How can we implement true ownership in video games?
The positive externalities of true ownership in video games
In our previous post, we established that we don’t own the virtual items we pay real money for because it is detrimental to game developers’ profits under their current business models. This results in gamers being exposed to various risks on their virtual profiles and possessions, hindering the progression and adoption of virtual game worlds in the process. In this post, we will talk about how blockchain can provide a framework to enable true ownership of virtual items, how it can be a tool for social change, and a possible business model which can make true ownership an attractive option for game developers.
Blockchain and cryptocurrencies provide a convenient infrastructure to enable true ownership of virtual assets in video games. How would such a solution look like? A prototype would replace the usage of in-game currencies with a game cryptocurrency which can be transferred freely and easily between any crypto user regardless of whether they play the game. This currency would have trading pairs with fiat currency, allowing players to easily enter and exit their holdings in the game.
Digital game items would be represented on a blockchain as non-fungible tokens (NFTs) to imbue the quality of scarcity and enable true ownership of digital assets. With crypto wallets, ownership of items is associated with a user’s wallet address on a decentralized ledger which will presumably be supported by at least thousands of nodes. Therefore, even if game developers take a game down, a player’s in-game currency and items will still remain in his or her possession. New developers can build new games on top of these items or even rebuild the game so that these items can be used again. This sounds outlandish, but that is exactly what happened with Star Wars Galaxies, an online role playing game which shut down in 2011. Players were so upset that the game was shut down that a group of players banded together to fund and develop a reverse-engineered emulator of the game. However, with the emulator, players lost their virtual savings, possessions, and game progress since the data remained on the servers of the game developer. Such a situation would not have occurred if the original Star Wars Galaxies game was hosted on blockchain.
In return, game mechanics need to be carefully considered (see: Diablo III auction houses and Star Wars Battlefront loot boxes) and tweaked to account for the shift in economics induced by the free movement of currency out of the game. This will institutionalize the real world value of virtual assets and allow the economy to acts as the interface which bridges the virtual and the real world.
To truly inhabit the virtual world, users must be able to monetize their efforts and make a living through the virtual world. This means that they must be able to easily convert their virtual possessions and services offered to fiat. Blockchain-based games will enable the rise of player-generated content and game-related services. For example, players might design their own skins and items to sell or use for themselves, or they might undertake a quest for another player in exchange for items and currency. They might even make a living out of it, allowing them to truly survive off of the virtual world. We have already seen this in the Steam community market with user generated content, where the average designer earned $38,000 over the year. The difference in this case is that blockchain will enable a multiverse of different game universes, allowing different game currencies, and therefore different game items, to be traded between each other. This will pool liquidity across all blockchain games, creating a large-scale multiverse economy which mirrors the global economy we have in reality. Playing games, or completing activities in video games, will become a viable form of work.
The development of a sophisticated virtual economy will mean that more players will straddle the lines between reality and virtual reality, choosing to spend more time in the world which can give them better returns. In such a situation, virtual assets have direct real world value and are easily tradable and exchangeable with real world assets; mainstream merchants will accept major cryptocurrencies as payment; and a new financial ecosystem built on virtual assets will emerge. Expect major game developers to establish banking arms to manage game currencies and to provide financial and investment products to users, some of whom might not even be players of the video game. Consider the following scenario: after completing a major quest in an MMORPG, the defeated boss drops a valuable item, the Sword of Azeroth. You already have one of those swords, but you don’t want to sell it because you feel that it’s currently being undervalued in the market, so you loan it out to another player, Benjy, for 2 months, receiving a fixed income weekly throughout this period. However, two months into this loan, you run into urgent in-game liquidity issues and so you sell your debt to a third player, Alex. Alex now owns the sword, and will receive income on it until the original 2 month period expires. At the end of the two month period, Alex cashes out his in-game currency and buys himself a gelato.
