A popular topic discussed in crypto lately is blockchain gaming. There’s the concept of being able to take a digital item that’s represented as a token (often referred to as non-fungible token or NFT) in one game and have it operate in another game. For example, your character or item in one game could also be played as the same character or item in another game. I’m a bit skeptical of this concept because it can technically exist without using a blockchain as long as the game developers set it up this way. Adding a blockchain for this reason can create unnecessary friction and complexities. I think where blockchain technology is particularly useful in gaming is for marketplaces.
Steam, a popular video game platform, has a Community Market where in-game items can be bought and sold. The market for many virtual items can actually be highly liquid with some item quantities listed in the hundreds of thousands or millions. Steam’s marketplace is centralized and collects a transaction fee of 5% for each item from the buyer to cover fraud incidents and costs of development. This fee could also change in the future. On top of that, games like Team Fortress 2 and Dota 2 take an additional fee of 10% for their items sold.
Decentralized marketplaces driven by rules automated in smart contracts where items exchanged follow an open standard (e.g. ERC-20 and ERC-721) can significantly reduce transaction fees due to the improved efficiency of starting up and operating a marketplace. For example, 0x created a Launch Kit that allows people to spin up a marketplace in minutes with just 1 line of code. Note that if the game developers themselves want to charge a transaction fee for their items sold, then there are ways they can continue to do so. It’s the centralized marketplace itself that I believe blockchain can improve.
Steam also restricts user wallet balances to $2,000 and the price of a single item to $1,800. This was raised from the previous limits of a $500 wallet balance and $400 single item price. While these cases are outliers, many in-game items can actually sell for significantly larger amounts such as the DotA 2 pink war dog courier for $38,000. Within the crypto space there have also been high priced sales such as the $170,000 CryptoKitty. Similarly the game Magic: The Gathering’s coveted Black Lotus card sold for $166,100. There is certainly demand for valuable in-game items. So ideally there isn’t an artificial limit imposed by the marketplace for what game items can be sold and for what amount.
There is also some platform risk for game developers and players if the centralized marketplace decides to delist certain games or items. However, I don’t believe this is as large of a concern since the game marketplaces are typically incentivized to sell more items but this risk still exists.
Trading card games
Marketplaces can improve overall user experience and increase interest in the game. I think a prime example is digital card games. Hearthstone is a wildly popular digital collectible card game created by Blizzard Entertainment that has over 100 million players. Hearthstone opted to not have a marketplace for their cards which leaves opportunity for other digital collectible card games that allow for an open marketplace. One of my most memorable experiences from playing with Pokémon cards as a kid was being able to trade my cards with others. I believe recreating this experience digitally will be highly popular.
I recently played Gods Unchained and SkyWeaver, two trading card games (TCGs) that have cards that are freely tradable. I have spent more time playing Gods Unchained since it was released earlier so I will focus on it in this example. The most important part of Gods Unchained is that the gameplay is as addictive and intuitive as Hearthstone. There is no point during the game where it feels like playing a “blockchain game.” You are also able to earn cards as you level up in the game. Players that did not purchase packs of cards will still be able to improve upon the game’s default decks. It’s an exciting feeling knowing that the earned cards have real world value and can be sold or traded for other cards. Gods Unchained also lets users earn tokens for when they win a match or refer their friend. The tokens themselves unlock rare in-game items and are also freely tradable.
One concern with marketplaces where buyers and sellers can freely trade tokens is that players will need to self-custody them. However this complexity can be abstracted away with good wallets that make it easy for someone to get set up with and use (e.g. PIN, biometrics, social recovery, etc).
Another concern is that the ability to trade items can negatively affect the gameplay as people are focused on extracting value from the system and/or only the players that are willing to pay a lot of money for items can enjoy the game. Diablo III had an auction house years ago where users could trade in-game items for in-game currency and cash. It was shut down because of how it affected the game. It was no longer fun and rewarding since players would just buy the best loot. In Diablo III, having the best loot was essentially the goal of the game so having an auction house severely affected gameplay whereas other games are not necessarily set up this way. It’s important for game developers to find a balance on what should be freely traded for their game (e.g. skins rather than weapons, game time itself can be traded, etc).
I’m excited about seeing more games with open marketplaces and upcoming games like Cheeze Wizards where the characters you use to battle can be traded. While I’ve been skeptical about blockchain significantly improving gameplay itself (even with scaling solutions), I am supportive of experiments to see where crypto can create something new. I’ll be judging the Cheeze Wizards hackathon for this reason!
Thanks to Jordan Palmer for reviewing this post and Will Warren for discussions that led to this post.
Disclaimer: Linda Xie is a Managing Director of Scalar Capital Management, LLC, an investment manager focused on cryptoassets and is an advisor to 0x.