The gaming space has always sat on the cutting edge of technology. And now, as we move into a new era of innovation, the term Web3 gaming keeps appearing. But what is Web3 gaming, and what opportunities can it afford gamers and the ever-growing industry?
Web3 gaming is the current gaming sector looking towards emerging technologies to remain on that cutting edge. But instead of simply using more powerful hardware or upgrading graphics, Web3 gaming is looking to use things like the Metaverse, NFTs and blockchain technology.
Using these new and emerging technologies is not simply advancing the gaming space but entirely revolutionising it. Blockchain has the potential to bring gaming into the Web3 space and offer opportunities and benefits to gamers and players that were previously inconceivable.
The basis of blockchain technology lends itself well to a new era of gaming, with components such as decentralisation, security, tokenisation and ownership all able to play a big role in changing gaming as we know it.
Integrating NFTs and the digital ownership that can be brought to gaming has huge implications for gamers who value their in-game items. However, it also can provide the gaming industry with a new revenue stream.
GameFi, P2E & Gaming Economies also come into play with blockchain-enabled Web3 gaming. This new dynamic fits in with what gamers want but also is a huge boon for game creators and developers.
Finally, decentralised platforms and gaming DAOs are being explored all the time. These mechanisms put the power back into the hands of the gamers and allow for much greater control and ownership over the games that people love.
Because Web3 gaming is a revolution and one that is predicated on the blockchain, there are ample opportunities that are still to emerge. Foundations are being laid, but the future of Web3 gaming is still being built and felt out.
With that in mind, it is worth diving into the key components that blockchain can bring to Web3 gaming and why it is necessary, as well as a look at three major use cases.
The Key Components
It is unsurprising that much investment has already flowed into blockchain gaming even in these early stages. During Q1 of 2022, an estimated $2.5 billion was invested into blockchain gaming, according to Dapp Radar.
However, it is estimated that the market size of blockchain gaming could reach as high as $50 billion in the next three years. Much of this has to do with the key components of blockchain that can assist with Web3 gaming, but also because of the general current components of the blockchain.
For example, it is predicted that the economic potential of a decentralised Metaverse could be as high as $8 trillion — according to Morgan Stanley. Meanwhile, 2021 NFT sales related to gaming assets accounted for 20% overall.
The Metaverse, NFTs, and even Gaming DAOs are all key components of Web3 gaming, but it is the broader concepts of decentralisation, security, tokenisation and ownership that are endearing Web3 technologies towards the gaming sector and providing opportunities.
Blockchain is well heralded for its decentralisation and ability to empower users to act online without the need for intermediaries. Bitcoin, as the first major decentralised cryptocurrency, showed how people could transact without the need for banks and other centralised entities.
Since then, Ethereum and other smart contract platforms have expanded the possibilities of decentralisation. With powerful smart contracts and other platforms, decentralisation can be utilised in various ways and within gaming.
Putting people in charge of their online decisions and protecting their information and data through decentralised platforms makes a lot of sense for gamers who want to immerse themselves in a game but not necessarily be beholden to the game creator.
Additionally, decentralising and democratising the actual game development process gives more power to the gaming communities themselves.
Decentralised autonomous organisations (DAOs) in the gaming world allow players to directly contribute to the advancement of the sector in general, or in some cases directly take part in development decision making processes for an individual gaming title via tokenised voting rights.
Thanks to blockchain-enabled cryptocurrency exchanges, investment in the sector is not restricted to large investment organisations and doesn’t need to rely on players that buy the games to increase capital.
Individuals that wish to invest in the lucrative gaming industry at the ground level without taking part in the player experience can do so by buying the game’s (or platform’s) ‘governance’ token.
Along with decentralisation, blockchain is known for its security. The way that blocks are added to the blockchain ensures that the data inside can’t be tampered with – the internal data is compressed into a ‘hash’ (a long string of letters and numbers) which is assigned to the block.
Each block contains its data, its own hash and the hash of the block before it. Consensus mechanisms such as proof of stake mean that the participants on the network must verify all transactions (addition of blocks to the chain).
A log of all transactions on the blockchain is downloaded to every computing node on the network, providing unparalleled transparency and traceability.
