Blockchain and the gaming sector

July 18, 2018
Chris Wheal

The gaming industry is on a roll and both cryptocurrencies and blockchain technology are set to fuel its future growth. Games market researcher Newzoo reports that globally the games market generated revenue of around $116bn last year, up from just under $105bn in 2016.

Global games market 2016-20

Global games market 2016-20: Newzoo

The projected total for this year is $125.4bn, with pencilled-in figures of $134.5bn for 2019 and $143.5bn in 2020. Much of this growth comes from China, where over half of its 600 million gamers – around twice the entire population of the US – play online PC games. China is also the world’s single largest mobile games market, accounting for more than 25% of total revenue.

Mobile games popular

Mobile games also represent the biggest slice of the overall global market last year, representing $50.4bn or 43% of the industry’s total revenue, while console gaming accounted for $33.3bn (29%) closely followed by PC gaming at $32.3bn (28%).

Games market by secto

Games market by sector: Newzoo

Newzoo reports that competitive gaming involving team play, rankings, and live streaming is claiming a growing share of overall game time – and that the next couple of years will determine how fast competitive gaming grows into a multi-billion-dollar business.

Blockchain is well positioned to fuel this future growth – in turn helping cryptocurrencies as the technology enables gamers to trade virtual gaming items with one another using bitcoin and its peers. This removes the need for gamers to use old-fashioned money, or fiat currency, to purchase them directly from games developers.

The CryptoKitties phenomenon

CryptoKitties launched last November

With so much attention devoted to the business-transforming potential of blockchain, you could overlook its ability to cater to the frivolous in games. However, November 2017’s launch of CryptoKitties – something akin to a digital version of the Pokémon card – has been one of the biggest developments of the past 12 months.

A virtual game that enables users to buy, breed and sell their own, unique digital cat, CryptoKitties is the brainchild of Vancouver, Canada-based innovation studio Axiom Zen. To date, it represents the biggest hit of the decentralised apps (dApps) using the Ethereum blockchain.

Such was the success of the virtual game that within days of the launch, sales of the cartoon cats were slowing down transaction times across the Ethereum platform to a crawl and individual CryptoKitties – described by their creator as akin to “breedable Beanie Babies” were changing hands for high prices.

CryptoKitty for sale

Individual CryptoKitties have sold for as much as $100,000-plus

Each individual CryptoKitty represents a crypto-collectible token on the blockchain, or, to give it the full title, a ‘cryptographically unique, non-fungible asset’. This makes it rather more unique as a collectible than the Pokémon card, as the crypto component ensures that each CryptoKitty has its very own specific features that cannot be replicated.

Ethereum has been the main beneficiary as CryptoKitties players use the network to buy and sell their unique digital kittens. Each CryptoKitty has its own unique 256-bit geonome, while those owning two or more can then use them to breed and sell the offspring in the marketplace, with over four billion possible genetic variations.

Establishing value

“From a high level, abstract point of view, this stuff is almost digital artwork, if you will,” commented Joey Krug, co-chief investment officer at Pantera Capital (an early investor in bitcoin) shortly after last November’s launch. “It doesn’t have any inherent value other than what you think it’s worth.”

Yet in the first few weeks, players around the world spent $6.7 million on the cats. While the average price initially was around $25, it wasn’t long before a single CryptoKitty changed hands for nearly $115,000.

Leci Gou puppy

China’s Baidu quickly launched a puppies version of CryptoKitties

Inevitably, other pet-based cartoon pets swiftly emerged. In February, search engine Baidu made a pre-emptive bid for a slice of the lucrative Chinese market ahead of CryptoKitties’ launch there by delivering ‘Leci Gou’, a similar game that substitutes digital puppies for kittens.

Blockchain has also opened up even more fantastical worlds, such as UnicornGo, described as “a collectible online game where users can own unicorns, land, sweets, also they can buy and sell unicorns on the trading floor, donate and cross unicorns among themselves.”

In addition to using the Ethereum platform, UnicornGo has partnered with augmented reality platform IZETEX’s mobile app IZX. However, UnicornGo has promised investors that it will transfer from Ethereum to the Universa platform “which provides lower transaction fees and higher transfer speeds, comparing to other blockchain platforms.”

Surmounting the hurdles

CryptoKitties' co-founder Benny Giang

CryptoKitties’ co-founder Benny Giang

High transaction fees and slow transfer times aren’t the only gripes that have crimped the growth of blockchain-based games. The user experience (UX) could be much better, admits CryptoKitties’ co-founder, Benny Giang, who says there are many potential customers who sign up, but then never get any further.

