Created

Jan 19, 2023 8:01 PM

Tl;dr

Pillar 1: Asset Ownership

NFTs allow you to keep in-game items even if the game shuts down
Self-custody means you can use it in other interoperable projects
NFTs can represent rights to access a game + other perks that give new monetization models to game devs
NFTs tell a story through the provable history of ownership that can make gameplay more immersive.

Pillar 2: Transactions and Payments

Trustless marketplaces distribute margin from large marketplaces and sellers to individual sellers
RMT without fear of fraud.

Pillar 3: Interoperability

Content and tokens can be interoperable - NFTs in one game can have representation in others.

Pillar 4: Game Governance

Games allow provable on-chain proof of participation
This allows the creation of new governance models that address the issues with coin-voting, that make tradeoffs between Sybil resistance and plutocracy
This proof of participation model can be tweaked to solve for gerontocracy or account buying (more on this model later).

Pillar 5: Reward Contributors

With crypto, we can now reward contributors with currency native to the game.
This is also important in rewarding developers, marketers, and other contributors to the protocol if the game is fully decentralized.

Pillar 6: Open Source

Because blockchain games are open source, they can be forked to return to previous versions
This, combined with decentralized game governance allows organic dissipation of the incessant pressure to update for game developers.

Redefining the Future of Work?

Through having a global system that is not disadvantageous to smaller players, we can provide meaningful wages to those who satisfy the demand for in-game currency or assets
Crypto-gaming can help alleviate the geographical lottery in ways that even working in regional software businesses cannot
Finally, we hope that there isn’t an over-finalization of gaming as the ultimate purpose is still to have fun. We should use NFTs and crypto to add immersion and never forget that the end goal is to build enjoyable consumer experiences.

Background:

We want to start by first clarifying the differences between how we will use the terms “NFT Gaming”, and “Blockchain Gaming”.

NFT Games have in-game assets that are NFTs. Just because a game incorporates NFTs, does not necessarily mean its game logic runs on a blockchain, or that it is decentralized. Similarly, games could decide to issue tokens and decentralize but omit NFTs altogether.

“Blockchain games” host their game logic directly on public blockchains. Congruently, it does not have to incorporate NFTs or have a crypto-currency tied to the ecosystem (you get the point).

We will refer to games that use any blockchain technology as “crypto-games”.

Note: Because this space is so new, our general definitions will probably have changed by this time next year. NFTs are social by nature, so our discussion focuses exclusively on multiplayer games.

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Pillar 1: Asset Ownership

2008 - I had just made some friends after moving to a new school. A bunch of us boys was hanging out in front of my best friend’s computer during a sleepover where we came across...

“Looks fun - could use a break from Age of Empires 2”

By 2010 we were still throwing snowballs at the basketball hoop as we complained about our homework that day. We had our Secret Agent Badge and Black Belt proudly equipped for all to see. Hanging out in Club Penguin was definitely a highlight of my lower-school years.

Early 2017, I had just found out that Club Penguin was shutting down a month later (March 2017). So my friends and I logged in one last time to shoot some snowballs at the basketball court while we threatened to report anyone who dared try to type “Idiot” with our Special Agent privileges.

Losing Games and Game Items

Whether it’s a mount in WoW or my Puffle and igloo in Club Penguin losing in game-assets is an upsetting experience that is, unfortunately, the fact of life. Whether it’s the dozens of Reddit pages and forums, there are people frustrated with losing items in their games or MMOs that have closed down over the years. Losing something they spent so much time, effort, and money to acquire. This is especially true in the case of MMORPGs, where people built whole identities and communities around their account, only for those to disappear when the game became unprofitable to maintain for the studio.

Here's an example of the unthinkable becoming reality: an MMO that disappeared overnight.

So How Does Crypto Help?

If my Puffle or Penguin avatar had been an NFT, it could exist independently of whether Disney shuts Club Penguin down or not. If other games or individual users so desired, these NFTs could still have use-cases (see Pillar 3, 6) from user spun-up derivative games/experiences.

To better understand this dynamic and why it is important (past your experience with Club Penguin) check out “Into the Void: Where Crypto Meets the Open Metaverse.”

In this section, we want to build on the article above to muse about additional use-cases on how in-game asset ownership can transform gaming.

Buying and Selling of Games (Again)

Accessing games through a DRM (Digital Rights Management) platform like Steam or Microsoft Store means you get a license to play games through their server. You don’t actually own the game.