If anyone tampers with the data within any of the blocks on the chain, the hash values won’t match up and all participants on the network will know that the data has been corrupted.
These intrinsic cryptographic security measures insulate gamers from losing their NFTs and valuable tokens due to cyber-attacks. A powerful, decentralised network of computer nodes ensures that gamers can feel protected when using Web3 gaming services.
The proliferation of cryptocurrency in the financial sector is well known, but tokens secured on blockchain have much more utility than simple monetary transactions.
Within the gaming space again, there is a need for in-game purchases — but the current method of buying in-game tokens is plagued with issues. There is a real lack of security with these tokens, and this economy’s control lies fully in the game creator’s hands.
Tokenisation also powers NFT functionality and DAOs meaning a new economy can form – one that is secure, decentralised and empowers the gaming community.
Aspects like NFTs showcase how important and powerful individual, verifiable ownership is for people. NFTs have taken the art world by storm, but the very reason they are so popular there also translates into gaming with in-game assets.
Skins and weapons or tools in-game are important to gamers, and they want full ownership and control — as well as verifiable rarity and information on their items. Ownership of assets can impact gaming on a huge level if done right with blockchain.
Opportunity #1: NFTs & Digital Asset Ownership
Non-fungible tokens (NFTs) have become a key fixture in Web3-related activities. In recent years, there’s been a lot of hype around NFTs, what they can do, and their value. Some NFTs have sold for millions of dollars, with people minting NFTs for everything from digital artwork to Rolex watches.
They are unique tokens stored on the blockchain that can represent a digital counterpart for real-world items – they can represent standalone digital assets, making them perfect for application in the Web3 gaming world.
NFTs, by their very blockchain-based nature, enable the unquestionable verification of ownership and are tamper-proof – these elements are what gives NFTs their inherent value. It becomes clear then how Web3 gaming can benefit, with in-game items and collectibles being stored immutably as NFTs on the blockchain.
In-game items are not only highly prized by gamers, they can also form the basis of an entirely new off-game market. Gamers can collect skins, ammo, weapons, or any other in-game usable assets, but as an NFT they will have true and fully transparent ownership they can take off the game.
As Web3 gaming grows alongside the concept of the Metaverse, these assets will become increasingly interoperable between gaming titles, meaning gamers will be able to show off their assets across several different gaming worlds.
Imagine a rare collectible sword that you acquired in an action game being easily transferable to your avatar in a social media Metaverse.
Equally, if a gamer would rather monetise that particular asset, they can trade the NFT-secured asset on external platforms such as OpenSea. These transactions take place via cryptocurrency wallets – this cryptocurrency can then be put onto exchanges and traded for fiat currency.
Having desirable in-game assets with the ability to be bought and sold on secondary NFT marketplaces will bring a new dynamic to games, and for gamers.
With NFT in-game assets, there is the opportunity for them to accrue real value and be collected for their resale value as well as the prestige of ownership.
NFTs allow gamers to extract maximum value from the gaming universes that they support without using unsecure networks to do so, protecting them from centralised failure and hacking as their assets benefit from blockchain security. Recently, it was seen that a CS:GO trading site was hacked to steal $6 million worth of skins.
Opportunity #2: GameFi, P2E & Gaming Economies
Gaming economies are already in play with the current crop of Web2 games. Several examples exist, including World of Warcraft’s Gold and Second Life’s Linden Dollars.
However, they have little usability outside their respective in-game ecosystems. Yet, if the gaming industry fully embraced Web3 and blockchain technologies, a new world of GameFi and Play-to-Earn (P2E) could be unlocked.
GameFi and P2E (play-to-earn) are concepts within the Web3 gaming space which allow players to earn cryptocurrency through playing games.
Depending on the game’s objectives and type, this could include defeating other players in pitched battles, completing previously defined quests, or even acquiring certain in-game items (for example, specific cards in trading card games).
In exchange for their effort, the game rewards the players with it’s specific in-game currency. This utilises Web3 tokenisation and popular blockchain networks such as Ethereum or Solana.