“Signing up for Facebook or Airbnb is like one click, or a couple of clicks and it’s so easy,” says Giang. “It allows for billions of people to sign up without a problem. But with blockchain or decentralised apps, we’re faced with this user experience (UX) issue that’s an extremely big hurdle.”

Signing up for a crypto game can be a time-consuming process, which requires buying a crypto coin, adding it to a digital wallet and waiting for each transaction to clear. So, for example, prospective CryptoKitty owners must purchase Ethereum’s cryptocurrency Ether and then instal the Chrome extension MetaMask as their digital wallet.

Ethereum's rising gas price and restricted capacity

Ethereum’s rising gas price and restricted capacity have been a bone of contention

High prices dampen demand

A further bone of contention for players once they have got through this opening stage is what is known as the ‘gas price’, an internal fee for processing a transaction on the Ethereum network. The fee can vary, based on a number of factors including how busy the network is at any given time, but has been rising steadily in recent months.

Alternatives to bitcoin, aka altcoins, have been developed for purchasing game subscriptions, in-game items and/or in-app purchases, with GameCredits and Nexium among the most widely-used. Game developers prefer them to traditional payment methods such as bank cards or PayPal. GameCredits, for example, offers several benefits such as a higher commission.

Ultimately, many players baulk at the demands on their pocket. As one plaintively asked on an online forum recently: “Most collectible card games (CCGs) I come across tend to be overly reliant on spending money. Are there any that can be fun for free and don’t constantly pester you to buy stuff?”

Despite this, the obstacles hampering blockchain-based gaming are probably no more than teething troubles. The Bitcoin and Ethereum protocols open up the potential for new kinds of game economies, where players become relevant actors and new dynamics open up within the games.

Online role-playing

World of Warcraft

World of Warcraft goes back as far as 2004: Shutterstock

Pre-dating CryptoKitties and their derivatives are the MMORPGs – massively multiplayer online role-playing games – typically set in a fantasy universe. Game-maker Blizzard Entertainment’s World of Warcraft is perhaps the doyen of this group, having launched back in 2004.

By 2015, Blizzard was aware of the upsurge in bitcoin and other cryptocurrencies but opted instead to develop its own in-game digital currency, Wow gold, which players have been able to purchase with fiat money. Digital gold can be earned when a gamer completes a quest or terminates a monster, but such is the time and effort expended in acquiring it, many users began using real money instead to buy in-game assets.

Blizzard has now addressed this by creating the ‘WoW Token’, which it sells equivalent to one month of subscription. Users can purchase the token, sell it at auction then exchange for gold. The token value is based on the total amount of gold circulating in the game server.

Users who buy token at the auction can extend their subscription for one month, meaning that the token seller is effectively making the payment of the 30 day subscription on behalf of the buyer while the gold trade is considered legitimate. They claim this is to be a ‘safe game’ authorised by the developer and that users can buy the token with confidence.

Pushing the boundaries

Another question is whether the blockchain-based games delivered to date are actually worth the effort and expense. Critics suggest that most are still lacking in entertainment value and the interaction features demanded by gamers.

Co-founder and chief operating officer of Australian developer Fuel Games, Robbie Ferguson believes user activity is vital if the industry is to reach the next level. At a recent convention, he said that it has to “take a step towards real games which are indistinguishable from the kind of triple-A video games you’d see normally, except they have all these advantages of then being immutable and provably scarce.”


Etherbots’ success has rivalled that of CryptoKitties

Fuel has been among game developers making waves this year and has secured $2.4m in seed funding. In March, the company enjoyed a smash hit with the launch of Etherbots. A dApp hosted on Ethereum, it was promoted as the “first real multiplayer strategy game” and inspired by Robot Wars, with players collecting parts and weapons, forging unique dynamic robots, and using them to battle others on the platform.

Etherbots offers the ability to create more than two million fully customisable and interchangeable robots. Pre-publicity leading up to the launch promised a “powerful platform to combine the guaranteed scarcity of collectibles with the functionality and competitiveness of a fully fleshed-out game.”

The game functionality includes “battling with interactive elements, social leaderboards, and an ability to build and customise your creations – and boast about them.” Within a fortnight of launching Etherbots, Fuel had sold over $1m of in-game items, with individual items won in-game later trading for up to $18,000.

