How Can The Blockchain Enhance In-game Economies Better Than Steam?

Gaming is quickly becoming one of the world’s most important and profitable forms of entertainment. 2.2 billion players worldwide are spending over $100 billion a year, but there is a relatively new part of the industry that is really getting players and game developers excited. In-game currencies and economies are buzzing in games like Dota 2, but are still limited and tightly controlled because of a number of issues. Some believe that these in-game economies could truly be unleashed with the right technology. Let’s take a closer look at these economies, and see how blockchain technology could be a game-changer for this industry.

In-game currencies and assets

Items in games have value to players. Think about the last time you got a little too immersed in a board game. In that moment, it can feel like winning is the most important thing in your life. Then, this value traditionally vanishes as soon as the game ends. Nobody cares about Monopoly money once the board has been packed away, but now things are changing. The line between in-game and real-world is becoming blurred for millions of players. The virtual worlds of online multiplayer games continue to run even when you’ve logged off, and many gamers spend hours a day playing their favorite titles and earning rewards.

Gamers want to buy and earn virtual assets for all sorts of reasons, including status, identity, membership, class, and performance. Sometimes they will even pay thousands of dollars for virtual goods or virtual real estate. This demand has resulted in thriving economies driven by virtual currencies in games like World of Warcraft, who’s gold mining economy has previously been worth $2 billion. However, the emergence of these economies has led to difficult issues for platforms, developers, and players alike as we’ll soon see.

The current in-game asset industry

The main parties in the in-game asset industry are

  1. The players
  2. Game developers
  3. Third-party platforms and middlemen

Game developers do what they do best and create the games and in-game economies for players. However, to get these products to the players effectively they often have to go through a platform or third-party. Once players are playing and want to trade with each other, this also has to be done through a marketplace. Here is where developers (especially indie developers) lose touch with players, control of their marketplace, and profits. Platforms and third-party marketplaces control what virtual goods are available in their store, and those platforms take a cut of all transactions. The most important one of these platforms is Steam.

Steam

There are a few platforms available to players who want to buy and sell virtual goods, but Steam is leading the way. It was first released in 2003 by Valve Corporation after they were having trouble updating their online games. Since then, Steam has grown into the biggest game distribution platform for PC games in the world, with $3.5 billion in revenue in 2016.

Steam was the first platform to allow players to trade in-game items. Players use Steam to buy, download, and launch their games. From within the Steam platform, they can log into different game marketplaces to buy and trade in-game items with other players. Game developers can also set up their own item stores for their games on Steam.

Problems with Steam and other gaming platforms

Closed marketplaces

The biggest problem with the current state of in-game asset trading is that it’s extremely restricted. Trading items within the context of a single game is easy, but that’s usually where it ends. There is currently no easy way to trade assets between different games, especially not from different developers or on different platforms. The industry is made up of many different isolated in-game economies.

Security, scams, and fraud

Scams and fraud run rampant across the video gaming world. It’s estimated that 50-99% of all virtual assets available online are fraudulent. Valuable digital goods, integrated payment information, and vulnerable games make the gaming industry a dream for hackers and scammers. PayPal chargeback fraud and other online scams are easy. A buyer can buy a weapon or skin from you for a price, take the item, then chargeback the amount on PayPal.

There are even scarier attacks that involve hacking games, like this gold stealing script in World of Warcraft that takes over your account, steals your gold, then sends itself to your friends, spreading like a kind of terrifying zombie virus. In response to these sorts of attacks, Blizzard just passes responsibility to the players by saying, “Blizzard does NOT support paid runs for cash or gold, if you get scammed, your gold is gone.”

Centralized control of goods

Like many of the established online industries, gaming is dominated by a few big organizations that take a hefty cut. Companies like Steam operate a centralized business model with all traffic and transactions running through their own servers. They have complete control over the games, currencies, and assets, and they decide how players trade with one another; they have leverage over what developers can do. Game developers can be kicked off of a platform like Steam, while players can spend hundreds or even thousands of dollars for a virtual asset and still have no real ownership of it.

Steam and all current platforms struggle with the security problems we’ve talked about, and platforms need to have complete control and restricted trading or risk being sued for losing players goods and money.

It’s difficult to cash out for players

However, Steam’s marketplace is limited to just a few game titles and all assets and profits are trapped in Steam dollars.” There’s no way official way to cash out of the platform. With their current centralized system, it would be a huge security risk that attracts attackers and hackers that could steal the items and run away with the profits. Steam chooses to stay safe rather than open up their marketplace.

