How the gaming ecosystem will evolve in the Web 3.0 economy

Advancement in technology has revolutionised the gaming industry over the last many decades. We are currently at the cusp of another significant advancement in the gaming industry, and I am super excited about this trend. As the gaming industry moves from free-to-play to play-to-earn, it will change the dynamics of the gaming industry completely. This is why I have decided to start penning down my thoughts about it.

While we will explore the history of the gaming industry in another post, I wanted to kickstart my journey of writing about what blockchain-based gaming has to offer and how it can transform the gaming industry.

The gaming industry generated close to $160 billion in revenue in 2021. In the current setup of the gaming industry, players put in the time and resources to play games without receiving much direct economic benefit. They buy a lot of in-game items, develop their characters, get to like zillionth level, etc but can not monetise their skills or assets directly in the game.

In fact, if they stop playing the game, they can’t do anything with the money and time they have spent on the game. So, while the players do all the hard work in games and spend real dollars, they don’t get to own anything.

While esports and online streaming provide some economic upside to the gamers, they are both limited to a small subset. Due to this, gaming is mostly seen as a resource sink (time and money) in the Web 2.0 ecosystem.

Web 3.0 stands to change the gaming industry fundamentally. In the Web 3.0 world, gaming will allow players to earn money while playing the game. In this new era of gaming, if players spend money on buying some asset, they will own it and will be able to sell it to other players within the game or outside the game.

1. Ownership and scarcity of the assets

Almost all games today have in-app purchases, which drive over 50 percent of gaming revenue. These in-game assets are typically infinite in number and are sold to the players through IAPs. Even after paying for these assets, players don't really own these assets in Web 2.0 gaming.

Blockchain technology will enable in-game asset ownership and digital scarcity. In Web 3.0, each asset will have a finite supply, and each asset ownership will be with players after the sale.

When a player buys an asset, the technology will tie the asset to the player instead of the game, thereby protecting time/money investments players have made. Since the players own these scarce digital assets, players will be able to sell them to others and can keep them outside the game.

2. Earn while playing

In the current state of games, players don’t earn while playing games. Instead, players try to monetise their gaming skills through streaming and e-sports. In Web 3.0, players will earn money while playing and can monetise their gaming skills within the game itself.

Games will become economies, and players will have real economic output depending on how much they play and how good they are at a game.

As players cross levels or complete tasks, they earn cryptocurrency that they can exchange for other crypto-assets or fiat currency.

3. Interoperability

Traditionally, gaming ecosystems are siloed, and one game does not interact with another game. The assets of one game can not be used in another game, but in the blockchain-based ecosystem, there will be projects that will complement each other, and users will be able to switch games with ease. They will be able to bring their digital assets, such as NFTs in the form of skins, avatars, or weapons, with them and use them in other games.

The same can be seen in the DeFi kingdom.

Key underlying concepts/ technologies that will help in making this a reality:

1. NFTs

NFT is a technology that enables digital asset scarcity and ownership much like any other digital currency. NFTs can be stored in the wallet and can be transferred from one wallet to another. In blockchain-based games, in-game assets will be converted into NFTs, enabling asset ownership. Like how in any RPG game, there are different types of assets like common, special, uncommon, epic, and legendary.

In blockchain-based gaming, NFTs will define the rarity. Games’ finest players will collect the rarest NFTs and will be able to sell these to other players. Players will be able to hold on to the NFTs even outside the game and will be theirs to keep even if the game stops working.

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2. Tokens

Tokens will be the currency around which the economics of the whole game will be built. Everyone participant of the gaming ecosystem - be it the team that makes the game, the community that helps support the game, or the players that play the game will be incentivised through these tokens. As the value of the token increases everyone benefits. This way we have aligned the incentives of everyone in making the game big.

As Charlie Munger says: “Show me the incentives and I’ll show you the outcome.” Players earn and reap the benefits for their hard work through tokens inside the game and will be able to exchange these tokens for real money through exchanges.

3. Blockchain

Blockchains are open, permissionless, and immutable. Anyone can interact with it and can build on top of it. Just like in legos there are building blogs and one can put a blog on top of another. In the same way, the very nature of openness and permissionless will allow one to build one game on top of another and make the gaming ecosystem interoperable.

The very concept of Metaverse will be powered by the concepts mentioned above and the metaverse will be built with the concepts of Web 3.0. Metaverse can also be thought of as more like a Second Life experience. Players create avatars to virtually represent themselves and interact with places, objects, and other players. Through blockchain, items could be transferable between different games and game universes, resulting in a digital multiverse.

At the same time, the gaming industry will increase blockchain users from 100 million to two billion as well.

Glossary:

DeFi kingdom : DeFi kingdom is a DEX where one can earn High APRs by having an NFT and that NFT can be upgraded by playing the game, and upgraded NFT, in turn, yields a high return in the DEX. This is an example where assets of a DEX can be linked to an NFT or game. In the same way, assets of one game can be used in another game.