In this article I review the the subject of application of blockchain technology into the field of gaming. Where are we heading? is blockchain and tokenisation a natural choice for the next wave of innovations coming into gaming? I explore big trends in the gaming industry, as well as most interesting use-cases.
Got triggered into this topic seeing the recent announcement of Algorand joining the Blockchain Game Alliance (BGA). It inspired me to digest it more holistically. Can the existence of organisations like BGA help the blockchain industry reaching out to more gamers?
Does gaming industry even need blockchain?
Algorand and Gaming
In June 2020, we find out that Algorand joins the Blockchain Game Alliance (BGA). In addition to Algorand, several other organizations, such as Atari, have joined the BGA as well. I am not a player anymore, but I still have a lot of nostalgia to my old Atari 65XE (Montezuma Revenge, Asteroids, Pitfall), so an idea of blockchainizing Atari games or other games triggered me to explore the topic further. What role platforms like Algorand could possibly play there for gaming transformation?
I have spent some effort not only to recall the old school gaming times, but also to look at the gaming industry numbers, helicopter view.
Stunning how big the gaming industry grew over the past two decades. It is at nearly $150B today, and is expected to double within next few years, according to Forbes.
The Gaming industry is a huge business these days. The size of this business is estimated at $ 140B - $ 150B per year and is at a very steep growth rate.
It is estimated that over the next few years the size of this industry may double, reaching a dizzying value of $ 300B in 2025.
An additional perspectives on this subject:
- we already have 2.5 billion players world-wide. Huge market. Every third person in the world is a player!
- Gaming is considered the most innovative industry, usually adopting all technological innovations as the first one.
Lets just take the examples of VR (Virtual Reality) or AI (Artificial Intelligence), which are already bread and butter in gaming. Can we expect that blockchain, coins and tokenization will find its grounds there also relatively soon?
Other industries might be hesitant to adopt tech innovations (maturity and regulatory concerns), but gaming thanks to its "unserious" nature, is not afraid to incorporate innovatory approaches, rather sooner than later.
Blocks + Games + Alogs?
But wait... Slow, expensive, not scalable and rough piece of tech like blockchain...?
How could it possibly help revolutionising innovatory industry like gaming?
Algorand seemed to be positioning itself as a blockchain for DeFi, InsurTech, digital currencies, real estate tokenization or CBDC cases - so how does gaming fit into all of this?
BTW, blockchains are not slow and expensive anymore.
Lets first understand the challenges gaming is facing - to have the full picture "if" and "how" blockchain could contribute to gaming.
Gaming, Gamers and their Gems - Challenges!
Looking at various applications of blockchain technology, tokens and cryptocurrencies, I like to validate if there are real problems, that these technologies can address. Some data points and facts, that will help in my narrative:
- Billions of dollars of revenue generated in this area. Industry estimated at 150B USD / year.
- The gaming is growing 20% -30% year over year (and literally "eats" other enterteinment industries)
- Many games are available for free, while revenue comes from selling in-game-items
The problem with in-game-items is that these usually cost real money (yup!), sometimes it is much more than just a few cents, and goes to hundreds of dollars. Nothing wrong with that.. apart from the fact that purchased item is isolated from the outside world, caged within one game or platform .
In addition, what you purchase is not a unique copy of the item. Thousands of identical swords can be easily sold to thousands of players, supply is not fixed and game producers can copy/paste these items as many times as they wish to, so eventually you buy expensive item, available in closed ecosystem, and it even does not represent a unique value, is worthless outside the ecosystem. Once the game ends its life or the gaming company decides to discontinue development of particular game, your purchases are trapped within particular platform, are not interoperable with external world, and you can not import your expensive digital sword from Game_A to Game_B.
This becomes a real problem as more and more items from the real world are being digitized, so definitely we should be provided with a similar level of ownership over the digital sword acquired in the game, as it would have been acquired in the real world.
Startups in gaming domain.
New companies in gaming industry, who are working to develop a new game and build a brand new platform, have pretty difficult task, because existing users who are used to current gaming platforms, and invested significant money into in-game-items will not necessarily want to switch to the new gaming platform, where they would need to start from the scratch buying new swords, new skins, and paying for all the add-ons they have already purchased before, on different platform. Problem: in-game-items are not interoperable between these platforms.
The interoperability of acquired in-game items is therefore an important area, where blockchain can help, especially if we consider the fact that the cost of entry to the gaming industry is very high these days. Average cost to develop and deploy a game goes into millions of dollars, with extreme examples like GTA 5 = 137M USD.
So startups eventually face the question whether to invest millions of dollars to develop a new game, then make it available for free, hoping that this investment one day will pay-off with thousands of gamers buying in-game-items or maybe just abandon the idea of becoming the next Ubisoft.
