Gaming and Web3
What Gamers and Developers Should Know
April 12th, 2022
Devin Passage - Senior Blockchain Engineer
Like other technologies that have come before it, Web3 technology will have an impact on gaming. This whitepaper gives an overview of what those impacts are likely to be, and what game developers and gamers can expect in the months and years to come. A number of important concepts that will be looked at include:
Decentralized Ownership of Games
Play-to-Earn (P2E)
Securing User Generated Content for Content Creators (UGC)
Decentralized Game Autonomous Organizations (Game DAOs)
In addition to acting individually, these features work together synergistically, creating positive and negative reinforcement loops.
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Decentralized Ownership of Games
Decentralized Ownership of Ingame Items
One of the main game design features of modern games is ingame items. Ingame items have been a mainstay of game monetization for the last decade.
Prior to web3, players had limited ownership power over their ingame items, most notably, an inability to sell them to other players. Game developers profit off of sales of ingame items, so prohibiting players from selling them is a way the developers could maintain total control over their game’s economy.
However, if an ingame item is owned on the blockchain, an owner can easily transfer or sell it to another owner, giving the item tremendously more value in the eyes of players. Items can represent things like characters and weapons, but they could also represent premium features like ads free, additional daily runs, rerolls of stats, and so on.
An ingame item that can be resold will make a player feel more comfortable spending money on it, increasing profitability for games significantly as developers can now charge more for these products. Furthermore, potential scarcity can give items price appreciation or collector potential that can also add to value, and developers can capture a royalty of secondary market trading to give them an incentive to continue operating a game.
For example, a no-ads might be limited to just 10,000 total no ads. This would give players a strong incentive to be among the first people to purchase the unlock since once sold out, this very common and desirable (and usually very inexpensive) game feature would become extremely scarce and valuable.
As web3 spreads through gaming, players will increasingly expect their items to be on blockchain where they can enjoy the benefits of this greater degree of control over their game purchases.
Decentralized Ownership of Game Space
Game Space refers to game rules, game systems, systems of interaction between players and ingame content, common terrain such as game zones, in-game settlements and civilizations, and other important game elements that are not exclusively owned by a single player. Examples of Game Space would include:
A dungeon that players raid to get rewards.
A large city in a game that players visit as a hub of purchasing, upgrading , or obtaining quests for their players, or a store in such a city.
Game rules, such as what kinds of ways players can fight with each other or enemies in the game world.
Game marketplaces or auction houses
Traditionally, Game Space is always owned and controlled by a game’s developers. However, web3 makes decentralized ownership possible, and there are also several reasons why it may become standard in the space.
Game Space is Valuable
Game space, while not traditionally marketed or sold, has a great deal of potential value to anybody who cares about the game. Having control over land or areas in a game might entitle the owner to collect rents, fees, power, resources, loot dropped by players that die in it, etc.
More abstract things than real estate could also hold considerable value. Having control over game rules, combat rules, systems of advantage or disadvantage (such as elements or monster types), crafting systems, and ingame ecology could provide considerable value.
Imagine if a player held access control over a particular forest, and that forest contains crafting ingredients. The player’s decisions would have an impact on the value of those crafting components as well as anything that could be crafted with those components.
Another example: Owners of particular spaces would also form a core for advocacy for that system. For example, if a player owned Paladins, the MMO class, they would be particularly keen to make sure Paladins have a competitive, and maybe even overpowered game balance. Ecosystems of advocacy can help create vibrant and dynamic metagames, keeping games interesting and expanding.
While abstract, game space has tremendous potential value as it represents something that could increase or decrease the value of other ingame objects.
Play to Earn
Make a Living Playing Games?
Play to earn is not new to web3, nor does it require web3 technology, although it does significantly boost the viability of P2E systems in games. Games have long held earning potential for players. Esports provides high-skill players of high-profile games an opportunity to make a career of their playing. Streaming has also given content creators a way to profit off of playing games, either by direct sponsorships or as part of the content their viewers follow them for. Suffice to say, however, that the number of people who can profit from these activities is very small and only the best of the best can make a living of it.
Additionally, there are other ways that players have profited off of games, even though these usages might not be intended or even allowed by the games’ developers. Players farming gold or ingame items can sell them externally to the game to players. Ingame fungible items, such as tournament tickets on the old Magic the Gathering Online system, were used as a form of currency to trade cards ingame. Players earning cards through play could then achieve an on ramp by selling cards or tickets to other players and market makers.