How can the blockchain disrupt the gaming market?

Blockchain technology is solving problems in all kinds of industries. Bitcoin has introduced decentralization and security to the financial world in a way nobody ever could have imagined. Now, the blockchain is targeting the world of gaming.

Uniting the in-game markets

The most important thing the blockchain can do is create a universal token for trading between different currencies and connecting the currently isolated economies. Bitcoin is attempting this very thing with the global financial markets. For example in Venezuela, citizens are using Bitcoin as a financial tool to escape their isolated domestic currency.

A token that could be efficiently traded between many in-game currencies could combine many of these isolated markets – Halo, World of Warcraft, League of Legends – into one (or possibly a few) super-economy. You could sell the gold and silver you’ve earned in World of Warcraft and use the proceeds to buy a new weapon skin in Counter Strike.

Blockchain can create a universal token that could be efficiently traded between many in-game currencies combining the isolated markets into one super-economy! Click To Tweet

Security and speed

When implemented in the correct way, blockchain technology is extremely secure. Cryptocurrencies and smart contracts can be easily combined to make transactions fast and secure, even without a third-party to oversee the transactions. This will make the scamming much more difficult, and in many cases impossible.

Decentralization

A peer-to-peer protocol would let players transact directly with each other and game developers, and it allow gamers to truly own their in-game assets. This removes the need for a third-party platform to keep track of transactions, just like what Bitcoin is doing with banks. Opening up a free market in this way could let developers and players express themselves more freely.

New payouts for players

A token representing in-game assets could be traded easily for Bitcoin or even fiat currencies. Exchanges could allow players to easily switch their new universal tokens for anything there is demand for. Professional gaming could expand beyond famous esports stars.

New economics for the industry

If these ideas can be implemented, there will be profound changes to the way the industry works and how profits are distributed. More power and influence will be given back to the players and developers. The blockchain is already proving it can do this in the digital advertising industry, where it’s helping advertisers connect more directly with consumers, and reducing the influence of middlemen like Facebook and Google.

Large platforms like Steam could find themselves more disposable in the blockchain's new economy and less able to dictate rules and fees to gamers. Click To Tweet

With a thriving marketplace for all things gaming operated and secured by the blockchain, developers will have an exciting new way of earning cash for their efforts. Rather than just earning upfront when players purchase their title, developers could focus on nurturing buzzing in-game economies to keep the revenue streaming in as long as the game is being played, and do so without relying on Steam. At the moment, this type of model is only profitable for a few large game developers. The blockchain would open it up to all kinds of developers.

New bottlenecks

The magic of the blockchain can make large problems disappear, but it also has its challenges. Some of the new bottlenecks that will likely open up are:

  • Now gamers will have to manage their own tokens, wallets, and cryptocurrencies
  • New, valuable assets become a prime target for fraudsters. Phishing scams and other attacks are inevitable
  • Integrating multiple games into one system will require working with the developers and getting them onboard with the project. It will likely be very difficult to do this with the current market leaders like Valve, especially for projects looking to disrupt their control of the market
  • No more rollback after hacks

That last point is very important. Right now, if you can prove to Steam that you’ve been hacked, you can get your assets back. With a decentralized blockchain this is impossible. Just like how stolen Bitcoins can’t be rolled back by banks, stolen blockchain assets are gone forever.

Analysis of current blockchain-based projects in the gaming industry

Here are some of the projects racing to implement these ideas:

DMarket

DMarket is a global marketplace for all virtual items. It’s mission, outlined in their white paper, is to “turn virtual items into real assets with blockchain technology.” They intend to do this in a way that’s similar to other blockchain projects in the game industry as well as others.

DMarket is introducing a universal currency for gaming called DMarket Coin. DMarket Coin can be used to trade in-game items with other players or with developers. It can also be traded for cash at any time. This provides a platform for cross-game item trading and a way for gamers to cash out. DMarket tokens let you switch games without losing all of your hard-earned progress.

There is also a focus on generating revenue for developers. A thriving market will require engagement and integration from developers within their games. DMarket promises to give most of the fees it takes from trades (up to 80%) straight back to the developers. This gives them a strong incentive to build games with items worth trading, and to integrate those games with DMarket.

Perhaps one of the coolest innovations is to use their blockchain solution to give every virtual item a unique identifier, opening up the door for a “collectible” status for individual items. For example, allowing buyers to collect individual items used by their favorite esports stars at tournaments, just like real athletes.

