The Game Is Changing

And the gaming world is changing

Ever since Neal Stephenson coined the word "metaverse" in his seminal science fiction novel "Snow Crash" [1], quite a lot of people have spent quite a lot of time talking about and sometimes even building approximate implementations of the concept.

Improvements in virtual reality equipment, computer image rendering power, and network bandwidth have allowed more and more immersive and connective virtual spaces to be created that approach the original (admittedly dystopian) vision, but one final piece was missing until surprisingly recently - true ownership in the digital world.

An economy, in which identity and property rights exist and extend beyond the individual metaverse in question.

And blockchain has supplied this missing piece, through the concepts of:

• ?cryptocurrencies (fungible tokens), in which the owner of some of the currency has control over their money in the same manner that we are familiar with for cash,
• non-fungible tokens (NFTs), which enable the production of virtual individual assets representing "items", "keys", "land" and numerous other things within a metaverse or game,
• decentralized identity (sometimes referred to as self-sovereign identity), and
• independent economic agents such as smart contracts, decentralized exchanges (DEXes), and decentralized autonomous organizations (DAOs).

In more economic terms, blockchain enables a form of digital money functioning as a unit of accounting, store of value, and a medium for transacting, with various levels of traction and success. But it only works because the people using it agree to it working - it is like "real" money in that respect.

It also provides digital representations of identity, property, and organizations that are not tied to or under the direct control of the metaverse system implementer. Instead, identity can be controlled by the individual and carried from system to system along with their digital property, which also gains its own form of identity through blockchain.

And even the structures that govern how assets can be moved around or exchanged, and the parameters tied to those governance system, can be managed in a decentralized manner. The crowd gets to decide, rather than a small group of board members sitting behind closed doors.

Finally, the tools for interacting with various public blockchain systems have now reached a level of reliability and usability that, although well below that expected by the average person, is mature enough to provide decentralized functionality within a metaverse through standardized interfaces and libraries.

Secondary markets

Because the data on the blockchain creates a shared distributed ledger stating "who" owns "what", and is (generally speaking) transparent and open, the blockchain creates a fantastic opportunity for secondary markets.

If a game company chooses to instantiate its in-game items on an external public blockchain rather than a database controlled by them, players can trade those items outside the game without requiring permission from the game company, and other companies or even individuals can set up websites to make it easier for people to trade their items, and find listed items that are for sale or up for auction.

This can create something closer to a "free market".

The downside to the game company is that much of the wealth this generates is exchanging hands that are not theirs, but the upside is similar to a stock issuance. The company has control over the creation of future objects or land within their game, or can hold on to some of the assets they create as a reserve, much as a company can issue more shares.

Some control is ceded in order to gain more capital, but this allows for more opportunities to grow. Again - very much like stocks.

Those who do not learn...

These developments present a significant threat to incumbents in the gaming industry, and on the flip side of the coin: an opportunity for challengers. And this is all in a market that is second only to the movie industry in global entertainment revenues[1][2], and well ahead of publishing[3] and music[4].

What's more, the gaming industry is continuing to grow at a phenomenal rate.

Historical evidence shows that incumbents usually ignore or attempt to suppress technological innovations that threaten their existing business models - Blockbuster versus Netflix[5], Amazon versus Barnes & Noble [6], and the entire traditional music industry versus Napster and then Spotify[7] provide clear examples of this phenomenon.

And companies that resist change can lose their dominant position in a matter of a handful of years.

It is therefore quite probable that games companies such as Epic Games or Roblox will continue to run locked-in game economies using their existing game currencies - V-bucks for the former, and Robux for the latter. They may not want to open up their in-game weapons, skins, and other collectibles and items to secondary marketplaces, or allow them to be utilized in the games of competitors, preferring to cling to their "tried and tested" business models.

This provides an entry point for new startups in the games industry space.

The writing is on the wall

Public fascination with the collecting of NFTs is growing steadily, even though the majority have no real utility or functionality. It makes sense that this will transfer over to desirable items and property in games.