This is only one of many possible new financial products that could emerge in video games. Once the real and virtual economies become connected, you can expect to find all sorts of new financial possibilities related to virtual assets, such as options and derivatives. You might even be able to use your virtual house or skins as collateral on real world transactions. Indices might even track a basket of firms or commodities which includes a mix of virtual and real assets.
Business-related possibilities
The possibilities are not limited to just financial products: virtual items can also synergize with real world items, events, and businesses. For example, advertising campaigns can create special events in games which allow victors to obtain game items which act as certified true copies of tickets to an exclusive bar or event. While such things might be possible to do now, the lack of a truly integrated economy and protocol layer makes it hard to do, since each counterparty exists in their own walled gardens, necessitating the building of separate bridges between these gardens.
The scarcity that blockchain can imbue to virtual game assets also means that games can gain access to scarcity-based marketing strategies that were impossible to implement before, such as the “hype machine” model pioneered by Supreme. These strategies help to build the strength of a brand’s reputation, which will affect all of its product lines. The limited quantities released results in a vibrant secondary market with items being resold way above their retail price by the lucky few who manage to get their hands on them.
With such a strategy, game developers “drop”, or release, limited quantities of virtual game items at a prefixed time, while complementing this drop with a barrage of promotional content such as videos and images. As successful as this marketing strategy has already been, it is even more well-suited to video games since game developers can not only benefit on their brand image, they can also use blockchain to make fees off the increased activity on the secondary market.
As a tool for leveling socioeconomic inequality
Many young adults nowadays play video games; a Pew report from as far back as 2015 found that 72% of all teens play video games. Some of them might be extremely skilled in spite of their non-professional status, others might have specific skills which are highly-valued in the gaming world they are a part of. Yet, at the same time, many of these young gamers might be lacking the requisite skills or education needed to succeed conventionally in the real world. Youth unemployment is one of the biggest problems facing countries around the world today.
This means that enabling true ownership of virtual items is not just a novelty. With true ownership, gamers will be able to sell their items or services for real money which they can use for sustenance. It will provide legitimate economic opportunities to a whole generation of young gamers in an era where the only requirements to play video games are a smartphone and an internet connection.
To be clear, we don’t need crypto to enable the free movement of currency and items. What we do need is cooperation from game publishers for it to happen.
A good example of this is Valve’s Steam Community Market platform. It allows users to buy and sell items of all Steam games using Steam Wallet funds. This platform is aligned with Steam’s incentives since Steam takes a base fee of 5% from each trade (in addition to any other fees charged by other co-developers). Furthermore, Steam also allows the sale of user-generated content, with creators earning money from designing hats for games such as Dota 2, Team Fortress 2, CS:GO etc. In 2018 alone, they paid out a total of $57M spread over 1,500 creators. Steam is expanding the number of games that creators can do this for, as well as providing analytics for creators to figure out what users like.
However, this simply extends the boundaries of the walled garden instead of solving the problem. For one, it gives Valve as a single platform too much decision-making power: independent game developers have to pander to Valve and worry about the profitability of their games if they’re not on Valve’s good side. Users would still not able to trade items and currencies between different game worlds from different game publishers. For truly free movement of digital assets, a common, free market for all of these asset needs to be created. This would require each game developer would need to create software interfaces which allow their games and digital assets to interact with games from other developers. Or they could agree on a unified framework of development so that all of their games and assets are compatible with each other… a framework which already exists — blockchain.
Recall that there were two qualities to ownership: legal recognition of ownership, and the freedom to transfer and store an item. Even if the law did change to legally recognize game players as rightful owners of their virtual assets, and even though it’s technically possible to build a software solution to enable free transfer and movement of virtual items, the technology being used in non-blockchain-based games does not allow for the possibility of truly owning virtual assets as we would not have the freedom to store our virtual items wherever we like.
