Why is Blockchain Gaming the Future?

The gaming industry is big, with the creation of new games becoming more complex, costly, and time-consuming.

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Illustration: Milica Mijajlovic

In the past, a minority of investors would consider investing in video games or video game developers; however, nowadays, millions are being poured into the gaming industry, with estimates being thrown around that the gaming industry is worth around $190 billion.  

And what quality exactly will bring blockchain technology to the gaming industry read below… 

2022 Games market. Source: Newzoo.com/globalgamesreport 

World of blockchain gaming. What’s the secret? 

Blockchain technology, in theory, is a way to create a decentralized ledger that is secure and unchangeable. While it is the technology behind cryptocurrencies, it can have numerous other applications. The latest and hottest application of this technology is in gaming. 

Games often have in-built currencies that players acquire using real money; this currency is then used to buy new levels and features or build up the virtual avatar’s abilities. The issue is that some players will have to play a particular game for hours to experience the best part, while others can pay and get it immediately.  

To solve this issue, blockchain is now trying to democratize spending, where your money will not have you go further in the game, but the entire community, as currencies are distributed across all virtual items. The play-to-earn (P2E) model also introduces an additional incentive for gamers to play blockchain-based games, offering payouts in crypto for all players.  

How do Blockchain games make money?
The promise of P2E games, also known as GameFi (a combination of words gaming and finance), is a new concept based on the web3/metaverse promise that a virtual economy will allow players to enjoy their time in virtual worlds and earn an income while doing so. This includes solo gamers, gaming as part of a guild or corporation that focuses on building new in-game items, levels, or just earning by being part of a virtual world.
Value across all GameFi comes from the cryptocurrency tied to the game universe, which the players earn, though not every game has the same model. The native in-game token is used for purchases, trading, staking, and investing in virtual avatars or worlds. The developers leave some of the tokens for themselves, which earns them a pretty penny when the currency appreciates.

In addition, to participate in these worlds, players, for example, of Axie Infinity, need to first invest by buying game-specific NFTs, which can then be upgraded, traded, or sold for a profit. Axie’s cryptocurrency gained over 18,000% in 2021, and Decentraland’s mana token gained 4,000% over the same period, making them the two best performers in the play-to-earn metaverse space.

The game earns from transaction fees from new players purchasing in-game currency, which is often a significant income stream for Web3 games.

The business model may be challenging to sustain, though, as continuous trading of in-game assets requires a constant influx of new players, new inflows of funds, new revenue streams, and continuous activity by the players.

Why blockchain gaming has 5x user retention versus Web2? 

A recent study by Cluster surveyed over 100 Web3 projects, focusing on user retention, bot activity, and active users. In crypto, Web3 gaming stood out in terms of user retention. Namely, user retention for Web3 gaming was three to seven times higher compared to Web2 projects, according to their survey.  

Levan Kvirkvelia, a co-founder of Cluster, claimed:  

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"The next big things are not in finance but in gaming… users are not tied to using crypto financial instruments." 

While financial projects are struggling to retain users, Web3 gaming projects are not, though they have a problem attracting new users. Kvirkvelia claims the issue is marketing these new games, but seasoned gamers could argue otherwise.

Web3 blockchain game retention rate. Source: Twitter 

Currently, the quality of blockchain games is far below the AAA titles that attract millions of players on Playstation, Xbox, and PC. Furthermore, the earning mechanics require a complex and often cumbersome “grind” system to make the game worth playing and earning. This further slows down the mechanics so as not to devaluate the game’s currency by oversupply.  

Some games force NFTs onto the players, pushing up the price of these in-game assets and, in turn, squeezing out players from the games themselves. Game developers need to find another way of incentivizing players to adopt a specific game and make it more accessible for less tech-savvy users, as some games require users to peruse and onboard Metamask, Crypto.com, and OpenSea to be able to play the game.    

How much is the blockchain gaming industry worth? 

There are an estimated 3.24 million gamers worldwide, which is why many commentators see gaming as the best route for widespread blockchain adoption. In 2021, roughly $3.6 billion was invested in crypto-gaming startups. According to Crypto.com research, it is estimated that the blockchain gaming market will grow at a compound annual growth rate (CAGR) of 100%, from $1.5 billion in 2021 to $50 billion in 2025.  

GameFi market cap growth. Source: Crypto.com research 

The forecasts for the “traditional” gaming industry projected a CAGR of “just” 10%, which showcases crypto gaming’s potential if they can bring the same levels of fun and immersion that traditional gaming offers. These predictions are based on things developing as they did over the past few years in the GameFi space; however, some exciting new deals could speed up the process. 

In 2019, AMD joined the Blockchain Game Alliance to launch a blockchain-powered cloud gaming platform, and if all announcements come true, the platform could reinvent gaming. Namely, users would be allowed to play every game they wanted to play, on any system, without any of the limitations that previously existed. 

Finally, no crystal ball allows a window into the future, but as digital ownership, Web3 gaming, and hardware continue to develop, the possibilities of crypto gaming seem endless. Whether strong communities and developers congregate around this paradigm to push it further than envisioned will depend on incentives and the ability of crypto gaming to deliver the same amount of fun traditional games do. 

Dino Kurbegović is a project coordinator and an investor and technology enthusiast with years of experience in managing complex projects. His journey into content writing began in 2014, covering finance, investing, crypto, technology and complex technical topics.