But are these “services” something beneficial to the game ecosystems they find their way into? Certainly neither developers, nor “honest” players of MMOs, appreciate gold farming. For Magic, players largely did appreciate the ability to buy single cards, but the game’s developer, receiving no remuneration for this gray market, has little incentive to support this system and these market makers’ businesses are in an incredibly precarious situation.
So what are some “legitimate” reasons for play to earn? In other words, why would game developers want to build P2E infrastructure into their games and what could be the economic benefit to having human beings playing video games?
User Acquisition
Game developers annually spend millions individually, and billions as an industry, to a small number of gigantic platform controllers to acquire users. On the other hand, gamers are so overloaded with games demanding to be played, they often are unable to play even all of their paid game library, let alone new free to play games. In short, gamers are valuable, and game developers will pay a pretty penny for their game to be a gamer’s next addiction.
Play to Earn could provide a way for games to grow their user base without exclusively paying money to platform owners. A game with P2E rewards could win a large and profitable player base by promising both rewards to high end players, as well as daily incomes to median players. Games with high rewards will “go viral” as players share the secrets of their play to earn rewards with other players.
As platform owners continue to hone their algorithms to serve their own profits, often at the expense of developers and players alike, play to earn will become an important part of any games user acquisition strategy, allowing developers to go directly to the players with their marketing capital and bypass powerful platform owners.
Gaming Service Industry
Although AI can provide challenging opponents, developing robust and challenging AI can be expensive, difficult, slow, and in the case of some games, intractable. Paying players to provide a skilled and interesting opponent to others is a real economic benefit gaming can have to society as a whole. Games with frequently changing rulesets also would be very expensive to develop AI for, so having large numbers of challenging opponents available for players to play will have extra value in these situations.
Furthermore, there is little joy in winning a game that isn’t worth winning. Winning in a game like Fortnite is valuable because it is a game everybody plays and everybody respects. This idea is hardly revolutionary. Social standing derives its value from the size of the society being stood on. Developers can use P2E to increase the size and stature of their communities and make their game seem more worth winning to players.
Some games do not even function at all if the communities are too small. 5vs5 mobas, 100+ player battle royales, fighting games, all require very large amounts of players to have enough players available to start games for incoming players to enjoy. Finally, matchmaking systems work better when there are more players available. If games do not have a sufficiently large player base, the matchmaking will fail to make competitive games, and the game will die.
Another service industry could be that of teaching and improving players. Fighting games, and games like chess or rocket league represent a culture of excellence and personal improvement, with players finding value simply from how challenging the game is to do well. Players are willing to pay coaches to train them to be better players for their own desire for improvement as well as a capital investment for themselves if they are seeking a future in esports or streaming.
How Does Web3 Help?
As said before, web3 tech is not a requirement for play to earn, which was going on long before blockchains were invented. However, Web3 makes paying these players significantly easier. Paying people is challenging due to regulations meant to collect taxes, control international trade, and prevent money laundering for criminals and terrorists.
Web3 in games provides a means for players to be paid for their services, either with fungible tokens or valuable non-fungible ingame assets. The blockchain, since it is immutable and transparent, makes regulating these things easier for governments.
Securing User Generated Content for Content Creators
Proving UGC Creators Fair Credit
UGC is another game component that can be enhanced through web3. Prior to web3, UGC content creators required external infrastructure that may or may not exist, and may or may not be monetizable for them. By creating and storing UGC ownership on the blockchain, UGC content creators can build their dreams without worrying if somebody else will steal their ideas, take credit for their work, or be unable to monetize their creations.
The UGC itself may or may not need to be on the blockchain for this to be meaningful- at the very least, ownership can be evidenced by the blockchain. The content itself residing on the blockchain may be a future goal of the technology, but due to the large and ever-increasing size of game data, storing on chain may not be possible.
However, it is not a necessary precondition for web3 to have an impact on UGC- what is more important to content creators is that their watermark remains on the content they worked so hard to create, and the blockchain makes that record immutable.
Also, having UGC on the blockchain would make it easy for creators to sell on secondary markets, enabling them to quickly and easily profit from their work.