This is because the records of ownership of virtual assets are stored on a centralized server/database. This database is operated by the game developer and updates every time a player buys, sells, or trades an item. In other words, the game developer acts as a custodian for players’ virtual assets. Centralized databases to record ownership are necessary because the assets are virtual — players cannot simply move their virtual assets from the database to their own personal computers in the same way that they move physical possessions. The physical scarcity of real world items means that only one of each object can exist — one cannot duplicate a physical object.
However, virtual assets lacking physicality require ledgers to record ownership since virtual assets are simply represented by lines of code which only have meaning within a game. These lines of code can be copied and replicated by anyone with the right security access. Virtual assets lack the property of scarcity — anyone can copy and replicate your Excalibur sword if they had access to the right security protocols. Therefore, a third-party custodian, in this case, the game developer, is always needed to help to keep a secure record of who owns what item. We have seen from the above examples that such an option is not ideal: these third parties have given us plenty of reason to distrust them. For every virtual item purchased, 7.49 are lost to fraud. Since there was no possibility of self-custody before blockchain (unless the player also happens to be the developer of the game), true ownership of virtual assets was not possible.
Crypto and blockchain enable the creation and maintenance of scarce virtual assets by recording ownership on a decentralized ledger where participants are strongly incentivized to be honest. Ownership to these virtual items can be proven using public/private-key cryptography. By using a private key, one can access the rights to true ownership of the virtual item — the virtual item is now represented by the private key. This also means that you can store the item anywhere you want — all you have to do is ensure that the private key is erased from all other locations.
We’ve established that we need true ownership of our virtual possessions and greater economic integration with the virtual world to advance the adoption of virtual reality. We’ve also established that players lack the power to push game developers to implement an integrated game economy with true ownership of items using blockchain. Therefore, the challenge in implementing a solution lies in persuading game developers to change their business models. Any proposed solution must be able to match or exceed existing revenues/profits of the game developers.
One way to align game developers’ incentives is to implement cryptocurrency and digital assets in games while allowing them to take a cut of all secondary market transactions. Currently, game developers make their money through primary market transactions by selling in-game currency or items directly to players. However, healthy primary markets generally lead to healthy secondary markets as well. We already know that the primary market for video game items is booming: most of the $138 billion in gaming revenue in 2018 can be accounted for by the purchase of in-game currency or assets (since 80% of all revenue are from F2P games), so we can expect secondary markets to be in rude health. Furthermore, research has shown that secondary markets are more robust when goods are actually scarce, as liquidity can be pooled instead of being siloed in different markets, making the case for free movement of virtual items stronger. Trading virtual items is an industry currently estimated to be worth up to $50B — $80B and possibly worth a lot more in the future. By taking a small fee from every trade executed, game developers can earn from both primary and secondary market transactions.
Demand for Secondary Trading
The viability of the above business model is backed up by the demonstrated demand for secondary trading with regards to virtual assets. Secondary markets where virtual items and currencies are sold for fiat have existed since the early 2000s. Third-party middlemen platforms emerged in response to player demand to help to minimize counter-party risks of P2P trading since there are no established methods of doing so in the game.
These third-party platforms have thrived since the mid-2000s, beginning with eBay. Gold farms in China employed workers to grind repetitively on World of Warcraft so that in-game gold could be accumulated and sold to players around the world. IGE (Internet Gaming Entertainment), one of the most prominent companies which trades and sells MMORPG currencies and accounts, was created in response to the inability of players to sell their items for money in the popular MMORPG Everquest. In modern times, third-party platforms such as OPSkins, bitskins.com, playerauctions.com, or pubgshowcase.com sell rare skins and items from popular games such as CSGO or Fortnite. Unique cultures and practices based on the transfer of video game items, such as skin trading or skin gambling, have developed over time. There has been consistent evidence that demand from players to exert their ownership rights has been steady and persistent.