DMarket Coin uses the Exonum blockchain framework, boasting speed, elasticity, and security. Data is stored in a decentralized database, and interactions are done with smart contracts. An API is available to game developers to integrate their games and give value to their digital items.

One concern is that users and game developers have to sign up on the DMarket website before they can start using the blockchain and tokens. This means that DMarket has control over the system so they can censor the marketplace how they see fit.

However, the biggest concern for DMarket is the same for many of its competitors – getting market share. Steam has a huge number of players committed to its platform, and it won’t be easy to rip them away. Game developers will also need to be on board and actively integrate DMarket into their games.

GameCredits

GameCredits is also a universal gaming currency and a direct competitor to DMarket. Launched over three years ago, it’s a veteran in the crypto world. However, GameCredits is just one piece that fits into a broader organization called GNation. GNation has slightly larger ambitions, aiming to build a universal currency for buying and selling games and in-game assets. They also want to help promote the global adoption of cryptocurrencies.

GameCredits is one of a series of products by GNation that is designed to disrupt the current market. These include a cryptocurrency, a gaming wallet, a game store, an exchange for trading game credits, an esports matchmaking website, a charity organization, the massively multiplayer online mobile game “Pixel Wars,” a game creation engine for developers, and a mobile app store. It’s a big project with enormous momentum.

Brave New Coin CEO Fran Strajinar sees GameCredits as having a big advantage in the market, saying it has the “right tech, team, and approach… Out of the thousands of new companies trying to build ‘blockchain’ solutions to disrupt various industries, GameCredits is the only one with an actual solution, working product, millions of users, and a quantifiable market that is being disrupted.”

The technological pitch is similar to many blockchain projects. It’s fast, global, distributed, secure, efficient, and anonymous. However, the specifics of that technology aren’t as open as other blockchain products, and there is no white paper or technological specifications made easily available to the public.

The main problem with this project is that it isn’t a pure decentralized tool to help gamers and developers. The creators have a lot of control over the protocol, fees, and the invoicing API, and the new world of gaming they imagine has GNation at the center of it. This presents a single point of control, and failure, that blockchain startups usually want to disrupt.

TapProject

tapprojectTap Project is a blockchain project that’s also looking to open up in-game value to the real world. Their slogan is “Fueled by gamers, inspired by the community, disruptive to all.” Just like DMarket and GameCredits, their goal is to tokenize in-game currencies.

At first glance, Tap Project isn’t too different from the other ideas we’ve discussed. The real difference is the focus of the project. Where GameCredits is attempting to solve many problems at once, Tap Project really knuckles down on one aspect: in-game currencies.

The team wants to target and tokenize in-game currencies rather than just in-game assets like skins or weapons. If it works, this will make in-game currencies more “real” and integrated with the real world markets. As a player, you’ll be able to exchange in-game currencies between games. League of Legends players will be able to trade their Riot Points for gold or silver in World of Warcraft, using Tap Tokens as a medium. You will also be able to cash out your in-game currencies you’ve earned through gameplay to make a small profit off of your gaming time.

As we’ve mentioned earlier, the success of blockchain projects relies on widespread adoption. It’s extremely important that the team can get developers to integrate Tap into their games. There is a 70% cut for developers to incentivize them to get involved, and the team has worked on making integration as easy as possible for game developers. But, getting enough games and momentum will be difficult with so much competition.

An interesting technological aspect of Tap Project is that it runs a Proof of Stake concept, giving Tap Tokens holders a way of earning dividends. If you hold a certain amount of Tap Tokens you’ll be rewarded with more. If you hold a lot, you can become a “community partner” and earn a higher rate. You can find more details about this in the white paper here.

Conclusion

Video games are becoming the world’s favorite form of entertainment, and players now want to do more than just play. They want to buy, sell, earn, barter, and consume goods just like they do in the real world. Steam is the most popular option available at the moment, but it’s limited and has many unsolved issues.

At a glance, In-game virtual economies look like the perfect use case for the blockchain and cryptocurrency. Many of the industries’ biggest problems lend themselves well to a crypto-based solution. But getting from the centralized state we are now to something else will be difficult. Entrenched market leaders won’t give up their control easily.

In-game virtual economies look like the perfect use case for the blockchain: replacing digital gold coins with... digital crypto coins! Click To Tweet

The projects we’ve looked at here will need great technological solutions that solve the security and centralization issues that plague the industry today in a way that works for both players and game developers. Then, most importantly, they will have to brush aside the competition and get people to actually implement that idea. Whoever can manage all of that may well disrupt the gaming industry forever.

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