Opportunities and challenges of using blockchain in games (2023)
Does it need blockchain?
Blockchain technology introduces a paradigm shift for both game developers and players. Or does it?
What can you really do with blockchain that you can’t do without it?
Do the benefits outweight the disadvantages of poor user experience and slow transaction speeds?
These are topics that the industry is still wrestling with, and there isn’t a clear model that works to align the game design, business model, and player motivations. This is part of what makes the space exciting to work in, but also very difficult.
Below I will share the most common theories and counter arguments for why blockchain can help games, as well as my personal view at the end.
I strongly encourage you to think through this for yourself. Conviction in blockchain is incredible important, otherwise you might be better off building a standard free-to-play or console game without digital assets.
Opportunities and challenges of using web3
A. Opportunities for Gamers
It is important to differentiate between benefits for players and benefits for the developer. These are not the same. First covering the major benefits for players:
Ownership enhances player motivations
Traditional gaming models often see players spending large amounts of money into in-game items without any real possession. Blockchain, however, grants them the power to own, trade, resell, or even move items across different games.
The most common argument I’ve heard is this:
Imagine two identical games: in one, players can resell their skins; in the other, they can't. Which one would players prefer?
Some practical examples:
Players already enjoy trading & collecting in physical card games like Magic the Gathering or Pokemon. Blockchain TCGs like Gods Unchained and Skyweaver are bringing the same experience online, only with less trading friction and provable authenticity of cards.
Players already enjoy playing strategically to accrue in-game wealth and status, as seen in MMOs like Albion Online and Runescape. Web3 makes status and wealth accrual even more rewarding for players. Games like Embersword and Mirandus are building this experience.
Players already have strong emotional attachment to characters, particularly in character RPGs like Genshin Impact or Fate Grand Order. Real ownership & customisation increases this attachment even more, something games like Guild of Guardians and Stella Fantasy are tapping into.
Players already have a strong affinity to ‘gaming history’, and can now “own” part of it. For example owning the exact gun or deck of cards that was used to win the world championship.
Players already enjoy achievement in games, such as winning medals or top ranking awards. Having these be permanent collectibles allows them to memoralise themselves in the history books even if games shut down their databases.
Decentralisation enables emergent content & gameplay
Decentralisation allows creators and players to build on top of games without fear of being shut down. Not being scared of being shut down is important - because it significantly de-risks making an investment into the ecosystem. Less risk means more attempts at creating value in the game’s ecosystem, which translates over to better experiences for players.
Some practical examples:
Tokentrove and Aqua are both marketplaces that are built by 3rd party developers, which arguably provide a better experience than the first party developer one (Immutable X Marketplace), and therefore provide a better experience to traders while running a viable business.
Some platforms like Sandbox are entirely based around user-generated content (”UGC”), and aiming to replicate a Fortnite Creator or Warcraft III map-editor experience while having rewards for creators and players. The idea is better incentives for creators means better experiences for players.
Onchain gaming teams such as Playmint and Proof of Play are aiming to build autonomous worlds where developers can contribute to how the game works, which creates emergant gameplay and better experiences for players.
B. Opportunities for Developers
Now, lets look at the major benefits for developers.
New Business Models
Blockchain allows game developers to tap into new business models, such as the sale of NFTs or the issuance of in-game tokens, providing a competitive edge.
Some practical examples:
Web3 enables developers to do a kickstarter-like model to help fundraise for initial development while providing exclusive assets for early supporters. We did this for Guild of Guardians where we sold $20m of NFTs before the game was released.
Axie Infinity famously experimented with the idea of ‘play-to-earn’, using token incentives to massively accelerate onboarding to reach 2M players and 70% Day 30 retention metrics. While the economics were not sustainable and led to a death spiral, this is a good example of trying to use web3 as a distribution/retention edge.
Gods Unchained is a live game which currently has a token (GODS) valued at $85m (as of 6th June 2023). This is useful as a multi-million dollar marketing budget, and has seen several rounds of iterations to quantify the impact of rewards to player behaviour.
The most interesting example of decentralisation enabling businesses is something called “Web3 Guilds”. Guilds refer to a business around playing web3 games, typically connecting investors with money to players with a lot of time. Organisations such as Yield Guild Games and others fundraised a total of $500m, showing significant interest in the decentralised businesses around web3 games.