I remember the good old days when I traded my Smash Bros for a Blazing Angels CD. Every CD and cartridge that my friends had, was also another game I had access to - when we were bored of playing one game, we were happy to sell, swap, and gift it to each other.

Today, I have over 120 games on Steam, and I have no idea what to do with them. I can't sell, lease or gift them on a game-by-game basis nor can I sell my Steam account since it contains sensitive personal information and breaks TOS (terms of service). And frankly, there is a level of confusion about having just “purchased” something and being told that I cannot do anything with it past playing the game; it seems like we aren’t the only ones following this train of logic.

Yet Steam can’t put it more directly that you do not in fact own the game. From Steam’s TOS:

Valve hereby grants, and you accept, a non-exclusive license and right, to use the Content and Services for your personal, non-commercial use…
All title, ownership rights, and intellectual property rights in and to the Content and Services and any and all copies thereof are owned by Valve…
You are entitled to use the Content and Services for your own personal use, but you are not entitled to (i) sell, grant a security interest in, or transfer reproductions of the Content and Services to other parties in any way, nor to rent, lease or license the Content and Services to others…

Instead of digital licenses, NFTs could be used to authenticate access to a game. This is already the case for Axie Infinity, where you must own 3 Axies to play. You’re then allowed to sell, gift, breed…etc those Axies anytime you wish. This now means that you can resell access to your old games, buy games on the secondary market, and lend/rent access to games through NFT renting protocols like reNFT.

So perhaps before you purchase a game you want to try playing it for a while, or you’re finally finished with a game and want to resell it at market prices. Perhaps you want to create social communities around verified ownership of some game, or even guilds with requirements of verification of on-chain data about your in-game status (levels, land-possession, faction allegiance...etc). With NFTs representing in-game assets, or replacing digital licenses, you unlock a richer user experience around gaming.

But what about the Game Developers

If everyone could just buy/sell/trade their games with someone else, then how are they going to make money?

First, NFTs can create new monetization models. Game developers can embed NFTs with a royalty fee so that each time in-game assets get traded, they (or a designated address - a treasury) automatically receive the fees. The same idea applies if the NFT assets represent ownership of the game itself. Axie relies on this model and is one of the top revenue-generating games of 2021.

Furthermore, game developers can offer additional interoperable experiences, lowering the cost barrier for new players while increasing price discrimination. Imagine a game studio that has developed a large game and many mini-games that all can be played entirely independently of each other. These games are related and are all part of a core story/game universe. Purchasing NFT A could allow players to access A mini-game, but they must buy NFT B if they want to access the B mini-game...etc. If they decide that they like what they’re playing, then they could buy the more expensive NFT Z. The different NFTs that I now own can now act as either unique characters, passes to enter certain areas in the big game, or be combined/composed into unique items while still providing access to the different minigames that are part of the same core universe.

The difference between this and the current DLC model is that each NFT is independent of one another. If the area that A NFT unlocks in the main game is no longer interesting to a player, they could sell that NFT individually. Or if they no longer have the time to play games, they could sell everything except for NFT A which to them is the most fun and least time-consuming.

These NFTs also don’t have to be as expensive as DLCs or purchasing games today. With new post-purchase monetization models available to game studios, initial purchase prices could be even lower than DLCs today.

Capturing Value

What is valuable in a game?

Perhaps it's “whatever lets us have the most fun”, but with that, we turn into the realm of subjectivity. A gorgeous-looking sword with mediocre stats may be welcomed by a more aesthetically conscious player but frowned upon by a stat-only player who wants the best gear.

Classic Dilemma

We conjecture that with in-game items the 4 main factors that contribute to “what is valuable” are authenticity, scarcity, utility, and story.

Authenticity, utility, and scarcity are generally well captured in the current gaming environment. If you know that a legendary item is super powerful, has a low drop rate, and is useful to you, you probably spend a lot of effort obtaining it and purchasing it at a high price, and because games today are closed environments, the question of authenticity is trivial.

However, the value of the story, in our opinion, isn’t captured well at all. For example, when you buy an art piece, the curator can usually provide historical background on the piece, like whether its previous owner was someone famous, a crazy story of how it was rediscovered, or a story behind its creation. These stories are what sometimes make art valuable and engaging - when you purchase a piece, you aren’t just buying its visual representation, but its historical context (where and how it was made), its lineage (which walls it has hung on), and its overall story.

