What is Web3 gaming and where does it stand?

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In every industry, big players are eager to experiment with new technologies and try to incorporate them into their own products whenever they come out. From finance to medicine, blockchain has seen it all. We’ll discuss blockchain technology today in video games, whether it’s an entirely new experience or an application of the technology to an existing product.

Web3 Gaming: What is it?

In Web3 gaming, players own in-game assets, such as a skin for the character or a rare item. As with traditional gaming, in-game digital assets and, ultimately, all the rights to them, are owned by the developer on centralized servers. Players are only given permission to use them by the developer.

Through the use of cryptocurrencies and NFTs, Web3 games are primarily designed to enable play-to-earn mechanics. By using decentralized networks such as Ethereum or Solana, they guarantee verifiable ownership and give players greater control over their in-game assets. In addition to currency and items, crypto wallets also store user identities as an alternative to traditional game accounts.

Web3 game types

The New Creator Economy: unpacking Web 3.0 gaming | Antler VC

In 2017, CryptoKitties was the first game to use blockchain technology. Players purchased NFTs, which represented virtual pets that could be bred with each other to create new pets.

After its launch, the game’s transactions accounted for 30% of Ethereum’s traffic.

Blockchain game Sandbox, released in 2018, allows players to create in-game items and sell them to other players using cryptocurrency specific to the game.

Axie Infinity, one of Sky Mavis’ most popular blockchain games, is a play-to-earn game that lets players buy and improve in-game NFTs. In exchange for their contributions to such NFTs, a player gets compensation in crypto as part of the game’s economy. As a result, the developer can later sell those NFTs to other game users.

Some people even provided for their homes by playing Axie during the pandemic. About a third of the project’s user base came from the Philippines.

The game’s popularity dropped as a result of the hack in early 2022, which resulted in Sky Mavis losing around $625M. As a result, the developers have removed all mentions of “play-to-earn” from the game.

Smart contracts in Web3 gaming

When it comes to blockchain games, smart contracts define all of the logic and economy: they are the “rules”. To make sure everything is fair — for example, in terms of balance — every player has access to all transactions between other players as well as the source code of all new features implemented by the game developers.

Blockchain Gaming and the Rise of Axie Infinity - Niko Partners

Compared to traditional video games, users have no access to the source code and can only see the changes implemented within the game itself.

However, this transparency can also result in bad actors taking a look under the hood, learning the architecture and the code, and robbing developers and players of hundreds of millions of dollars, as in the case of Axie Infinity.

Blockchains are popular with gamers?

Video game publishers like EA and Ubisoft began implementing blockchain technology in 2021 and even stated that decentralization and NFTs were “the future of our industry.” As a result of such statements, the gaming community abandoned planned features to be included in already released games, and even cancelled entire games based on distributed ledger technology.

The Valve-owned Steam online storefront banned blockchain games in October 2021, following their policy of banning in-game items with real-world value.

Despite believing blockchain technology was legitimate, Valve’s CEO stated there were “too many bad actors in the market” to allow cryptocurrency or NFTs on Steam.

Steam's notice of banning blockchain games. Source: NME

Developers initially lacked understanding of how to incorporate blockchain into their programs without any negative effects. However, when Ubisoft added Digits – in-game customization items based on Tezos’ proof-of-stake cryptocurrency – to Ghost Recon Breakpoint players noticed that their Terms of Service mentioned that the company had “no liability” and were cognizant that blockchain could be vulnerable to certain security issues.

The video was removed from Ubisoft’s channel and the company stopped “Digits” support altogether in March 2022.

Most gamers are not fond of NFTs implemented into their favorite games: it’s clear to them that the publisher’s goal is to earn more money rather than give full ownership to the players and remove central authority.

Web3 games are being developed by industry veterans

Grand Theft Auto V co-creator Dan Houser has invested in and joined the advisory board of Revolving Games, a blockchain game development company.

Revolving has already raised around $20M for its decentralized gaming projects, which include a Battlestar Galactica Eternity MMO and an adventure role-playing game called Skybourne Legacy.

With Legacy, the NFT-funded game that will be a “blockchain business simulator,” Peter Molyneux, another game developer famous for the Fable franchise, moved into the decentralized space in 2021.

The company sold more than $50M worth of in-game land by the end of the same year. Its most expensive piece of digital property, “London,” was sold for $900K. LegacyCoin, a cryptocurrency created for the game based on the Ethereum blockchain, was used for all transactions. Legacy is still in development and has no definite release date.

Separate entity for web3 gaming

By 2027, the Web3 gaming sector is expected to grow to $65.7B due to scalability solutions for the Ethereum blockchain, among many other factors.

While gamers don’t like when their games are fiddled with for questionable applications of innovative technology, leading publishers are showing a keen interest in blockchain technology. Blockchain-based gaming is unlikely to change established rules of video gaming but will instead create a segment of its own, as mobile games have over the past decade.

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