Web3 gaming introduces gamers to an integration of video games (e.g. arcade, adventure, strategy, etc.) with blockchain technology. It provides a new way of earning money while playing games, courtesy of cryptocurrency tokens.
This creates a new paradigm in gaming that is unprecedented. A blockchain is used to support Web3 gaming models, as a verification layer that would otherwise be under the control of a central authority. Gaming platforms are exploring the integration of blockchains that use cryptocurrency in their gaming titles.
Gaming platforms can use Web3 frameworks for creating in-game tokens (i.e. tokenization) for their ecosystem. What this does is provide rewards to gamers in the form of tokens, earned from playing games.
While this is ideal, is it really necessary in order to build Web3 games? We discuss what the considerations should be for creating a token as it relates to Web3 gaming.
Purpose Of Blockchains In Web3
Blockchains were built for the purpose of settlements in a decentralized network for finality. This allows gamers to record transactions without the need for a trusted central authority. It is a system that has the benefit of not requiring intermediaries to process transactions like rewards from playing games.
By taking the central authority out, a blockchain provides a non-trusted decentralized settlement layer that is not controlled by anyone. This minimizes the risk from censorship or tampering of data in order to provide fairness.
This ensures that gamers are fairly given their dues, and that it is recorded with transparency. This proves that a gamer has earned rewards in a fair and verifiable database. This prevents cheating or manipulation, which centralized trusted systems can be more prone to.
If a gaming platform closes, and their servers are purged, gamers will lose their in-game assets and any data related to their gameplay. Blockchains help to keep data fault-tolerable and immutable since it is on a decentralized network.
This also verifies the digital profile that a gamer uses, without having to expose personal information. This is for verifying data about a gamer's activities and the authorization of gaming transactions.
The blockchain only commits data that is approved through consensus on the network, which is like having a majority agreement on the validity of a transaction. Participants must be honest though, or else there will be consequences if they intentionally prevent or modify a transaction for their own agenda.
In-game Tokens Explained
Many Web3-based games use an in-game cryptocurrency token in their ecosystems. A lot of these tokens are based on a format that is derived from the ERC20 standard. It is implemented using smart contracts, and deployed to a Layer 1 (L1) blockchain like Ethereum.
A smart contract is a computer program that executes on a blockchain network, which contains conditions that provide a function that is used for the token. Gaming platforms can also be built on an L1 chain, with its own consensus mechanism and native token.
Tokens are created for monetization purposes to incentivize gamers. They are a way to reward gamers who participate in the ecosystem through gameplay.
This is defined in the tokenomics, which is the design of the token's revenue generation mechanism and token dynamics. This includes the supply of the tokens and initial distribution.
The in-game tokens can be used as a form of payment on the ecosystem. This allows gamers to purchase items including new games, from a digital wallet that is integrated with the gaming platform.
Some platforms allow token holders to participate in the governance of the ecosystem through voting, which adds more value to the tokens. This helps to build community, allowing gamers to use their token to vote for new policies and for collective decision-making.
This also opens opportunities for gamers to enter DeFi (Decentralized Finance). If the token has enough liquidity, it allows gamers to use the tokens to enter new financial instruments that allow them access to non-traditional lending, borrowing, and liquidity provision systems.
Examples of gaming platforms on the blockchain that use their own in-game token include The Sandbox, Axie Infinity, and Gala to name a few. The tokens are used on these ecosystems and can be traded on any digital exchange that supports them.
Reward Systems
Gamers can earn tokens from playing games rather than buying them from the open market. There are different ways gamers can earn from playing Web3 games.
- Play-to-Earn (P2E) - Gamers play games and earn in-game tokens from gameplay.
- Play-And-Earn (P&E) - Gamers play games in an earning mode which is integral to gameplay.
One way gaming platforms can issue rewards is from minting and selling NFTs (Non-Fungible Tokens). This can be used to opt-in gamers who want to earn token rewards from gameplay.
NFTs are like a subscription profile that attaches to an account (owner), but can also be sold or even transferred to another gamer. Once a gamer has an NFT minted, they can start to earn the in-game tokens provided by the gaming platform.
The Utility Of Tokens
In-game tokens can also provide utility for gaming ecosystems. The utility is provided by the gaming platform in the form of representing points or achievements in playing a game.
In the traditional gaming world, gamers just accumulate points and conquer levels. In Web3 these are considered accomplishments that can be monetized through earnings.
The tokens can be used to redeem rewards like in-game assets, access to secret levels, voucher to online store merchandise, and other perks that a game provides. Tokens also provide an easier way to distribute rewards to gamers, with verified ownership that is recorded on a blockchain.
Another utility use case is minting NFT profiles using tokens. Special NFTs can be minted that offer privileges, like access to beta versions, online hangouts with popular gamers, access to game development workshops, educational material for game developers, and free/discounted tickets to conferences and seminars.
The utility provided is for the community who play and support the game. This helps foster participation and encourage using the gaming platform.
Key Takeaways
While tokens have their advantages and benefits with the blockchain, there are also some concerns. This is related to the use of cryptocurrency and issues that could be encountered.
Tokens can pose a risk to game developers who issue them. They require liquidity and proper distribution, which must be conducted fairly. Tokens that cannot remain liquid can collapse an ecosystem, so platform usage among users must be sustainable. This can be hard if there are only a few gamers on the ecosystem.
Cryptocurrency by nature is volatile. The price swings may affect the tokens, so gamers should be aware of this because it can be sudden and unexpected.
Developers must have reliable code in their smart contracts that meets audit requirements. Buggy code or vulnerabilities can be exploited by hackers, and affect the gamers if not addressed properly.
Another issue is regulatory clarity if the tokens were issued by an entity with a hierarchy and organization that is not decentralized. If the token is classified as a security, regulators can charge the token issuer of securities fraud if the token has not been properly registered.
Conclusion
The use of in-game tokens is what helps to drive Web3 gaming ecosystems. It is not just for rewards. It helps to build community and value for the games, which helps to sustain the ecosystem.
It encourages active participation from gamers, who can also take part in policies that can affect the ecosystem. That disintermediation means more democratization of the gaming experience, removing all decision-making from the developers and allowing the gamers to have their say on the matters.
For gamers the tokens represent the value they own in the ecosystem. Traditional games do not provide this type of access, which is like a privilege that is offered. In-game tokens continue to show use cases that not only introduce innovations in blockchain technology, but examples of the Internet of Value which is the next narrative for the web.
Disclaimer: This is not financial advice and is the author's opinion. The information provided is for reference and educational purposes only. Please DYOR to verify information.