Securing Ownership of Game Strategies
In addition to securing game content, web3 can also secure game strategy. A great example of this is a magic: the gathering deck. Building a deck in the early years of MTG was a personal voyage of creation. However, when the internet became commonplace shortly after Magic’s release, players turned to looking online for the most powerful decks. They called this practice “Net Decking”.
Since a decklist is simply a list of cards, nobody who invented these net decks received credit for it. A player could win a tournament using a deck designed by somebody else, and that designer would have no way of proving the design was theirs.
The blockchain would enable players to prove ownership of a deck they had created. This idea could apply to other genres as well, such as an army list for a turn based strategy game, a combo in a fighting game. Imagine the possibilities, as a particular optimal strategy might become so expensive to rent that other, less optimal strategies would become valuable in the game thanks to their lower cost.
Decentralized Game Autonomous Organizations
Game development is an expensive process, requiring significant monetary and human capital. Important games are typically created by large organizations, and web3 will not change that. What web3 can do, however, is protect games from organizational changes in game developers.
Most gamers have had a game be bought out, then ruined, or shut down by an owner. All of the money, time and energy they put into learning the game, acquiring in-game items, and improving their position in the game is lost.
Gamers understand this is a reality, but web3 can give them more confidence that even if the games developer changes or the game becomes unprofitable to operate, the game they love playing can continue to thrive.
A game DAO is a fully or partially on-blockchain organization that can be devoted to operating a game. A great example of how a simple fully on-chain game DAO could work might be a seasonal tournament.
Every 4 months, a game might hold a series of tournaments with cash prizes. The game would take an entry fee for a game at a website, store that fee on-chain in a treasury contract, and then when the chain receives the tournament leaderboard, automatically pay out the prizes. If a game were fully on chain, it would not even require an owner to do this: it could operate automatically.
This provides a great deal of protection to the game’s players. Players can hone their skills and spend money on their ingame items in confidence knowing the next tournament will be run on time and operated fairly. A new owner cannot acquire the game, then shut down the tournaments, because the tournament contract is ownerless and no one has the authority to interfere with it.
However, even games that are only partially on-chain could still have a tournament DAO. The DAO contract would have an owner, and that owner would have the responsibility of entering the true winners of a tournament. With sufficient owners and a majority vote required to enter tournament results, it would be unlikely that a majority of owners would deliberately enter the wrong tournament winners.
Beyond just running tournaments, game DAOs could even fund new content. For example, they could vote to extract currency from the treasury to pay a contractor to complete the work of adding new character artwork. In this case, the DAO would need to be incorporated in a legal setting to be sure that the DAO keyholders would be legally obligated to pay the contractor, and for the contractor to have a legal obligation to complete the work.
Furthermore, game DAOs can help protect games. No major sport’s designer is still alive, if they ever owned the game at all. Stewardship of the game falls to the team owners that own the teams that play the game- not the players or fans.
While a developer is operating its own game, they could own a majority share of the DAO votes. However, the game’s DAO contract could automatically hold an auction for the DAO shares for ingame currency, giving gamers a chance to fairly acquire the game they have helped make valuable and guarantee its future life. Players could come to demand these kinds of concessions from developers to guarantee the survival of their game beyond the survival of the game’s maker.
Due to the popularity and utility of DAOs, it is very likely legal frameworks for these types of semi-off chain DAOs to be created and enforced in the coming years.
Conclusions
Not only do these features offer individual reasons for games to expand into web3, they also reinforce each other. For example, players are more likely to spend more money on tokenized in-game items if they know that the game will continue to have tournaments with cash prizes and pay for server expenses for years to come, regardless of whether the developer wants to remain in control of the game or sell it to somebody else.
In another example, an on-chain metagame mechanic determining the power level of certain classes or monster types could in turn benefit from fairly monetized UGC so that skilled content creators could fill a gap in a type of game content that is growing quickly due to metagame changes.
Games that have these features working together will become more appealing to gamers, and games that lack some or all of these features will become less appealing to players.
Web3 technology provides the infrastructure for these features, which would not be possible under the current regime of platform owners. Web3 grants sufficient utility to games that gamers and developers will come to demand these features in the coming years. Like multiplayer and high-quality graphics before, this demand will span all genres and platforms, impacting console, PC, mobile, and web, free and paid. Having a well-thought out web3 strategy is likely to be critical over the next 10 years in gaming.