Blockchain and the evolution of business models in the gaming industry

The first computer games were developed in the late 20th century with the sole purpose of entertaining audiences. One of the original goals was to distract players from their day-to-day tasks and give them access to fantasy worlds. Soon, games began to compete for users’ time with traditional forms of entertainment such as movies, circuses, theatrical performances, and zoos.

Earth enters a new millennium with a population of over 6 billion, a number projected to reach 8 billion by 2023. If we assume that computer games will cease to be a substitute for work and become a complement to work, there will be 4 billion gamers worldwide by then.

Not surprisingly, the traditional boundaries between gaming, media, sports and communications are rapidly disappearing, creating new business partnerships and sparking an increasing number of mergers and acquisitions across the globe.

The still-active virtual world Second Life, which represents the first attempt to enter the virtual world with its own in-platform virtual currency, is an important example of this process between 2003 and 2006, during its most rapid growth period . Players in many countries quit their jobs and devote 100% of their time to virtual worlds.

But why would the use of blockchain in gaming spark a real revolution in the gaming industry? This is the question this article attempts to answer.

game market

According to mid-2021 figures, 3.2 billion people are playing computer games, and as Newzoo reports state, global gaming revenue in 2021 will be approximately $180.3 billion, a 20% increase from 2019, before the pandemic began.

Digital distribution channels are the source of most of this revenue. Mobile gaming is a major growth engine for the gaming industry, driving the segment to $93.2 billion.

The game development industry has undergone profound changes over the past five years. With the advent of mobile app stores and digital distribution platforms, even smaller studios have gained the ability to develop games for the global market.

China remains the largest regional segment in terms of revenue and number of players, accounting for more than a quarter of all sales. The entire Asia Pacific region has 55% of players and offers the highest margins and fastest growth rates.

The introduction of new technologies such as artificial intelligence (AI), virtual reality (VR), and blockchain has become a major trend in the market. In recent years, many blockchain-enabled gaming applications and services have emerged, and the number of such projects is expected to cause a boom in the market in 2022.

The evolution of business models in the gaming industry

Pay to Play (P2P) Mode

From the 1970s to the 2000s, the most popular business model in the gaming industry was “pay to play”. Under this model, development studios and publishers receive revenue from initial game sales and, in some cases, subscriptions. Partnerships with advertisers on in-game advertising are few and far between.

In this mode, players have little chance to extract value from the game, other than the satisfaction and fun they get from the gaming experience.

Free (F2P) Mode

In the late 2000s and early 2010s, the “free to play” game mode gained traction. This model was once considered a disastrous business model, generating lower revenue for specific games at best, and cannibalizing the entire gaming industry at worst. However, it has proven to be the best monetization method and the main reason for the rise of gaming culture.

In free mode, games are offered to players for free. In this type of model, in-game purchases (items and upgrades that improve game functionality) and advertising make up the vast majority of publishing studio revenue. Streaming and esports services act as a monetization lever for players, while allowing “elite” players to earn rewards.

Fortnite is a perfect example of the success of these free-to-play business models. Launched in July 2017, the game generated over $5 billion in revenue in its first year of production. Additionally, its user base climbed to around 80 million monthly active users in 2018.

Play and Earn (P2E) Mode

The “play-to-earn” model is exactly what the name suggests: a model where users can earn tokens or cryptocurrencies while playing games. This model has very powerful psychological incentives because it combines the two activities that have driven humans from the beginning: reward and entertainment.

The main idea of ​​P2E is that players are rewarded for investing more time and effort in the game, thereby becoming part of the in-game economy (token economics), creating value for themselves, other players in the game ecosystem, and Also for developers. They are incentivized/rewarded for engagement and playtime in the form of digital assets that may appreciate in value over time.

Note that the use of blockchain technology in such assets brings scarcity to digital assets in games, which can take the form of NFTs and can represent anything from characters like kittens in CryptoKitties to cryptocurrencies such as Bitcoin (bitcoin) or Ether (Ethereum).

related: Metaverse, Game Money and New Game Economy

Along these lines, a key component of this model is for players to “own” certain “digital assets” in the game, allowing them to add value to themselves through active participation. This is where blockchain technology plays a decisive role in gaming business models.

