The Definitive Guide to Web3 Gaming

Let's talk about blockchain games

Now is a crucial moment for web3 adoption in the game industry. Blockchain gaming's boisterous opening salvo turned the heads of almost every gamer with its most unprecedented feature: earning cryptocurrency. Games that pay you to play seem too good to be true. They are, in some cases. Many games touting web3 components, while sometimes an overnight success, often lack long-term staying power.

Still, the implications of digital ownership open up a world of possibilities for gaming. Blockchain technology is already being used to reimagine how games are played, developed, and made to benefit players. Today, there are projects funded solely by the royalties earned from secondary market NFT sales of in-game assets (check out Dope Wars).

Trading card games, an almost-too-perfect application of NFT tech, now resemble the real-world experience of visiting a card shop by letting players take their cards (or the proceeds of their sale) off-platform. This kind of functionality is what "true ownership" looks like for digital assets.

Web3 in gaming, like any emerging technology, is being poked, prodded, broken, remade, twisted into shapes both ugly and pleasant, and applied in every way imaginable. That's what people do. It's what people should do. And it's been happening in the video game industry since the 1950s.

In order to understand the future, on some level, we must know where we've come from. So let's put on our web3 glasses, hop in the way-back machine and look for some inspiration as we (briefly) recount the evolution of video games.

The evolution of gaming

What many call the first true video game, Tennis for Two, was designed in the late ‘50s by physicist William Higinbotham. Tennis for two, like many early games, was rendered on repurposed scientific equipment. In this case, an oscilloscope - a type of test instrument once commonly found in electronics labs and TV studios. This is the 1950s equivalent of running Doom on a graphing calculator.

Of course, electronic gaming would become a sensation. Arcades of the ‘60s still resembled the penny arcades of decades prior, but slowly began to feature graphical displays and more sophisticated electronic parts. The early ‘70s saw the first home consoles hit the market, the release of arcade staples like Pong, and the PC gaming legend The Oregon Trail (the original text-based predecessor to the 1985 release). Come 1978, Space Invaders stood out as the peak gaming experience by accidentally implementing progressive difficulty.

Enter the ‘80s, and the golden age of video games. In 1982, the arcade industry in North America pulled in over 8 billion dollars, more than the pop music and movie industry revenues combined (that's 8 billion dollars in quarters, by the way).

Despite the impact and success of gaming in ‘81 and ‘82, the video game industry would crash hard just one year later, affecting the American market the most. Games were overproduced, rushed to market, and had to compete with an emerging PC market.

In the ‘90s, a technological arms race between home console manufacturers warped gaming into a new, yet familiar, dimension. While the earliest 3D game to be commercially released came out in 1980 (Atari's Battlezone), that game more closely resembles the oscilloscope renderings of its predecessors. In 1996, Nintendo released Super Mario 64, cementing polygons over pixels as the new mainstay for video game graphics.

For a little while, at least.

The 2000s saw the last low-res polygonal games entering the market with the advent of high-definition renderings. The PlayStation 2 was released in 2000 and, to this day, holds the title for best-selling console of all time. Sega pulled out of the console wars while Microsoft prepared its first foray with the original Xbox. This decade saw a significant amount of innovation: motion-sensitive controllers, ubiquitous online capabilities, DVD/BluRay capable consoles, touch screen portable consoles, backward compatibility, and whatever Guitar Hero is.

The 2010s, despite console releases slowing considerably, saw video games permeating new demographics in a significant way. Dubbed "casual gaming," a new wave of titles released on mobile phones, portable consoles, tablets, and, like it or not, social networks.

For decades now, playing a video game has essentially worked the exact same way - you buy a game, or a single play, and whoever sold it to you maintains control of the game. Like visiting a haunted house.

But as we spend more and more of our lives online, why shouldn't digital spaces become more reflective of the real world? Emerging technology is breaking the mold to give gamers not only a chance to create value in a game but allowing them to enjoy more equitable, engaging, and community-driven experiences.

Web3 gaming, so far

Web3 in gaming can include democratizing the development of the game itself, as well as the ability to generate real-world value through gameplay. Democratization brings players into the decision-making process of a game's development, reducing the community-riling effects of unilateral decisions made by game studios. A big component of this is the inability to shut the game down - players can maintain the network running the game and continue its development long after the original creators move on.

