Blockchain Gaming and On-Ramps to Mass Adoption

The Next Era of Digital Economies

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Blockchain Gaming and On-Ramps to Mass Adoption

In our culture, gamers are stereotyped as young, isolated, antisocial men. The popular imagination of a gamer is a teenage boy in his mom’s basement. This stereotype has survived the last decade—long past its expiration date—because of the media’s depiction of popular streamers like Ninja. Ninja, whose real name is Tyler Blevins, streams for “a minimum of 12 hours a day” from a streaming studio in his Chicago home. In a single year, he streams the equivalent of 95 40-hour workweeks.

But there are 3.2 billion gamers in the world—nearly half the planet’s population—and the stereotype of the young, isolated male meaningfully misrepresents the group.

The average age of a U.S. gamer is 35. Close to half of gamers (45%) are women. And gaming is inherently social: today’s gaming platforms are effectively this generation’s social networks, with massive interconnected social graphs of players from around the world. People forget that Ninja isn’t alone in a dark room for hours on end; at any given moment, he’s engaging with thousands of people through Twitch and YouTube.

When we get together with friends in the analog world, social connection typically revolves around a shared activity: we grab coffee, we have lunch, we see a movie. We rarely socialize without something to do. But the purpose of these events is rarely to drink coffee or to eat lunch. Those outcomes are a byproduct (and an added bonus) of the real purpose: to connect. Humans are social animals and we crave intimate connection; these activities are lubricants that allow us to fulfill that need.

Gaming serves a similar purpose in the digital world. It’s an excuse to get together with friends and family, to meet strangers. This is particularly true for men. Our society’s warped notions of masculinity discourage intimate male friendships; gaming is the lubricant that makes hanging out “okay”. Gaming is the online version of playing golf or watching football or drinking beers. The pandemic increased our need for intimacy, necessitated digital intimacy, and, in turn, drove an uptick in gaming.

The past few years—and particularly COVID—have amplified gaming’s social purpose. In 2019, Grand Theft Auto opened an in-game casino that’s purely for socializing; the casino serves no other purpose in the game.

In the early months of the pandemic, Animal Crossing became a sensation by giving people a way to connect—people even took business meetings in Animal Crossing. By fall 2020, Animal Crossing was on track to become the best-selling Nintendo Switch game ever.

And Fortnite’s Creative Mode, which lets you create content on your own Creative Islands, is now nearly as popular as Fortnite’s original Battle Royale.

Gaming is social and social is gaming; the lines are blurring, and people who would never have considered themselves “gamers” are now regular participants in vibrant and immersive virtual worlds. If you’re looking for an on-ramp to new consumer technologies, look to gaming: more often than not, it’s at the cutting edge of technology adoption.

This brings us to crypto. Parts of crypto have become mainstream—about 46 million Americans, representing about 17% of the country, own Bitcoin. But revolutionary innovations like NFTs and social tokens remain in the “early adopters” phase of the technology life-cycle. They have yet to cross the chasm.

Gaming will be the breakthrough use-case that brings blockchain to the masses.

We’re seeing early proof-points in blockchain-based gaming companies. The Sandbox is a user-generated crypto gaming platform—effectively “Minecraft for blockchain.” The Sandbox lets users build, own, and govern vast virtual worlds. Some worlds are based on existing IP: Atari, for instance, has a world in The Sandbox.

Snoop Dogg, of all people, is even coming to The Sandbox—or, rather, coming “from tha streets to tha Sandbox.” Snoop, meet metaverse.

The Sandbox is following Fortnite’s playbook, injecting IP to bolster a robust digital economy. Just as a Fortnite player can embody Iron Man or Thanos by buying a skin, a Sandbox player can embrace in-game IP by buying virtual items. Games like Fortnite have pushed forward the virtual goods market, which is now worth ~$60 billion and on track to be worth ~$200 billion by 2025.

A decade ago, in-game micropurchases made up 20% of gaming revenue. Today, they make up 75%. By 2025, they’ll make up 95%.

And this business model is bleeding into other industries. Over the weekend, for instance, I came across a billboard for Fortnite’s collaboration with the luxury fashion house Balenciaga. When buyers purchase a Balenciaga hoodie in the physical world, it unlocks a digital replica of the hoodie in Fortnite.

But the digital items you buy in Fortnite only work in Fortnite; your Balenciaga hoodie might confer status on you in the game, but you can’t take it with you beyond that closed digital economy. Blockchain-based games open up this economy. They’re built on blockchains like Ethereum, which are owned and operated by users.

Vitalik Buterin created Ethereum because he was frustrated by centralized economies. He remembers:

“I happily played World of Warcraft during 2007-2010, but one day Blizzard [the maker of World of Warcraft] removed the damage component from my beloved warlock’s Siphon Life spell. I cried myself to sleep, and on that day, I realized what horrors centralized services can bring.”