Many concepts come from traditional games

The blockchain-based gaming industry is still in its early stages, and it still revolves around many concepts from traditional gaming. For example, NBA Top Shot is building on the “collect and trade model” that has prevailed in baseball cards and other collectibles for decades.

Axie Infinity is currently the most famous blockchain-based game, using the “breed and fight” game mode introduced by Pokémon in the 1990s.

related: How Blockchain Technology Brings AAA Games to the Virtual World

Sorare, on the other hand, is a game where players buy and trade soccer cards and build competitive soccer teams, based on a “recruit and compete” model. Likewise, virtual worlds like Decentraland and Somnium Space are immersing people in alternative realities, like Second Life and The Sims before them.

Therefore, while many games that use blockchain technology (such as The Sandbox, Gods Unchained, and Star Atlas) are often in the same category as games that do not use blockchain technology, the most important feature is that they are different from their counterparts in the traditional market. The game is backed using a blockchain-based cryptocurrency.

Overview of Blockchain Games

Advantages of blockchain games for players

With the introduction of blockchain technology, native game assets flowed to global, permissionless blockchain platforms, rather than being bundled and locked into a game-specific platform or a local environment controlled by a video game development company.We discussed this before, when we introduced The role of blockchain in NFTs in this column.

Here, it is important to highlight how blockchain technology enables digital assets such as non-fungible tokens to be interoperable and instantly viewable across dozens of different wallet providers, which can be done on other gaming platforms transactions, and are required in a variety of ways Metaverse’s virtual world. With blockchain technology, interoperability, in turn, expands the liquidity of digital assets, allowing them to be freely traded on other gaming platforms. This gives users direct ownership of their in-game items, giving them complete and irrevocable control over their use.

That said, blockchain gamers can access NFT marketplaces and crypto-active brokers, and extract value from their gaming experience by buying and trading digital assets earned in-game 24/7 around the world. Additionally, the tokenization of in-game assets opens up many other opportunities.

related: Ready Player Earn: where NFT games and virtual economies overlap

Decentralized financial markets are where some players can use the in-game assets they acquire for earnings. Platforms such as Yield Guild Games facilitate lending activities such as in-game assets, so players who do not have the initial funds required to purchase in-game items can participate in a given portion of the game through ceding through DeFi, monetizing their income and providing them to “in-game”. Item Lender”.

The advantages of blockchain games for developers

In addition to increasing monetization opportunities for gamers, the use of blockchain-based assets is also beneficial to game developers.

Under the current structure of in-game item exchanges, a practice known as “gold panning” has prevailed. Gold mining involves players selling accounts or game “coins” on dark or over-the-counter markets, limiting developers’ profit opportunities on secondary markets and leaving players vulnerable to fraud.

As the market for digital assets acquired in blockchain games expands, developers can obtain transaction volume information for these assets and encode royalties into NFTs so that on each subsequent sale, they receive a portion of the sale price as royalties. This represents a real evolution in the way intellectual property and copyright are thought about in the digital world.

Game Industry and Property Disputes

Games using blockchain are fundamentally different from traditional games because of the way they approach ownership. Blockchain games give players complete control over the digital assets they acquire or acquire by participating in the game.

In traditional games, even if players pay real money for their digital assets, if the server goes down, they can no longer access them. That said, in traditional games, money and assets remain the property of the publisher or developer.

Ultimately, blockchain gamers retain full ownership of their digital assets, allowing them to freely trade with other players, sell them for real money, and potentially use them in other games or virtual worlds in Metaverse.

related: Non-fungible tokens from a legal perspective

The trend in the gaming industry is to adopt blockchain in games as a point of no return, and currently, the P2E model is the driving force for this adoption. Over time, however, the use of blockchain in gaming may span a variety of use cases outside of the gaming monetization model. This is because the technology enables countless combinations and incentives.

Against this backdrop, it’s no wonder that in the past four months alone, hundreds of millions of dollars have flowed into blockchain- or NFT-centric games, with investors allocating large sums to startups looking for expert developers to build their team.

At the same time, governments have consider taxation Axie Infinity is currently the most popular blockchain game, using P2E mode, with more than 2 million players earning profits.

How about you? Will you spend your time competing in the game and being rewarded with digital assets, including as work experience on your resume?

This article does not contain investment advice or recommendations. Every investment and trading move involves risk and readers should do their own research when making a decision.

The views, thoughts and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.