Unfortunately, stories like this are rarely captured in in-game assets on a noticeable level, which we believe is a massive missed opportunity. Imagine how valuable it would be for some hardcore fans of Hiko to find out they were buying was the exact StatTrak P2000 Corticera skin he used to execute the inhuman reaction headshot. But more importantly imagine the level of immersion this can bring into gameplay - the level of pride at owning the exact skin used by Faker, the exact whip used by Durial321 during the Fally massacre (this point is expanded upon in Pillar 5). Because the history of ownership is easily verifiable, items take on a story and a lineage, increasing its value but also creating more immersive experiences in gameplay.

An example of the power of story in creating immersive experiences around gaming: the Runescape Party Hat - “one of the most iconic items in the history of modern video games”

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Pillar 2: Transactions and Payments

Besides ownership of in-game assets, the ability to transact trustlessly on blockchain infrastructure could be a solution for problems that revolve around gray markets and RMT (Real Money Trading). As presented in “Into the Void” we assume RMT to be an inevitable byproduct of demand for in-game assets and build off that assumption.

Distribute Margin

The CSGO skin trade is a multi-billion dollar market that lacks transparency despite its popularity, size, and efforts to regulate it. The market isn’t the wild wild west anymore compared to pre-2018 thanks to greater oversight and regulation from Valve, but there still are plenty of fishy third-party sites that are made to scam unaware buyers.

CSGOSkins

A safer bet would be to trade on the Steam Marketplace, which is far more secure and popular. However, Steam Wallet has a limit of $2,000 (so all trades cannot exceed it), a hefty 15% fee, and money gained from trading MUST stay in the Steam ecosystem. If you want to cash out to fiat or have an item(s) worth more than $2000 to sell, you would need to head back to those aforementioned third-party sites. And while many do offer legitimate trading services, the more legitimate they are, the higher fees they tend to command and the greater the likelihood you will need to complete KYC verification and link your account with Steam. What we see is a centralization to Steam’s marketplace and a select number of marketplaces that have high taxes and tactics to force you to stay in the Steam ecosystem.

Because blockchains already have developed infrastructure around secure transactions, marketplaces built atop public blockchains don’t need as much capital investment to maintain security. Hence, they’re able to distribute the margin they need to maintain profitability to the end-users, greatly lowering their take rate (marketplace fees on Opensea are 2.5%). Whereas in the past, Valve had to spend money validating transactions, responding to customer service requests, and building market infrastructure, public blockchains, and open source marketplace contracts already take care of all of these features (in fact just sell them on Opensea). Authenticity verification of NFTs is much easier via reading its metadata, restricting the possibility of scams by creating listing requirements on the platform.

Crypto can also bring transparency to the RMT process. First, crypto-games by definition have adjacent marketplaces where buying and selling of in-game crypto assets take place. By accepting this as a feature of the game, the game can spin up its own marketplace and decrease player reliance on potentially fraudulent third-party websites. Second, through a listing mechanism where the product is automatically delivered upon receipt of payment, and/or through a DEX for in-game currency, crypto can enable better price discovery and trustless transactions.

Interestingly, RMT sellers would also gain from adopting crypto. Current RMT sellers have to deal with credit card fraud, disputed charges, and merchant fees which take substantial chunks of their profits.

Dilution of Prestige

A common criticism with embracing RMT is that it dilutes the amount of dedication a player put in to acquire a rare in-game asset if an RMTer could buy it at the click of a button. NFTs, via on-chain verifiable histories, make available to the public who it was that obtained (minted) the item. This can then act as social currency within the game.

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Pillar 3: Interoperability

Beyond the fact that the Smash Bros franchise is both a great party and competitive fighting game, we believe a factor in its immense success is how it allows characters from different franchises to interact. It’s in people’s nature to compare characters between different stories (Gandalf vs Dumbledore) and debate how a fight or interaction might shake out - to see it happen in-game satisfies that demand. People also find it fun when their favorite celebrities or fandoms collide and produce new content; scratching that ‘what if‘ scenario in the back of our heads. But because of our current gaming infrastructure, the majority of games are siloed in their own franchises and aren’t able to scratch that itch.

A well-visited screen

Content Interoperability

Games like Smash Bros and Kingdom Hearts are in the minority. We believe that players are missing out on a whole new way to experience their games with closed-end ecosystems while developers are missing out on new ways to monetize and promote their games. Meanwhile, Fornite has realized this potential and is not afraid to take steps towards integrating other games/media outside of its universe, like the introduction of Kratos from the God of War franchise or John Wick as an example.

Fortnite

Power To The Players

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