Blockchain games twist the fundamentals of online gaming

About 6,000 years ago in a sweltering Sumerian stockyard that stunk like sheep shit, someone invented blockchain.

Well, the blockchain of 6,000 years ago — cuneiform. It was, as scholars have shown, a newfangled transaction recording system that applied innovative cryptography to existing technology. Replace the wedge-shaped codes on clay tablets with algorithmically encrypted data on a computer network, and baby, you’ve got a stew going. Cuneiform, like blockchain, was invented out of the desire to create a secure, transparent exchange. Nobody likes to get screwed, be it in sheep or Dogecoin.

Blockchain is most famously associated with Bitcoin and Ethereum, which use the technology to create secure currencies with real-world value backed by the time and energy spent encrypting them. It’s easier to clone a sheep than to counterfeit a cryptocurrency. The growing ubiquity of multi-million dollar NFTs (non-fungible tokens) and cryptocurrencies has pushed blockchain into the mainstream. And, unless you’ve been stuck in a Sumerian stockyard, you know that mainstream in the 21st century means gaming.

Over the last five years, blockchain games have become a genre of their own, but whether any of them are actually worth playing is as unknown as Satoshi Nakamoto’s true identity.

Dr. Serkan Toto, CEO and Founder of Tokyo-based Kantan Games Inc., an independent game industry consultancy, tells Inverse, “A lot of these games seem to be forced exercises in basically trying to use blockchain and digital ownership and monetization.”

If the idea of a “forced exercise” doesn’t sound like fun to you, you’d be right. The current state of blockchain gaming is largely focused on creating assets for valuable transactions, not on hauling home accolades from The Game Awards. If the notion seems a bit dystopian to you, remember, one gamer’s spreadsheet is another’s EVE Online. Blockchain gaming has already found an audience of enthusiastic participants, but its future rests on finding a much larger one.

“There's no real fun inside many of these games,” says Toto. “Making them fun is the hard part. Making them secure for children, making them safe for everybody to use — that's easier to solve than making these games fun and engaging.”

After testing out a couple of the space’s best-known titles, Inverse spoke with a games industry analyst and a founder of a blockchain gaming studio to find out what blockchain could mean for the future of interactive entertainment.

What are blockchain video games?

Blockchain video games are any video game that uses some aspect of cryptographic blockchain technology. As a genre, this typically means the video games are comprised of loosely skinned software designed to get players into the cryptocurrency market.

The items you acquire in blockchain video games — weapons, skins, experience points — have a tangible value that players can trade with other players. Imagine selling your XP to a new player of a game you finished long ago, or offloading your excess inventory in Skyrim for real-world money. Blockchain gaming makes this possible.

“Games are basically a perfect vehicle for blockchain,” says Toto. “Gaming is one of the areas where blockchain makes sense, where digital ownership makes sense, where NFT's makes sense.”

Digital ownership exists in games now, but not with any of the value or stakes blockchain allows. You can “own” all the Fortnite skins you want, but you can’t sell them (legitimately and openly) to other players.

Publishers already have their hands full deterring hackers and cheaters from breaking their games to gain an advantage in online play. Current technology isn’t secure enough to keep a motivated cheater from juicing a K/D spread, let alone host a marketplace with millions of dollars in public transactions.

Blockchain technology makes these markets possible by keeping individual player assets secure. Michael Sanders, Chief Storyteller and Co-Founder at Horizon Blockchain Games, tells Inverse that this innovation can benefit players and publishers alike.

“The biggest shift will be creating economies that are symbiotic. So players can share in the value that's created by the game, instead of just the game creator,” Sanders explains. “Thoughtful economy design will serve players and allow for sustainability for us as a company. We're going to see so many innovative games where the game and its economy are interwoven.”

The best-known blockchain game is CryptoKitties, developed by Dapper Labs and released in 2017. Players use Ethereum to purchase NFTs of cute cartoon cats with distinct traits that can be bred to produce unique offspring. The rarity of the traits determines their value. So how much could an NFT of a cartoon cat possibly be worth?

$170,000, to be exact.

And that’s just the highest-selling one. Estimates suggest the CryptoKitties economy is worth as much as $10 million in transactions annually. The term “economy” is applicable here because CryptoKitties users take home about 80 percent of that, with Dapper Labs getting a small cut in transaction and “breeding” fees.

In a traditional video game, like the Pokémon series, breeding is an in-game mechanic that requires certain conditions be met. In CryptoKitties, it's a blockchain transaction that generates a new NFT. The lack of traditional mechanics doesn’t end there. CryptoKitties don’t do anything. They’re just nice to look at. If you’re expecting a high-stakes version of Neko Atsume, think again.

Another massive blockchain game is The Sandbox. Developed by Pixowl, it’s a more traditional game in the vein of Minecraft or Roblox that pivoted to blockchain when it was acquired by Animoca Brands in 2018.

The Sandbox’s blockchain tech is used for the creation of its unique cryptocurrency called SAND. Players get access to a toolkit that allows them to build pretty much anything, and those assets are sold on a marketplace. It also features a limited amount of real estate on its in-game map, called LAND, leading to big-ticket purchases from the likes of Atari and the Winkelvoss Twins. How much is all this worth?