If for example the game is built on Ethereum, then these tokens will be ERC-20 compliant and exchangeable for other cryptocurrencies across major exchanges.
Players are given the opportunity to choose – trade their tokens for other major cryptocurrency that can be later traded for fiat money to be used in the outside world, or retain the tokens within the gaming universe and utilise them there.
Either way, this new concept remunerates players for their time, skill and attention in a way never-before-seen in gaming. Web3 games also commonly have a governance token alongside it’s tokenised in-game currency.
This enables investors and players to have increased influence on the direction of game and community development – voting in important matters.
Opportunity #3: Decentralized Platforms & Gaming DAOs
To grow the gaming space further, Web3 can invite and open opportunities for next-level participation in the form of decentralised autonomous organisations (DAOs).
DAOs are governed by smart contracts, removing the need for human supervision and intervention. Organisational decisions and changes are determined through voting and reaching a consensus among members.
In most cases, voting rights are determined by the possession of ‘governance’ tokens, which can be freely bought and sold on secondary markets (or exchanges).
While DAOs do have founding members, there is no centralised head (such as a CEO) or management team at the top of the organisation making isolated decisions that impact gamers. This creates a flat management structure, making it the gamers that shape their own game.
Maintaining decentralised power for games means those who are closest to the game can have an input into its development and evolution thanks to Gaming DAOs.
Gaming DAOs often incorporate the financial element of GameFi into their structure, meaning that members of the DAO stand to make real-time returns on investment depending on the rules set out in the smart contract.
Gaming Guilds, a type of Gaming DAO, are becoming integral to the Web3 Gaming industry. They operate similarly to investment clubs, representing a collective interest in certain gaming titles.
Oftentimes, these guilds will lend NFTs or tokens to new members (often referred to as ‘scholars’), enabling them to get started in the blockchain gaming space without needing to provide the initial investment themselves.
This helps to democratise access to Web3 games, especially for players in developing nations, as it removes the monetary requirement to get involved.
The loot from the scholars’ exploits are collected in the Guild’s treasury and distributed between members based on the rules of the DAO.
Other type of Gaming DAOs include Incubators & Accelerators and Developer DAOs – find out more about what these different types do here.
By using DAOs and voting mechanisms, players are the ones that influence the in-game evolution rather than the traditional closed organisational teams.
Challenges of Web3 gaming
The desire and drive to change gaming to match the technological growth are certainly present in the users; it is now about meeting those demands. However, it is not a simple task to shift gears so drastically and evolve the gaming space with emerging technologies as challenges exist.
With blockchain and the decentralised nature of the technology, there will always be concerns about regulation. It has been seen with cryptocurrencies that there is a need for a new regulatory framework to be developed due to their financial nature, but also because of their decentralised make-up.
In gaming, where transactions and financial implications do come into play, there will be regulatory concerns that need to be addressed. However, ensuring blockchain is well regulated yet still innovative is well underway.
Blockchain technology itself also requires growth. Scalability has been a long-standing challenge to some of the larger public networks. This limitation on the ability to handle many smart contract executions at once has curtailed blockchain use in certain areas. However, some chains are actively addressing this and aiming for massive scalability solutions.
Layer-2 protocols have been created to sit on top of the Ethereum blockchain that reduce transaction times and limit gas fees, drastically improving scalability.
Immutable X, for example, is a scaling solution that directly tackles these issues in the Web3 gaming space. They provide an NFT marketplace, their own token which can be bought and sold on exchanges and boast a number of popular games such as Gods Unchained and Cross the Ages.
Essentially, the move towards Web3 gaming is inevitable. Gaming is a growing sector and one that looks to be at the cutting edge of technological advancement. With a new host of technologies emerging in this shift to Web3, gaming will certainly be at the forefront.
Furthermore, the desire from end-users, or players, is prevalent and clear, and studios and developers also understand their own deliverables and need to keep up with the changing scene.
It is an ideal time to enter the world of Web3 and blockchain gaming as the opportunities are already vast, and they will only continue to grow as the shift towards Web3 is entrenched in the coming years.
Book a free consultation with our Web3 experts to explore how Web3, blockchain and NFT technology can unlock new opportunities for your game, studio or community.