Blockchain technology is seeping its way into many important industries like logistics, finance and healthcare.
However, when it comes to mainstream adoption of this technology, most people are excited about the potential for blockchain games to bring in the most number of users to the crypto space.
Today, video games are a nearly $150 billion industry enjoyed by over 3 billion people around the world. Incentive mechanisms built into video games are so strong that the average gamer currently spends as much as 8 hours a week playing.
The synergy between blockchain technology and gaming can be seen in how both industries leverage incentive mechanisms to create user engagement and form circular economies.
The Play-to-Earn Model
Blockchain gaming is one of the most exciting innovations occurring in the web3 space.
Blockchains enhance incentive mechanisms in games by placing them on a decentralized ledger where users can participate and earn token rewards under a more open, transparent and permissionless system.
This model of gaming is called Play-to-Earn, or P2E, and it has captivated millions of users in the past few years through the clever insertion of economic incentives into classic-style mobile and web games.
How do Play-to-Earn Games Work?
Play-to-Earn is a type of game where players can earn tokens or NFTs when they win or accumulate tokens in the process of gameplay.
In traditional games, the assets that gamers accumulate are owned by a centralized company and can arbitrarily be inflated or removed at any time.
With blockchain games, in-game assets are tokenized in the form of:
- ERC-20 tokens
- Or NFTs
This gives players full control of their in-game assets, allowing anyone to verify their uniqueness and scarcity.
This means that the in-game assets can be:
- Stored in a players wallet
- Transferred to anyone on the blockchain network
- Traded for different assets or cryptocurrencies using a DEX
In-game assets could also be made interoperable, meaning they can be transferred between different gaming environments if the blockchain games operate on the same blockchain network or a blockchain that is EVM-compatible.
This can provide significant benefits to avid gamers who are already familiar with using tokens as currency within digital economies, but have never truly been able to claim ownership of the assets and achievements they accumulate in a game.
The Gaming Industry
The gaming industry has long been a creative space for all kinds of unique incentive mechanisms. Games create incentive by manufacturing stages and rewarding points when players accomplish tasks or collect items throughout the game.
The gamification experience helps satisfy certain human desires.
In the table below, green dots represent the primary desire the game mechanic fulfills, while gray dots represent other human desires affected.
Issues with P2E Games
Many P2E games in the crypto space have over-emphasized the earn aspect of their game.
While many teams in crypto assumed that video game fans would be attracted to games that allow them to also earn tokens while playing, what they’ve come to realize from games like Axie Infinity and others is that most of the players of these P2E games are only interested in earning the tokens.
Players rarely stick around to continue playing the game once the token rewards subside or the price of the token falls.
Furthermore, as a result of misaligned incentives, many crypto game developers spend more time creating complex token incentive models than focusing on building games that are actually fun and engaging, leading to the creation of mediocre, poorly performing games that do not appeal to mainstream audiences.
The solution to this is simple:
Crypto game developers need to adjust their frame of thinking from ‘Play-to-Earn’ to ‘Play-AND-Earn’.
Meaning, the first and most important component to building a successful GameFi product is to build a great game that everyone wants to play even if they do not get rewarded tokens. Only then, once metrics have proven that the game is highly engaging, should developers think about incorporating token reward elements, which can serve as a great way to further enhance the level of engagement that already exists.
There are also interesting alternative token models that can be explored with blockchain games.
For example, you can turn the ‘play-to-earn’ model into ‘earn-to-play’.
In this case, in-game assets that would normally cost money to attain can be earned by simply playing and being good at the game.
When you beat a level in the game, you are rewarded with an in-game asset that is vital to the gameplay. These assets can then be sold on the secondary market to other players who want to use it to advance in the game.
E2P differs from P2E because it makes the game the primary focus, and only introduces the economic incentives as a bonus for those who are really good at the game.
In another example, token rewards can be issued only for tournaments where gamers play against each other for the sole purpose of winning cash prizes.
Both of these models align more closely with how gamers associate monetary incentives and gaming.
The Future of Blockchain Gaming
Blockchain games can provide many benefits to gamers, including:
- Better alignment of incentives between game developers and players
- And the ability to own in-game assets in the form of NFTs or fungible tokens that can be traded and transferred to different users
The key to operating a successful blockchain game is to first focus on the core aspects of what makes a game interesting.
This means tapping into the human desires for:
- Status achievement
- Self expression
- And altruism
The gaming mechanics that one needs to create to correspond with each human desire include:
- A points system
- Levels of achievement
- Difficult but achievable challenges
- Virtual goods that enable players to advance within the game or bolster their status
- Leaderboards for the best players to be recognized for their achievement
- The ability to give charitably, which is an essential part of fostering a positive online community
From listing out these mechanics, it is clear that blockchain technology and the ability to create transferable and censorship resistant virtual goods is only a small part of what makes a game successful.
Developers also have to think about other aspects like a compelling story, a character or set of characters embarking on a journey and overcoming obstacles that are relatable yet novel.
These qualities of good game design are also essential for good TV shows or movies.
Ultimately, the very best blockchain games will resemble many of the best games people play today, such as FortNite, God of War or Elden Ring.
The key difference will be the ability for gamers to self custody their in-game assets, which opens the door for them to monetarily benefit from the assets as more people play the game and there is increasing demand to acquire rare digital assets that can advance their position within the game.