“The market cap for SAND is more than $1 billion,” says Toto. “If you take all of these blockchain games together, you're talking several billions already.”

Are blockchain games fun?

Blockchain games aren’t fun … yet. I found CryptoKitties to be downright user-hostile.

To begin to “play,” one must first set up a Coinbase account and buy Ethereum. Then you need to download the Coinbase wallet app, which is different from the Coinbase account app. Then you link CryptoKitties to your wallet and, after a brief tutorial about breeding cats for crypto, you browse. The cheapest cats I could find were about $15 each, plus there’s a breeding fee. So you’re looking at around $30-50 upfront to get two cats and get started.

If you can get started, that is. I kept receiving an error message about problems processing a transaction fee, along with a warning that fees were higher than usual because of “blockchain congestion.” Then the dapp (or “decentralized app”) simply stopped loading. I couldn’t even access the game after multiple failed attempts, about an hour of setting up crypto stuff, and transferring $50 worth of Ethereum into my Coinbase wallet.

“Making them fun is the hard part.”

The Sandbox fared better. I wasn’t able to access the full game (it’s still in development) but it lets players download the creation software and tinker to their heart’s content. No upfront purchase required and registration was easy. Still, creating voxel assets with Unity-based visual scripting tools is about as dry as it sounds.

Even the makers of blockchain games admit there’s still a way to go before these games can rival the fun factor offered by mainstream publishers like Sony and Nintendo.

“There are two different skill sets. Building blockchain architecture and a blockchain application is different than what's required of game development,” says Sanders. “It’s a challenge to marry these two skill sets and have the vision to create something that a regular gamer — and not just a crypto-interested gamer — would enjoy playing.”

Sanders and the team at Horizon are optimistic about their own blockchain game, Skyweaver. It’s a CCG, or collectible card game, in the vein of Hearthstone or Magic: The Gathering. The blockchain element for Skyweaver is that the cards are NFTs, and players have full ownership. Horizon can’t even access players' cards once they get a deck. The more you play, the more rare cards you earn, and you can sell those cards to other players.

Sanders and the rest of the team at Horizon feel that successful blockchain gaming puts the gaming first. A well-designed game will attract an enthusiastic fan base, and the best blockchain tech in the world amounts to an empty wallet without active and engaged buyers and sellers.

“First and foremost, you have to get rid of the friction so that the gamer can just get into the game itself,” he says. “The blockchain tech is not that meaningful unless the game itself is enjoyable in the first place.”

The future of blockchain games

There are two obstacles in the way of blockchain gaming’s future: investor risk and PR. Investors want stability, predictability, and growth. Blockchain gaming doesn’t offer that yet, because to transfer value to players you inherently remove value from the companies.

“Don't underestimate how conservative gaming studios are, especially monetization-wise,” Toto says, referencing the appeal of monetization methods like loot boxes and microtransactions to publishers. “When you have a golden goose in your portfolio, it will take some time for game companies to adopt this concept of monetization and introducing users to the idea of digital ownership.”

There’s also a backlash against crypto and NFTs because of the carbon footprint associated with their creation. Recently, a site that tracked the footprint for NFTs was shut down because it was being used to harass artists. Sega of Japan’s announcement of plans to start selling NFT digital content this summer sparked outrage among fans who said it was a betrayal of the environmentalist values instilled in them by the company’s flagship mascot, Sonic the Hedgehog.

Sanders contends that sustainability concerns are overblown, especially compared to traditional collectibles.

“Physical collectibles require a whole supply chain, they require manufacturing and plastic and shipping and gasoline,” he said. “The physical good creates way more of a carbon footprint. That NFT, by comparison, is virtually non-existent.”

Still, blockchain companies are aware that sustainability is a major hurdle to mainstream acceptance and are developing solutions. The most promising is a shift away from what’s called “proof of work” to something called “proof of stake.”

Proof of work refers to the value of an NFT because of the “work” spent encrypting it, i.e., the environmental cost of all that computational time. Instead, major players like Ethereum are considering proof of stake, which requires users in the blockchain to keep a stake in the market to ensure good-faith transactions. It’s complicated, but if it works, the environmental cost of blockchain transactions could reduce to zero.

“We're going to see so many innovative games where the game and its economy are interwoven.”

Of course, if blockchain is a bubble, the value of all this could also reduce to zero. There are already billions of dollars tied up in the space, but Toto says it’s far too early to tell if blockchain gaming is boom or bust. “It's very, very hard to say if this is a bubble or not. Very, very difficult to answer.”

Sanders is more optimistic. He thinks blockchain gaming will have a bright future once gamers recognize the opportunity it offers them, and once companies understand the value those gamers will bring to this new type of economy.

“Gamers will get to participate in the value created by these networks while having fun. And they essentially have a stake in the games they're playing. It becomes a symbiotic relationship between game creators and players,” he says. “I don't think anyone really knows exactly what it's gonna look like, this notion of the metaverse and being able to enter this internet of value. But this is kind of a fun entry point.”

Maybe blockchain gaming is not as fun as traditional gaming, yet. But it’s certainly more fun than day trading at a Sumerian sheep market.