gamers purchasing virtual content directly from game publishers — is tens of billions of dollars.
Around 60% of console gamers have purchased virtual items at some point, along with 43% of PC gamers and 33% of smartphone gamers. In the last 12 months, video gamers have spent an average of $133 (console gamers), $96 (PC gamers), and $37 (smartphone gamers) on virtual items.
That’s a big chunk of money going into the virtual item economy. PC gamers in 2015 spent $5.3 billion on downloadable content, while console gamers spent even more, racking up a collective bill of $6.4 billion.
Healthy primary markets tend to give rise to even bigger secondary ones.
Take the car market for example. The primary market (buying cars directly from the manufacturer straight off the production line) accounts for a fairly small percentage of overall car sales compared to the secondary market (buying used cars from other existing car owners and buying automotive accessories from third-party retailers).
The same phenomenon applies to real estate and many other industries. The virtual item economy is just another instance in which a strong (and growing) primary market has led to a flourishing secondary market. The best part is there’s still a lot more room for growth. Today, this booming industry must contend with the numerous challenges of using fiat currency. When these impediments are removed, the virtual item industry will grow even bigger. And that day is coming.
Currently, virtual item trading is centralized. If customers want to buy a digital item, they generally must do so through a trusted third party consignment marketplace. Why? Because the counter-party risks of peer to peer trading are too great to buy directly from individuals, especially when dealing with high dollar value items.
Likewise, sellers must find a reliable consignment marketplace to deposit their item and wait for a buyer to come along and find it. After an item is sold, the marketplace will remit the sales proceeds to the seller, minus a selling and payment processing commission.
Apart from being time-consuming and risky — with video gamers often dependant on lesser known regional marketplaces to hold cash their deposits and valuable virtual item inventory — the trading process is sub-optimal in plenty of other ways. Digital items can be misappropriated from improperly protected online wallets and often there is no protection for buyers or sellers who get scammed.
Centralized marketplaces mostly use fiat currency like dollars or euros, which in turn leads to lots of banking bureaucracy and high costs associated with cross-border settlement.
Now it’s not all bad. OPSkins, run by the team that literally invented the concept of real money trading of virtual items, has been leading the way with settlement-protected, fraud-free buying and selling. It’s how OPSkins became the largest virtual item marketplace in the world.
OPSkins runs a global marketplace that serves millions of customers across 95 countries — but even they admit that there are many limitations to the current process of buying and selling digital items.
That is why the founders of OPSkins are creating WAX, or Worldwide Asset eXchange™, the first smart contract based decentralized virtual item marketplace. With WAX, virtual item collectors will be able to trade pain-free with anyone in the world. WAX will give buyers access to more available item inventory and sellers exposure to a larger pool of buyers than any consignment based centralized exchange could ever achieve.
Built by the same team that made OPSkins’ the biggest and most trusted digital item marketplace for safe, settlement-protected payments and services, WAX uses smart contracts, utility tokens, and blockchain technology to make buying a digital item as reliable and secure as possible, all while eliminating counterparty risk and providing full transparency to all buyers and sellers to ensure optimal inventory availability and price discovery.
Not only is WAX safer than the existing centralized marketplace alternatives — it’s also faster and more affordable due to its use of cryptocurrency. Unlike fiat money, which is subject to high payment processor fees and cross-border charges, WAX tokens allow for purchases to take place across international borders in real time at a fraction of the fiat cost. And since the majority of virtual item buyers and sellers are in different countries, using different fiat currencies, this is a tremendous improvement for all parties.
WAX will bring vast improvements to the virtual item economy. That’s good news not just for video gamers who buy and sell virtual items but also for game publishers and anyone else interested in the potential for safer and easier digital item cross-border trading.