Blockchain is often seen as a financial technology primarily used for secure global payments and cryptocurrency investing. However, many industries, such as the gaming industry, stand to gain a lot from incorporating blockchain. While crypto enthusiasts have embraced the blockchain gaming revolution, the larger gaming community has resisted. In this article, we'll explore blockchain gaming, its many benefits, and its future.
What is blockchain gaming?
Blockchain games are simply those that incorporate elements of blockchain technology. In some cases, in-game items are minted as NFTs, allowing players to trade or sell them to others. These games often use digital assets for in-game currencies, and players can sometimes earn cryptocurrency by completing levels.
Such games let players own the items they unlock as they play. Unlike traditional games, blockchain games are less susceptible to the loss of in-game items. For example, Call of Duty Warzone 2.0 servers were consistently lagging and crashing in November 2022, causing players to lose their items. Had this game used the blockchain, these items could have been minted as NFTs, ensuring they'd still exist in players' wallets.
Blockchain games can also enhance player security, as they can use encrypted ledgers to store player account information. Traditional online video games are susceptible to hacks, and players' personal info can be exposed.
Blockchain gaming's impact
Blockchain games have seen a significant rise in popularity over the past decade. According to Dapp Radar, there are typically over 20 million daily gaming transactions across all popular blockchain protocols. That's more transactions than every other blockchain use case combined. Despite this, the overall volume is much lower than that of finance dApps.
Games using blockchain technology give players a viable way to earn money while they play. Play-to-earn games like Axie Infinity let players breed and train NFT creatures they can sell for cryptocurrency. Although most players won't get rich, this earning potential is attractive for those who love gaming. Blockchain games also give developers a new way to earn money, as they can generate real-world scarcity for their in-game assets. Additionally, video game developers can earn royalties on secondary sales of their gaming assets.
Advantages and challenges of blockchain gaming
With a blockchain game, you know you'll own the assets you earn while playing. Unlike traditional games, you can trade these items with other players for monetary gain. Blockchain games also offer enhanced transparency. When a developer says it's releasing 1,000 sets of armor, you can verify that statement using a blockchain explorer.
Among the many advantages of blockchain gaming, interoperability is perhaps the most exciting. In 2022, Linkin Park co-founder Mike Shinoda tweeted, "Imagine taking your favorite skin from Valorant, and using it [in] Fortnite. And not paying extra, because you own it. Then using it in CoD, Minecraft, even Twitter, IG."
Although Shinoda's suggestion would be difficult to pull off, it's entirely possible. NFT games could allow users to wear skins earned in other games by reading the contents of the player's wallet. Allowing Fortnite skins in a game like Minecraft would present a challenge for developers. But transferring in-game items between two games designed in the same engine would be much easier. We aren't likely to see complete inter-game interoperability soon, but it's a viable future for the blockchain gaming industry.
Despite blockchain gaming's advantages, it has many limitations. Technical limitations prevent many players from exploring crypto games because they may be unfamiliar with setting up crypto wallets. Similarly, developers must learn how to tie their games to blockchain networks before they can explore adding NFTs or using crypto as in-game currency.
Regulatory concerns keep many games from adding blockchain elements. The Securities Exchange Commission has scrutinized cryptocurrency and NFT projects over the last few years, claiming that many may be offering unregistered securities. Game developers must ensure their NFTs and in-game currencies pass the Howey Test, or they could be in legal trouble. Per the Howey Test, an investment contract exists if there is "an investment of money in a common enterprise with an expectation of profit primarily derived from the efforts of others.”
As a game rises in popularity, so will its transaction volume. Blockchain games can face scalability issues depending on the DLT the developers use. These games must use ledgers with low transaction fees and high transaction throughput to scale successfully.
Future of blockchain gaming
Blockchain gaming is still in its infancy, but we've already seen numerous exciting developments over the last decade. For example, Sony recently filed a patent for an NFT gaming framework. The patent states, "the digital asset may be used, via the NFT, across different computer simulations and/or across plural different computer simulation platforms." We have yet to learn how Sony plans to use this patent. However, it could indicate their interest in in-game item interoperability.
According to Block Data, despite the bear market, 2022 was a big year for fundraising in the blockchain gaming industry. Per the report, Animoca Brands, a Hedera-partnered gaming company and VC firm, raised over $565 million in 2022. The large sums of money pouring into the blockchain gaming industry could lead to significant developments over the next decade.
Game developers like Square Enix have expressed interest in adding NFTs to some of their popular gaming series. Unfortunately, players weren't excited by the announcements. Many gaming news sites called the move to include NFTs a blatant cash grab. Despite the success of blockchain games in the cryptocurrency ecosystem, it may be a while before we see mass adoption.
Hedera's role in the blockchain gaming revolution
Although blockchain gaming has many hurdles to overcome, its benefits are too vast to be ignored. Popular blockchain games must use a DLT with affordable transaction fees and high throughput for the gaming ecosystem to scale. Hedera's speed, security, and publicly auditable logs make it an ideal choice for blockchain gaming developers.
Hedera's governing council includes gaming industry leaders like Ubisoft and Electronic Arts. Additionally, Hedera is trusted by leading blockchain gaming companies, such as Animoca Brands. "We are very excited to work with Hedera, which offers some highly appealing uses for gaming, particularly in the area of high-transaction scenarios," says Yat Siu, Animoca Brands co-Founder and chairman. "We believe this partnership will result in more efficient validation of play-to-earn activities, including addressing issues such as the multi-billion dollar problem of cheating in games.”