The centralized power structure of gaming led to the creation of the infrastructure for a decentralized economy that will reinvent gaming. It’s almost poetic.

Gaming abstracts complexity from concepts like decentralization and blockchain. The Sandbox, for instance, explains to players: “Non-Fungible Tokens (NFTs) are virtual tokens minted on the blockchain for digital scarcity, security, and authenticity.” Players don’t need to understand what “fungibility” means—they just need to understand that an item can be rare or abundant, that it won’t be “erased” on a whim, and that it’s authenticated.

Sorare, a fantasy football game using NFTs, builds on these concepts. Sorare offers tiers of scarcity. In this image, you can see in the upper-left-hand corner of a card how rare it is. The first four cards are each one of 100; they’re priced around £40 to £80. The card on the far right is Unique, meaning it’s the only one of its kind in existence. It’s much more expensive—£929.

Sorare players don’t need to know how Ethereum works. They just need to understand how many cards of each type exist. Imagine how much more valuable a Balenciaga hoodie or Iron Man skin would be in Fortnite if it were both 1) able to move beyond Fortnite’s walled garden, and 2) provably scarce.

Another key piece of blockchain gaming is play-to-earn gaming. Back in May, I wrote about Axie Infinity in How People in the Philippines Are Making Money in the Metaverse. Since then, Axie volume has exploded:

Axie now has 1.7 million daily active players, 40% in the Philippines (6% are in America). The game has generated over $700 million in revenue so far this year and is on track to hit $1 billion by year-end.

Axie created a deceptively complex digital economy. Axie has two in-game currencies: Small Love Potion (SLP) is a currency that players earn and cash out; Axie Infinity Shard (AXS) is a governance token that players will use to have a say in how the game is developed.

Other games are following Axie’s example by building robust, blockchain-based economies. Star Atlas is an MMO (massively multiplayer online game) built on Solana. The game is set in the year 2620—players live and work in a colonized and balkanized universe similar to Star Wars.

Star Atlas isn’t your next-gen casual game; it’s an immersive and complicated world. Like Axie, Star Atlas has introduced two tokens: $POLIS, a governance token, and $ATLAS, a payment token. As one datapoint of how intricate and nuanced its digital economy is: Star Atlas’ white paper outlining its in-game economy is 38 pages long.

Play-to-earn gaming turns the traditional economics of gaming on its head. Now, players capture value from transactions. Gods Unchained, a blockchain-based trading card game, reminds players: you spent $100 billion on in-game items last year, but you took home $0. With Gods Unchained, you can sell items for a profit—you can think like an investor and combine game-play with financial upside.

The infrastructure undergirding play-to-earn gaming—and blockchain gaming broadly—is nascent. New companies are becoming the picks-and-shovels to enable this new economy. Immutable, for instance, the maker of Gods Unchained, is building a Layer 2 solution for blockchain gaming—a fancy way of saying that it’s building the plumbing to facilitate games built on Ethereum.

But the most interesting innovation for blockchain gaming might not be a new technology, but a complete rethinking of how gaming works. Loot is an NFT project launched in August by Dom Hofmann, one of the co-founders of Vine. Loot gives players a “bag” of eight pieces of randomized adventure gear. The adventure bag is just eight rows of text:

That’s it. Players then decide what to create with those building blocks. Within days, Loot had $150 million of trading volume; thousands of people were coming up with fascinating projects built on the underlying concept.

The concept is at first hard to wrap your head around, because it’s so revolutionary. Loot doesn’t have a company, it doesn’t have a team, it doesn’t have IP. Instead, Loot opened floodgates of innovation. Users will decide what comes next.

Dylan Field put it best:

Instead of game ➡️ community, as was true in the past, it’s now community ➡️ game. The best technology and business model shifts remove barriers to innovation, unleashing new levels of creativity. That’s what blockchain gaming is doing.

Final Thoughts

NoPixel is a popular Grand Theft Auto server in which people assume a digital identity. You might be a bartender, a mayor, a drug kingpin. To enter NoPixel, you have to apply and interview in character—and once in, you’re never allowed to break character. Every player starts with $5,000 and to earn more, you have to get a job or live a life of crime.

NoPixel is a fascinating example of a digital world and digital economy. In many ways, it foreshadows our metaverse future. But think how much more vibrant and immersive NoPixel would be if it was built on blockchain—if digital goods were valuable and authentic and interoperable.

Blockchain enables scarcity, and scarcity enables value. That combines with the internet’s zero marginal costs to create a potent digital economy. Gaming is already eating the world; blockchain simply accelerates its trajectory and makes digital economies more interesting, creative, and valuable.

In the 2000s—and particularly in the 2010s—mobile rapidly came to dominate gaming. The story of gaming for the past two decades has been the rise of mobile.

Blockchain will be the next massive disruption: the story of gaming for the next two decades will be the rise of blockchain-based games. And, as is so often the case, gaming will act as the bellwether for mainstream consumer technology.

Sources & Additional Reading

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