Composability & Open Source
The open-source nature of blockchain allows game developers to grow their games beyond traditional models. This encourages a participative culture where users are confident enough to build businesses around the game, knowing they won't be arbitrarily shut down.
Some practical examples:
Analytics providers like Helika use a mixture of off-chain and on-chain data to analyse player behaviour, helping publishers better understand, retain, and monetise from players
GUDecks is a website that builds meta deck lists and analytics for Gods Unchained. It previously earned a 10% commission from all sales, resulting in 6 figures of revenue for this 3rd party developer.
Guild of Guardians had a similar refer-to-earn mechanic (get 10% of what your friend spends). In this case, the referral mechanism was on-chain and therefore anyone in the world could use it. Individuals made around $500k from referrals.
Evangalise communities
Web3 so far has proven its ability to create evangelists among the community. This is because web3 projects often start building communities very early, and share the journey along side the community. In addition, community members will often own NFTs and therefore feel a sense of ownership, pride, and support for their favourite games
Some practical examples:
Bored Ape Yacht Club infamously created a massive community which led to their uprise as one of the most well known NFT projects. Community members have built things like IRL meetups, fast food restaurants, yacht parties, music videos, and more - all inspired by the brand
Other games like Illuvium, Guild of Guardians, and Axie Infinity all have built up a core loyal group of supporters who are emotionally and financially invested in seeing the project succeed. This group are vocal on social media, actively voice their opinions on what the game should do, and ultimately are advocates for the game.
Despite all of the above benefits, there are major criticisms of blockchain technology in gaming. These challenges are not necessarily trivial and it is not yet certain whether they can all be solved.
C. Challenges for players
Not solving any player problem
Critics will argue that blockchain doesn't solve any real player problem. They claim that players generally don't care about owning digital assets and already trust developers to manage in-game item economies. In addition, the argument is that ownership and portability doesn’t matter if games can still shut down, meaning interoperability is not valuable.
Real money ruins player motivations
Making in-game items tradable assigns real-world value to them, potentially introducing unwanted stress into an activity meant for relaxation. The extrinsic reward of a valuable asset may even devalue the satisfaction of players. In addition, enabling players to buy anything might spoil the game experience, as the element of discovery and grind can be important in some games. A common example here is the Diablo 3 auction house, where players could ‘skip’ the grind which ruined the core game play loop.
Poor usability and scams
Blockchain can be slow and incredibly complicated to use, taking many more clicks than what players are used to. This may deter many players. Games with real money will attract botters and scammers, which likely create a negative experience for players.
D. Challenges for Developers
Higher costs of development
Blockchain is an expensive technology to integrate into a game. This is partially because it is new (it is expected technical costs will reduce over time), but also because it's an extra cost on top of building a great game. This means it's likely that web3 games will be more expensive to develop than web2 ones.
Negative perception (environmental, scams)
Some blockchains consume significant amounts of energy, leading to environmental concerns from players. In addition, NFTs and cryptocurrencies tends to have a poor perception among many gamers, who assume they are a scam and prefer to stay away.
Cannibalisation of secondary market
The nature of web3 is that assets are tradable between players. This causes cannibalisation - which means players are competing with the developer for revenue. Cannibalisation is a challenge because it's unclear what the right revenue 'mix' is for a studio, how that might differ by audience or game design, and whether a web3 game is really more profitable than a web2 game.
Conclusion
While blockchain has the potential to significantly transform the gaming industry, there are still considerable obstacles to overcome.
Currently there is no consensus on what a working “model” looks like and whether there even is one.
My personal take is that blockchain has massive potential in games because it brings the ‘tradability’ of the real world into digital entertainment. However, it will require thoughtful innovation and a strategic focus on creating unique experiences, rather than copying existing game designs. This is necessary to make the additional frictions worthwhile for investors, publishers, studios, and players.
About me: Lifelong gamer and crypto native degen. Background in startups and consulting. Formerly VP@Immutable where I built out Guild of Guardians (squad based mobile RPG with ~1 million players on the waitlist) and advised partner studios on web3 economies. I’m passionate about in web3 gaming industry forward by sharing strategic yet practical perspectives. Find me on Twitter.