Interoperability, though, is one of the most interesting features of web3 games. Games where your items, characters, and abilities are transferable to another game world is something of a holy grail. How this will be implemented in the long term remains to be seen, however, as many games rely on a consistent setting and lore to create immersive gameplay.

Today, blockchain integration in gaming has mainly taken form using three approaches: a fully on-chain experience, gaming via on-chain assets, or providing the ability to create optional cosmetic mints.

Fully on-chain (FOC)

The FOC model uses the blockchain as a substitute for centralized game servers and is particularly suitable for turn-based games featuring a low number of state updates per session. Dark Forest is an example of a FOC game that pushes the capabilities of web3 tech.

On-chain assets (OCA)

OCA uses on-chain user assets while game loops occur off-chain, making it ideal for feature-rich games with frequent state updates per player that would also require highly performant infrastructure. Replacing in-game currency with a utility token is one application of OCA in gaming.

Optional Cosmetic Mints (OCM)

The OCM approach maintains off-chain game databases and allows users to mint game assets as NFTs on-chain, offering the least user friction while providing NFT ownership benefits. Gods Unchained is an example of a game using OCM.

Keep in mind, these are simply the main models to emerge so far.

"There are a few categories of how the web3 technology stack can be used in games...on the spicy end, you get games that integrate the fact that a blockchain is a decentralized database and integrate that into the core of the game." - Nico Vereecke, BITKRAFT Ventures

It's true that FOC games are wildly innovative, if not wildly successful (yet). Fully-on-chain games like Dark Forest tend to have an incredibly niche audience. However, the same was once true of Dwarf Fortress - a free game that, after years of play and development, generated 7.2 million USD in its first month of commercial release.

Kohji Nagata, Head of Game Development & Design at Parallel Studios, touches on the oft-used cudgel against web3 implementation in games: People play games to have fun, not to make money.

"I just feel like starting with the tech first is a hard way to make a game that users are going to adopt. And we have to start there because we need users in the space." — Kohji Nagata, Parallel Studios

Others echo this sentiment, emphasizing the (problematic) early focus on monetization and lack of real value transfer:

"There's [been] a lack of community building and a lack of depth in these games that are web3 first." — Elizabeth Kukka, VP of Business Operations, ChainSafe.

Web3 integrations in gaming can sometimes put the cartridge before the horse, so to speak. Designing games with built-in economies has taken focus away from the play experience itself. Fun, unfortunately, is too often overlooked in favor of trading dynamics and the value created at the game's core.

The integration of NFTs within a play-to-earn context initially saw players who were only interested in maximizing value extraction, incentivizing the use of bots and practices that circumvent the game.

Despite these initial hurdles, there are exceptions that are getting it right by taking a game-first approach. Untitled Platformer is one such example. In addition, many game studios are adopting web3 mechanics because they see not only the inherent value/promise in web3, but traction.

When you survey the industry, it's clear that gaming is a runaway leader in terms of usage.

But perhaps most optimistic is that in the face of a down market, adoption and funding continue in the web3 gaming space. Rather than following the status quo, forward-thinking investors and developers are exploring the frontier.

Big studios have their hand to play as well. With a wider audience, higher production value, and capital backing, big game studios are positioned to introduce the next generation of gamers to the web3 experience.

Layering in blockchain technology makes entirely new forms of community-building and player engagement possible. So while web3 adoption may not be a strategic imperative, there's a significant upside to be had for early adopters.

"We [Upland] have taken the idea of Monopoly, added tech onto that game, and now have taken it further. Now people can have fun playing the game, meet people, create ownership, [and] create value for themselves." - Lindsay Anne Aamodt, Head of Marketing at Uplandme, Inc.

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Blockchain x gaming: exploring implications

Adding web3 functionality presents us with an uncommon opportunity to reimagine the way we interact with games. Blockchain gaming stands to introduce a number of player and developer benefits, most notably concerning security, interoperability, and value creation.

Enhanced security

Games today, especially (but not limited to) mobile games, are a potential goldmine for bad actors. User databases contain valuable personal information, including credit card information and user identities. Decentralized identity mechanics can potentially phase out centralized databases for storing user information, a common target for malicious users.

