By Brent Liang, Head of Special Projects / Web 3 at Goat Capital.
Chances are you’ve heard of NFTs. Think of them as digital assets backed by certificates of ownership that can’t be forged. Nothing on the internet is truly yours: All your digital assets are data points on company servers that can be erased. But with non-fungible tokens, or NFTs, users “mint” unique on-chain assets that they fully own. Since each record is encrypted, trust is decentralized and allows for ownership that can’t be destroyed.
This is huge for gaming. NFT trade volume grew from $135 million to $64 billion since December 2020. The blockchain gaming industry grew 2,000% in the past year and has attracted $2.5+ billion in investments. People are fascinated by the idea of putting durable in-game assets on a blockchain. For players, items they acquire will now be tradable for monetary value. For game companies, their assets become persistent platforms on top of which other developers can build experiences. However, while these concepts are exciting, the space is young and it comes with its own challenges.
Here are three things you should know about the world of blockchain gaming.
1. Gamers don’t like NFTs.
Gamers care about one thing: having fun. The moment that fun comes with an ulterior motive, they riot. Subscriptions and microtransactions have been a tough sell to gamers. Diablo Immortal, a recent Blizzard title, received the lowest user score in Metacritic history after it was discovered that it could cost players up to $110,000 to fully upgrade a character.
When it comes to NFTs, where every win/loss might translate to earnings, the pushback can be immense. Prominent game studios such as EA and Ubisoft have faced intense backlash from gamers on their NFT rollouts. For Web3 business owners, game developers and investors, it is vital to be cognizant of this general sentiment and hedge against it.
2. It’s early, but money is pouring in.
The blockchain gaming space is still new and is plagued by growth challenges. Hacks are common: The well-known, play-to-earn game Axie Infinity was robbed of $622 million in March. Its native marketplace then lost 17% of its user base in the 24 hours following the hack.
Volatility, hacks and scams like this have made it difficult for major platforms such as Twitch and Steam to adopt crypto games: Both have company policies banning NFTs. For builders looking to enter this space, expect a lack of support from mainstream platforms and media as blockchain gaming slowly gets legitimized.
It is important to stay focused on three things in the meantime: delivering a fun game, cultivating a loyal community and ensuring good user security. Establishing a game product feedback loop is paramount. It is also largely uncorrelated with macro crypto fluctuations, which can be harsh.
Some good news is that blockchain games are getting increasingly well-funded. In just Q1 2022, investors poured $2.5+ billion into crypto games. This is expected to grow to $10 billion by the end of the year. The challenges that come with being early—such as crypto onboarding, gaming infrastructure and tournament software—are also venture opportunities. This is a promising trend for new founders looking to attract seed funding.
3. Play-to-earn games can be life-changing.
Blockchain gaming allows players to earn while they play. This is quickly becoming an alternative career for many in developing countries. The Philippines boasts a 20% population adoption of blockchain games and accounts for 40% of the player base in Axie Infinity.
In some cases, Filipino workers reportedly earn double or triple their local minimum wage. LATAM countries such as Argentina and Brazil trail closely behind (Decentral Games, one of Argentina’s favorite game sites, attributed this to the sharp inflation in both countries).
For those hoping to understand the potential of play-to-earn, or P2E, gaming, this is worth noting. For game developers specifically, this suggests that having sustainable tokenomics goes a long way. Also, due to income differentials, cultivating a P2E fanbase in developing countries can be a superior strategy. For investors and businesses, it becomes imperative to understand each project’s whitepaper fully. Also, countries like the Philippines and Argentina may present a growth opportunity that can’t be overlooked.