Fewer and fewer entrepreneurs dare to take this risk and develop new games.
Gaming as a Service (GaaS)
Tech giants start to offer access to gaming platforms on a subscription basis. Such platforms give access to hundreds of titles, with monthly fee, and ads-free gaming experience. GaaS (Gaming as a Service) is available at 5USD / month and offered by such companies as Google or Apple.
Google Stadia and Apple Arcade give almost free access to hundreds of games, at a fixed, monthly fee. There is nothing wrong with such a model, if we put aside for a while the fact that we see more and more centralization happening in the gaming space. This gives these giants a lot of control over what will be the shape of the industry in the long run. Again, there is nothing wrong with centralization if it does not lead to the MONOPOLIZATION and abuse of monopolistic position. Usually end result is not acting in the best interest of the customers/gamers and leads to profits maximisation by the giant on-line platforms.
These Gaming Giants then start to buy new startups, eating their innovations, making the user fully dependent on one platform. Over time, there is less and less innovation happening there, and the prices are starting to get higher and higher. That happens in other industries as well, and gaming is not an exception here.
Sometimes services and products are indeed available for free, which is cool, but beware..
in such case our data and metadata (captured while we play) describing our behaviours, our profiles and preferences are being used for marketing pursues or is being sold to external companies. Eventually - we become the product.
Expected growth of the gaming industry can evolve into gaming overtaking many aspects of our lives (shopping via games, social contacts via games, travels via games, etc..) so better we make sure that the development of gaming as a whole, goes in the right direction. Lets keep it democratised.
HOW can Blockchain help
Most obvious area where blockchain such as Algorand can help - is the tokenization of in-game-items. Algorand offers simple to create Non_Fungible_Tokens (NFTs). NFTs, in other words, are tokens that represent unique items. Lets take Sword_NFT as an example, representing a digital copy of a Sword, available in-game. Only limited number of such Swords would be created (lets say 10 swords) and each of these Swords would be unique items, unrepeatable, with different shape and this could also drive different price of each sword. 1 BTC always has the same value in dollar terms, while Sword_1_NFT could be priced at $1000 and Sword_2_NFT could be priced at $100. This is possible to be reflected on blockchain, and this way we could mirror the real world (first copy of the sword is most unique = hence most expensive, next copies of the sword are copies = hence less expensive)
This is just an example, but the number of use-cases for NFTs usage tokeninzing in-game-items is basically limited only by your imagination, and it is definitely a fascinating area for blockchains such as Algorand
To understand how NFTs will help gaming even further, lets have a look at another dimension = interoperability of in-game components.
Interoperability of game elements
Undoubtedly, an important aspect where blockchain can help gaming, is to make game items interoperable. Games could communicate freely with each other, not only exchanging logic, but also exchanging assets along with their value being transferred between games. You purchased your Sword_1 in Game_A and you could now transfer the Sword_1 to Game_B, along with all it's features, parameters and value it accumulated over time. That is possible thanks to NFTs (Non-Fungible-Tokens) and application of blockchain as a mean to transfer value via NFTs.
Algorand recently release the Co-Chain architecture, aiming to make various chains interoperable. This feature connected with NFTs, enable functionalities described above, like in-game-items interoperability. Basically, blockchain is being used there as a an external communication rails, at the same time providing integrity, value transfer mechanism, transparency (if needed), while ensuring the end user stays in control of their assets, regardless of which the platform he/she decides to choose and whether the operator of this platform is still running the show or has decided to close the shop. At the same time, this creates an open environment for different companies, giving equal chances for startups to access broader, interoperable gaming ecosystems.
DMarket is an example of platform, kind of open market based on blockchain, where various in-game-items can be traded between users. This trend will only strengthen as more and more games decide to tokenise their assets and more and more gamers see the benefit of using open ecosystems vs centralised gaming platforms.
Another example of combining trust that blockchain, as a public and open platform, offers is transparency. You can launch a public, trust-less player scoreboard, connecting players from multiple platforms, under one scoring umbrella. Algorand and the World Chess Association have already managed to implement such mechanism, part of the FIDE Grand Prix (Chess).
Community Involvement and Democratization
If you look at the gaming industry more broadly, there is no reason for centralized platforms to exist to such a big extent, just to connect different game providers and players.
Well designed utility token (blockchain invention) - can play a role of a fuel connecting different players in this area: gamers, game producers and game companies, people developing game artefacts (as in-game-items), and perhaps even the fan clubs of these games.
Blockchain, such as Algorand, can be leveraged to build a decentralized platform, connecting all the mentioned parties, providing them with a unified token, which is used to build the incentive mechanism within the broader ecosystem, providing a glue that aligns the interests of all sides involved.