A 2022 survey found that 21% of gamers had experienced a hack in their lifetime. Shifting from centralized, personally-identifying information databases to a decentralized __ identity model allows players to choose what information they share with a game.

Player control

The web3 gaming space puts power into players' hands, allowing them to build and own their communities. Creators can monetize their in-game NFT creations, (hopefully) making "medieval blacksmith" a viable playstyle in the open world games of tomorrow. Vitalik Buterin famously wrote that part of his motivation for building Ethereum came after World of Warcraft nerfed his character.

By providing players the ability to input their own creativity and vision into the game, particularly MMO games, actual living worlds can develop online. While game developers will forge the initial game world itself, players can take full reign of what happens within it.

"Users are going to want more rights over the things that they own, and basically blockchain enables that almost as product feature of the internet." Ryan Wyatt, President of Polygon Labs

Interoperability

Interoperability is a buzzword that gets thrown around so often it can be hard to define. **** Of course**,** it all depends on context. And in this sense, it's easy to jump to the idea of the _Ready Player On_e metaverse, where every game asset is compatible with a myriad of environments, items, and other players. But this is fan fiction, at least for now.

Rather, we're likely to see interoperability solutions involving purely cosmetic items in the near term, as these assets do not interact with the game environment and therefore don't create issues with game balance.

Beyond that, people are currently exploring a range of ways to make interoperability in gaming a reality.

• Cross-chain - a single game client communicating with multiple blockchain backends.

• Partnership-driven - a game allows the holder of a certain NFT to mint a new version within their game. A kind of pseudo-interoperability.

• Game assets as primitives - the asset itself could be the substrate upon which a host of games and other derivatives are built.

• Cross-game - games allowing users to cross "borders" between games with an asset.

[Credit: BitKraft]

Community building

Web3-specific mechanics stand to open new social interactions within a game, though the final implementation by game developers will have the most effect. For example, think of Runescape before and after the Grand Exchange opened - streets once alive with buyers and sellers were emptied completely in favor of the more convenient exchange system. For a massive multiplayer game, it ended up feeling pretty lonely. While not web3, the Grand Exchange did over-simplify the organic market culture of the game to its own detriment.

By creating a DAO and implementing a participation-based reward system, we foster a dynamic community where every voice is valued, underscoring the importance of working together to achieve shared objectives. Ultimately, we aspire for our community to become the driving force behind the studio, embracing the joy and responsibility that comes with it. __ - V_incenzo Bianca, CEO, TokkenDigital_

On the more practical side of game development, reducing infrastructure costs by leveraging distributed systems and P2P technology is a significant benefit. Instead of relying on centralized servers, game assets can be loaded on services like Interplanetary File System (IPFS), allowing developers to devote more focus to improving the in-game experience. A lower cost-to-entry also lets new/smaller game studios reinvest their savings elsewhere in the production funnel or in the game itself.

Web3 gaming: conclusion🕹

The story of video games is an interesting pairing of recreation and innovation. Inventing Space Invaders may have made engineer Tomohiro Nishikado a rich man, but the purpose of the gadget is, ultimately, to do something impractical for a while. Human minds need leave of the world, sometimes, to truly flourish.

The heart of web3 gaming focuses on serving the players. With true ownership of digital assets, players may connect with their game worlds in a deeper way. Assets are unique in the real world and, as such, tend to have human stories contextualizing them. Bridging this quality into a game world adds a whole new layer of organic lore that can only play out with human intervention.

By offering real value and meaningful interactions, game developers can build lasting communities of players who are passionate about their games. Thanks to generative AI, game development is becoming more accessible than ever before. This means that communities can play a larger role in influencing how games come to life, making game development more organic and our experiences therein more inclusive.

Produced by ChainSafe Gaming

ChainSafe Gaming offers full-service blockchain tooling and consulting services. As part of our multifaceted solutions, we're home to mission-critical tooling spanning web3.unity, an open-source library connecting games built with Unity to the blockchain, an NFT minter, and an in-game marketplace.

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Acknowledgments

Thanks to Greg Markou, Colin Adams, Reinhardt Weyers, Ben Hyman, and Jon Roethke for their contributions to this guide.