Axie Infinity, Decentraland, and Sandbox (who only just launched a playable version of their game space at the time of writing) are examples of games and metaverses that have shown remarkable growth over the last year, despite providing some rather cumbersome and quite frankly "clunky" user experiences to their audiences, especially when compared to the offerings of established gaming companies.

The opportunity is therefore clear. However, blockchain expertise to develop these kinds of world remains in short supply, exacerbated by the facts that:

• the skill-sets required for blockchain are multidisciplinary (spanning technology, economics, sociology, and even philosophy), and
• technical innovation in the field is both rapid and complicated.

The problem is that blockchain is not simply a "bolt-on" technology, and successful business cases and monetization strategies have often been more of a matter of luck than planning, regardless of what those running projects that have made it big may think.

Conclusion

About three years ago I posted a few videos on why I though gaming was going to be revolutionized[8], and even wrote a LinkedIn article[9] and a paper[10] on the issues I saw. Back then I felt the need to explain simple things such as "wallet" and "token".

Just having technological building blocks is not enough. There also needs to be public awareness. And above all, there needs to be a common language to be able to discuss and explain new possibilities.

Without that awareness, three years ago startups were spending most of their time trying to explain the technology, rather than selling their vision on top of the technology. If you have to educate your customers in the underlying engines or systems that enable your product, then as a startup or challenger you are doomed to fail.

What I notice is how much has changed since then. Those kinds of blockchain explanation are no longer needed. There is a critical mass of people who aren't bemused or intimidated by terms such as "NFT" or "smart contract", "cryptocurrency" or , and who will happily navigate around platforms such as OpenSea, using wallets such as MetaMask.

We are now no longer at the dawn of a revolution in the gaming industry. It's breakfast time.

References

[1] Global movies and entertainment market estimated at $308 billion in 2021 - retrieved from https://www.prnewswire.com/news-releases/global-film-and-music-market-report-2021-market-is-expected-to-reach-392-34-billion-in-2025-at-a-cagr-of-6---long-term-forecast-to-2030--301318379.html

[2] Global gaming market estimated at $178 billion - retrieved from https://newzoo.com/insights/articles/global-games-market-to-generate-175-8-billion-in-2021-despite-a-slight-decline-the-market-is-on-track-to-surpass-200-billion-in-2023/

[3] Global music industry revenue estimated at $65 billion - retrieved from https://www.statista.com/statistics/259979/global-music-industry-revenue/

[4] Global book publishing industry estimated at $109 billion - retrieved from https://www.ibisworld.com/global/market-size/global-book-publishing/#:~:text=The%20market%20size%2C%20measured%20by,to%20increase%205.9%25%20in%202021.

[5] Zetlin, M., "Blockbuster Could Have Bought Netflix for $50 Million, but the CEO Thought It Was a Joke", retrieved from https://www.inc.com/minda-zetlin/netflix-blockbuster-meeting-marc-randolph-reed-hastings-john-antioco.html

[6] Pandey, E., "How Barnes & Noble, the last big bookstore, fell to Amazon", https://www.axios.com/barnes-and-noble-book-stores-sale-amazon-effect-4f2753d2-818c-49d1-878a-60f0c3a5b3f7.html

[7] Goldman Sachs, "Music in the Air", https://www.goldmansachs.com/insights/pages/infographics/music-streaming/ , particularly the chart labelled "Streaming is set to propel global music revenue to record highs".

[8] Finlow-Bates, K., "Three categories of gaming blockchain projects: why two of them are a waste of time", https://www.youtube.com/watch?v=Y6fmPEt8BD4

[9] Finlow-Bates, K., "Almost all blockchain token projects are a waste of time", https://www.dhirubhai.net/pulse/almost-all-blockchain-token-projects-waste-time-keir-finlow-bates/

[10] Finlow-Btes, K., "https://github.com/kf106/blockchain-games/blob/master/game-blockchain.pdf", https://github.com/kf106/blockchain-games/blob/master/game-blockchain.pdf