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Blockchain, videogames and the multibillion dollar opportunity

Blockchain, videogames and the multibillion dollar opportunity

Note: This is an adapted version of an article produced for Elastos. The original article can  be found here. If you enjoy this article please follow me @flatoutcrypto

The video game industry is currently in the midst of a sea change. Established companies are shifting their emphasis from traditional game sales (the bedrock of the industry since inception) to add-on content and in game purchases. For example, one of gaming’s largest publishers, EA, reported that while their game sales had declined 27% to $260m, from October-December 2017, their sales of additional content had soared 39% to $787m. What is notable is that of those sales, it is the small in-game micro transactions that are largely responsible for revenues (not the larger add-on content) — an area well suited to the nature of blockchain.

 Elastos and Bit.Game announced their partnership last week

Elastos and Bit.Game announced their partnership last week

As a result, it is unsurprising that we are seeing companies looking to disrupt the gaming industry through blockchain technology. Last week, Elastos announced a partnership with Bit.Game, the self-described world’s first digital asset exchange for blockchain games. The project, currently in its main ICO crowdsale, comprises an exchange for buying and selling games and gaming items, development kits for prospective developers and a Decentralized Autonomous ICO (DAICO) solution to enable developers to raise capital for new projects. All transactions in games running on the platform will be conducted through each game’s digital tokens. Hoard.Exchange, a competing platform, will attempt to do so similar whilst EnjinCoin is another gaming focused cryptocurrency and virtual goods platform.

Non-fungible tokens and gaming

The success of CryptoKitties, where users could buy and sell unique digital ‘Kitties,’ highlighted the appetite and potential for non-fungible tokens. A non-fungible token has unique characteristics, such that each one is different (in contrast to fungible tokens like ELA, ETH, BTC etc. where every instance of one ELA is the same as another ELA). Video games have long had a tradition of finding rare weapons and customizing characters with hard to find equipment.

 The size of the in-game purchase market should not be underestimated - the Ethereal Flames Pink War Dog sold in the game Dota2 for $38,000

The size of the in-game purchase market should not be underestimated - the Ethereal Flames Pink War Dog sold in the game Dota2 for $38,000

Non-fungible tokens introduce digital scarcity and would allow for the creation of provably unique assets. There could be one sword in World of Warcraft, one instance of a player in FIFA, or a customized gun in Call of Duty. This may sound like a small thing, but cosmetic purchases such as gun paint jobs and character ‘skins’ are a billion-dollar industry already. People pay thousands — if not more — for rare items. This existing value means the blockchain has a second benefit when it comes to digital assets, that of ownership.

The likes of Elastos or the Ethereum based ERC721 token are a natural fit for these new developments. All digital assets can be assigned IDs meaning that developers would be able to create X copies of an asset (potentially just one for the rarest items) and know that no more could ever be created. Bit.Game and other platforms are being built to be blockchain agnostic, reducing the barriers for developers and encouraging cross platform usage of digital assets.

The likes of Elastos or the Ethereum based ERC721 token are a natural fit for these new developments. All digital assets can be assigned IDs meaning that developers would be able to create X copies of an asset (potentially just one for the rarest items) and know that no more could ever be created. Bit.Game and other platforms are being built to be blockchain agnostic, reducing the barriers for developers and encouraging cross platform usage of digital assets.

Blockchain would also aid with ownership issues. Should a World of Warcraft player lose access, stop playing, or for whatever reason be banned from the game, they would find that ‘their’ items were not really their items. They were merely granted access to continue using the items, as defined by the game rules and the owner of said game. Blockchain can change that, as tokens would become the property of the gamer and therefore would be theirs to trade, sell, give away or destroy as they saw fit with no third party limiting their rights.

Publishing games through blockchain

Blockchain could also facilitate large scale and low-cost publishing of games, with the revenues feeding back to the developers — not intermediaries. While AAA games are an increasingly expensive proposition, commanding budgets that would make blockbuster movie directors blush, there has been a resurgence of the smaller budget indie games in recent years as systems such as Steam, Xbox Live and PSN have allowed these developers a wider audience. However, the increased competition and the fees charged by these platforms, combined with aggressive sales tactics where 75–90% discounts are common, has led to a situation where many indie developers struggle to make ends meet.

 For those moaning about EOS's year long ICO, Star Citizen has been raising funds for over FIVE years. Tezos will release a functioning product before Star Citizen at this rate.

For those moaning about EOS's year long ICO, Star Citizen has been raising funds for over FIVE years. Tezos will release a functioning product before Star Citizen at this rate.

The same reasons that make blockchain a fit for digital assets also lends itself well to digital products such as games (and also music, books and movies). Developers could launch their game as a DApp or a DAICO, set the smart contract to limit the amount of copies of a game, and then sell them directly to their audience. Elastos, for example, allows developers to set it so that they receive a fee of all resales of their games, providing a longer potential income stream. Despite the transition to digital downloads, the resale market for physical copies remains a multibillion-dollar business and therefore represents a very real opportunity for the platforms which can implement digital resales effectively.

The future of gaming could lean heavily on blockchain technology for many aspects. Developers could raise funds for development not via KickStarter, but by selling off tokens for an upcoming game or by selling non-fungible tokens for use in the finished game or by running a mini DAICO which would give residual rights to profits from the game to token holders. They could then sell games directly over the blockchain using the peer to peer network and allow players to trade both games and items over a decentralised exchange. Decentralised e-sports competitions could be set up, with participants paying an entrance fee in crypto and winnings subsequently automatically distributed by smart contract according to performance.

The gaming industry model has changed beyond recognition in recent years. Mobile games now make up over half of the total industry. In game purchases have become the leading source of many developers profits and pay to play/win have become common business models. Gaming focused blockchain companies could herald in a new frontier of how gamers buy, sell and enjoy games.

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