An example of how this could work:
- Players earn TokenG for downloading the game, as the early testers.
- Players also pay for various items in the game via TokenG (new weapons, new skins).
- Game Companies organise various competitions inside the games, where you can earn/win TokenG.
- Game Developers also offer additional game features or more levels, in exchange for TokenG as a form of payment.
- Designers of the in-game-items use external platform_XYZ to design an artefact, and trade it on the open marketplace with TokenG.
- Fans of the game can earn TokenG for watching game tournaments and cheering their favourite players.
- Fans can also tip their favourite players with the mean of TokenG.
- In addition, games can offer interfaces to external stores, where for example, you can buy a real sword or costumes with a TokenG.
- TokenG is interoperable with a wider crypto ecosystem, making it easy to exchange for Fiat (USD, EUR, GBP etc.), Bitcoin, Algos or Eth.
It all boils down to building an attractive and well overthought platform, connecting all parties involved in gaming activity, and designing TokenaG with incentive mechanism, that will be attractive enough for all sides to encourage them to participate and keep on being engaged into the ecosystem long term.
Simple to imagine? Difficult to implement.
Surely are there several issues to be addressed on the way, but definitely a direction worth exploring - and many are doing so.
What's ahead of us
Gaming bigger than Social Media?
There is more and more noise about gaming becoming a new wave of Social Media. Games will replace Social Media and eat SM platform for breakfast, like Pac Man.
Social Media has replaced to big extent interpersonal interactions some time ago. Games, due to the rapid adoption of VR and AR technology, and the introduction of digital version of us, can become Social Media 3.0, exporting these virtual, digital personas outside the world of games, and allowing for different kind of interactions in a digital landscapes, which are not directly related to the gaming world.
Hence the interest of VC funds around this topic. Adam Draper (son of Tim Draper, known from the world of Bitcoin) invests, among others, in the area of Gaming, VR, AI and Blockchain, and especially in topics that constitute a sensational intersection of these technologies. Hence, among others, projects like TeleportER attracted his attention.
What is Blockchain Game Alliance
Algorand joined BGA in June 2020. If you look at the Board Members of Blockchain Game Alliance, you can see the leadership of companies such as Ubisoft, Enjin and Consensys. So major and interesting players from gaming and blockchain space.
The list of organizations involved in BGA is of course much longer: from AMD, through the gaming industry icons (Ubisoft, Atari) to representatives of the DeFi and Blockchain market ( MakerDAO , Algorand , Matic, EOS). Perhaps something cool will come out of such cooperation.
The possibilities are infinite, and limited only by the imagination of creators.
And what are the goals of BGA?
Creating a space that will allow different companies stepping into this industry from many angles, communicate and exchange ideas, in such a way that blockchain and gaming can find their best intersection. This should encourage adoption by highlighting the potential to foster new ways to create, publish, play and build stronger communities around gaming.
Of course, as usual, such an initiative will only be as successful as the organizations involved in it. Shall they be engaged and full of innovatory ideas or copy/paste existing ideas onto blockchain?
I hope that Algorand will play a major role here, creating new trends and will be recognised as a open platform for various domains, DeFi, Tokenization and Gaming.
In a nutshell
All the gaming numbers and data that I was able to find talk about the scale of the gaming industry pre "covid".
But even with this scale they are impressive enough to care = 150B USD annually. Just to give a point of reference - entire entertainment industry (TV, video and music) is only twice as big.
The growth rate for gaming in reve terms, is estimated at 20% year over year, which indicates that in a few years gaming will be 2x bigger than it is today. I would put forward the thesis that "covid" will only accelerate digital transformation even further from where we are today (will enforce more virtual work, virtual events over live shows, digitisation of supply chains is a must now, CBDC on the horizon). Everything digitized. This will grow with even faster pace as of covid19. Virtual Reality, Gaming, replacement of face to face contacts with virtual ones (new trend in social media) will gain the momentum, and development will accelerate.
Whether I like it or not it's a completely separate topic, but it creates a desperate need for this new environment we are just creating to be:
- fair, providing similar opportunities for everyone to participate,
- private, taking care of privacy of our digital persona , so that we can enjoy it in the virtual world, similarly to what we know from the real world,
- innovatory, opening the gates for the new use cases and business models, which we had not been even able to imagine before.
Blockchain, Tokenization, Smart contracts - all great tools to satisfy these goals.
Either we get involved and help to build on top of his new technology stack or we ignore it, games + gamers + developers will shape the world over the next decade.
Contribute and add your brick to this new development .
Algorand and other blockchain platforms are creating ways to invite a wider community. Get involved.
Andrzej_0xa0 / Twitter.