However, 1) these 3rd party platforms are subject to the whim and fancy of the game developers, 2) users have to pay a liquidity premium, and 3) the user experience is not streamlined — it’s a complicated multi-step process to trade game items or currency. Even in the simplest case, gamers need to make transfers on two separate platforms: the trading platform and within the game itself. Video games can completely eliminate these platforms by opening up their game economies and making fees on secondary transactions automatically through smart contracts. In theory, they can take a percentage fee on every single trade involving their game items in perpetuity. Valve and the Steam platform have proven the viability of a player-driven market. Just as games have evolved from premium purchases to free-to-play, virtual item purchases will evolve from a unilateral buy-sell market with the game developer to a free market where game developers take a small cut of each trade.
Finally, as mentioned above, implementing a blockchain framework would reduce fraud on virtual items: right now, game developers are losing up to 40% of their total revenue to gray market trading of virtual items, and an estimated 7.5 items are lost to virtual fraud for every virtual item purchased. This new business model with a blockchain-based game can help to eliminate most fraud-related costs and recoup lost revenue.
To recap, in this series, we first claimed that video games act as a Trojan horse for the adoption of the virtual world. Beyond entertainment, greater adoption of the virtual world brings with it many benefits, chiefly, as a tool for leveling socioeconomic inequality, providing a second chance to people who have been hard done by in the real world. To achieve this vision, we need to overcome the prevailing framework in video games and give true ownership of virtual game items to players, and convince game developers to pursue more profitable business models centered around the secondary market for these virtual items. Only then can we have a truly immersive virtual world which can support the livelihoods of those who choose to spend their time there. Ubisoft, best known for their Assassin’s Creed series, have already taken baby steps towards this goal; hopefully it won’t be too long before other major game developers follow suit.
All that being said, here are some simple recommendations for the creation of the first truly successful blockchain video game.
1. Focus on the game
Ultimately, the best video games will attract the most gamers. One of the problems with games incorporating blockchain technology so far is that the games simply aren’t good enough! The most popular games utilizing blockchain pale in comparison to their traditional counterparts. If there was a good enough game, people would play it, blockchain or not.
2. Hide the crypto — progressive security
Well, not quite. It is well known that one of the biggest obstacles to blockchain-based games is the difficulty of onboarding users to crypto wallets. The process of crypto onboarding is a complicated multi-step process which requires a great deal of patience and understanding.
It is critical for game developers who plan on utilizing blockchain in their games to find an effective way to make the game feel just like a normal, traditional game. This includes minimizing improving user experiences when it comes to setting up wallets, covering gas fees, etc. Gamers are fickle, and if the setup process of the game is too complicated, they are not likely to waste time on playing the game even if the game is exceptional. To date, several companies, such as Loom Network, have identified different approaches to making gaming dApps work and feel like traditional applications. Near Protocol has come up with a process known as progressive security, where players can play the game as if it were a traditional game, and only switch to blockchain when there is sufficient motivation to do so, such as to sell valuable in-game items a player has just obtained for cryptocurrency.
3. Keep virtual items cosmetic as a start
It’s hard to fine-tune and balance game mechanics if items in the game can be traded and sold on an in-game market. Game designers need to consider the benefits each item provides and build a model to price these items. This is a very complex process, and the more complicated the game is, the harder it is to predict the effects of certain policy changes on gameplay. Some examples of this are:
This becomes even harder when game items aren’t just sold on an in-game market but on a free market available to everyone. Not only do game developers have to carefully calibrate the stats of game items so that games do not descend into a pay-to-win situation (where players who spend more money have a much higher chance of winning than players who don’t), it also opens the market up to manipulation by external forces which could affect gameplay.
By selling only cosmetic virtual items, the game economy is simplified and removes the need to build complicated models to measure the monetary value of each activity in the game.
Published at Mon, 22 Jul 2019 07:35:27 +0000
Bitcoin Pic Of The Moment
Colloque "Moyens de paiement", Bercy
1er décembre 2014
www.rencontres-competitivite-numerique.com/moyens-de-paie…
By Pierre Metivier on 2014-12-01 10:15:27
