Blockchain Games and the Rise of "Play to Earn"

As I dig deep into the hole that is the current wave of blockchain games, a question constantly recurs - Is this a coming revolution in games that’s as big as mobile gaming? Or is this a mirage that will fade away as we approach? Is there really anything there?

The way I’ve approached this is to first think about what blockchain technology brings to the table for games, that hasn’t been possible before. 

In a traditional game, the game developer controls the economy of in-game assets and the most successful games do so with a fine and sophisticated balance. This idea of game balance and the current paradigm of management of an in-game virtual economy is why they feel the need to maintain ownership of all assets in the game, including in-game currencies. While players can acquire in-game assets as part of gameplay (either through purchasing with real money or grinding in the game for rewards), they never actually own those assets and those assets have no use beyond the rules defined by the developer and no value outside of the game. The developer can withdraw those assets from circulation and those assets disappear if the game is shut down.

Building games on a blockchain enables players to truly own the assets that they acquire in a game and to freely trade and sell those game assets because ownership can be explicitly and immutably assigned to players independently of the game. Players can earn native cryptocurrencies from participating in in-game activities like battling other players, user-driven asset or activity creation (like creating avatars, items or mini-games), user-driven business models like renting of assets to other players for use in the game (and beyond), and user-driven marketplaces where they sell their assets, and these native cryptocurrencies can be spent, converted or traded for other cryptocurrencies, or cashed out to real world fiat currencies. In this scenario, players no longer have to trust in the game lasting permanently in order to keep owning their assets (assuming those assets retain intrinsic, e.g. collectible, value outside of the game), they just have to trust in Ethereum (or whichever blockchain the game is built on).¹

These feel like meaningful and material opportunities afforded by blockchain technology and so they make me question - Why shouldn't players get to create their own marketplace and profit from their time spent playing games? Wouldn’t it be a good thing to enable players to participate in, contribute to, and get value from a virtual economy that they and others find value in, outside of and beyond the explicit control of the game developer?²

If we pursue this line of thinking, we arrive at the recently popular “Play to earn” games such as Axie Infinity, where players play a game with the seemingly explicit motivation of earning money through appreciation of the assets - Non-Fungible Tokens (NFTs) and native cryptocurrency tokens - that they acquire in-game. But here is where questions arise as to the sustainable value of these assets - where does the value (and increase in value) of these assets come from, beyond the continued shared belief that their value will increase, specifically as more players are attracted into the game by the same promise? The words “speculative bubble”, “tulips” and “ponzi-like” come to mind.

In their defence, I’ve seen commentators talk about “Play and earn” instead of “Play to earn”, suggesting some balance between the “playing” (for fun) and the “earning”. But I think it’s clear that we’re not there yet - most if not all the most popular games of this type lean heavily on “Play to earn” as the main draw for attracting new players, with the inflow of new players necessary to maintain and drive up the value of in-game assets, with very few players playing for the fun of it. This isn’t to say a balance isn’t possible. If I look at games like World of Warcraft and the healthy (and profitable) unsanctioned third-party economy of gold farmers and character levellers who co-exist with (and sometimes serve some subset of) a large majority of players who simply enjoy playing the game (and pay a monthly subscription for the pleasure), I’m encouraged that a blockchain-enabled version of this balance should be entirely possible, and the interesting (creative and commercial) challenge is to find the right balance.

An example of a game genre that might lend itself naturally to blockchain games is real-world trading card games (TCGs) like Magic The Gathering (MTG), where players own their cards and can sell them to other players. To me, this is distinctly different from the Magic The Gathering Arena mobile/online game as we know it today, which doesn’t support a secondary market for virtual cards. When I think about the fundamental nature of the original physical game, something feels missing when you take that part out. In this example, what really is the difference between real-world MTG and Axie Infinity, Binamon, Gods Unchained or the plethora of other blockchain TCGs and Pokemon-style battlers? I think it comes down to how fun the game is to play without the earning incentive, and motivation of the majority of players for playing the game.

Another interesting, more left-field, application is in competitive gaming and e-sports betting (e.g. Zebedee Infuse). Here, blockchain and cryptocurrency are used to stake a multiplayer competitive game session, where the winner claims the pot, and the winnings can be collected trustlessly - a fundamental proposition of blockchain technology. You could say this is essentially blockchain-enabled betting on games of skill (like poker), but it could make sense for existing popular games where the developer is comfortable with e-sports betting in their games and a related path could be blockchain-enabled e-sports leagues (e.g. Mintgox) since e-sports players already play for cash winnings.

So if I were to look for meaningful investible propositions in this space, what would I look out for in order to build conviction around a game?

1. New things that blockchain technology brings to players that are intrinsically valuable or that unlock new streams of value-creation (and not speculative price appreciation).

2. New things that players can now do that they couldn’t before (or could do in real life but not in the game), as part of the game’s (or inter-operable game worlds’) design.

3. An appropriate balance between “Play to earn” and “Play for fun” which ensures that the motivation of players is not merely or overwhelmingly based on a desire to earn (which arguably is what has made many of the recent successes). We need to find the viable space between “Play to earn” (driven by speculative ownership of tulips) and “Play for fun” (where third party marketplace prices are more rational and reflect the value of the item as used in the game or elsewhere rather than their speculative value, most players play for fun, and some players generate income). Essentially, a well-balanced game that’s fun to play with a healthy and stable secondary market for in-game items. More on this in an upcoming deep dive.

That said, all this, as I see it, is only the first step in what I think is potentially a meaningful evolution in gaming. If so, what is the long game? It’s possible that blockchain games’ broader ecosystem impact could extend to being a catalyst or trojan horse for broader cryptocurrency adoption, bringing blockchain to the masses, getting us from unbanked players to creation of crypto wallets to growth of crypto deposits and perhaps even access to a broad range of new financial services. That’s pretty far down the line and the road to that may be fraught with hype and fluff, so I’d reserve judgement for now, but perhaps that’s where we may finally see the fruition of “Play and earn.”

1. Notwithstanding real-world regulatory concerns and actions that might impact cryptocurrencies.

2. Not rhetorical questions. There may well be good reasons a “visible hand” controlled economy is useful or necessary in game economies, but I guess we’ll see.