Gods Unchained

Gods Unchained is Fuel’s next release:

The start-up has just announced the pre-sale launch of its new blockchain-based game Gods Unchained, with backing secured from investment firms Nirvana Capital and Continue Capital, and participation from Asia’s Sora Ventures and the online platform Coinbase.

Gods Unchained is promoted as one the first e-sports games on the Ethereum blockchain – a multiplayer decentralised competitive collectible card game (CCG) in which players choose from six different gods, each with their own set of cards and abilities.

What can blockchain do for gaming?

For Simon Kertonegoro, VP of marketing at Singapore- based IT group Enjin, developed of the Enjin Wallet and the Enjin Coin (ENJ): “The union of gaming and blockchain is inevitable and the impact of this evolution is set to be just as significant as the emergence of online gaming a decade ago.”

Blockchain and gaming

Blockchain will be central to the future of gaming: Shutterstock

In a recent blog he listed 12 ways in which blockchain will be central to the future of gaming and will help game developers break new ground:

  1. Continuous and parallel gaming universes: The distributed ledger offers the potential for gamers to use their characters and items in multiple games with interlinked environments.
  2. Increasing the value of gaming items: This can be accomplished three ways: by providing new ways to use virtual items in and out of games to raise their functional value; setting up platforms that enable players to cash in those items for dollars that cements their economic value; and creating networks that facilitates the trading, sharing and gifting of virtual items to increase their social value.
  3. Safe storage: Using encrypted blockchain ledgers to store digital assets guarantees the permanent safe storage of games items.
  4. Proof of asset scarcity: As already demonstrated by the success of Crypto Kitties, the public blockchain ledger allows game developers to create rare virtual items, and prove their scarcity.
  5. Regulated gaming economies: Governments and game developers recognise that banning trade creates black markets. The blockchain can be programmed to give developers and server owners the ability to collect ongoing royalties for items being traded throughout their gaming worlds. Developers can also choose to allow items to be traded with no restrictions and can even stop them from being traded at all. This meets the economic regulator’s requirements as no policing is needed and there’s no way to circumvent the system.
  6. Players could make items even rarer by altering them: In some cases, items could be customised by players allowing them to re-create and trade upgraded assets with unique properties. Individual users would have new ways to use their skill-set and other users would gain an interesting opportunity to do business in-game with a merchant of rare items.
  7. Saving millions on payment processing: Decentralised payment gateways will allow users to make payments for much less than the fees currently paid to credit card companies, while developers will also save on payment gateways and merchant subscription fees.
  8. Micro-transactions could make gaming fairer: The ability to take micro-payments quickly and easily will give developers new ways to monetize their games. Cheaper power-ups will allow more users to justify buying items, while subscription services can be commenced or cancelled instantly, allowing users to set a limit to their spend.
  9. The internet’s open source communities will encourage development: Open source simultaneously encourages co-operation and competition and results in constant innovation, fuelled by a network of creative minds. Just as Linux changed the internet, it will be an open source technology that changes the gaming community.
  10. Reducing the incidence of fraud and lost revenue: One in every 7.5 virtual items is lost to fraud, with the cost of chargebacks and failed transactions further adding to the billions in lost revenue per year. However, good blockchain technology is unhackable.
  11. Democratisation will make the gaming world a better place: Voting features are very popular within gaming servers and online communities. Current voting systems allow people to rank games, servers, teams and other items; however this could be extended to democratise governance over game servers. The technology could be implemented as a decentralised smart contract with predetermined rules, actions and protections.
  12. Digital assets in an augmented world: Virtual possessions mean the world to gamers and there’s billions in valuable assets floating through the ether, which needs to be fortified. They will no longer be satisfied with a gold star and a pat on the back, but demand tangible rewards for their efforts.

This is why it’s just a matter of time before gaming and crypto become synonymous.

Etheremon website

Etheremon has been dubbed ‘Pokémon on blockchain’

Why Etheremon’s taking its game elsewhere

The game dubbed ‘Pokémon on blockchain’ has been based on the Ethereum platform since its launch in December 2017, but has already decided to move some of its interactive features to an alternative home

Etheremon logo

Etheremon launched last December

Etheremon is one of the new breed of decentralised application (dApp) blockchain games, its name reflecting the fact that it’s built on the Ethereum network.

Built with blockchain and using virtual reality (VR) technology, the game simulates a world of ether monsters (Etheremon) in which players, aka MonSeekers, interact with the smart contracts on the Ethereum network to achieve three goals:

  • Capturing Etheremon limited virtual monsters issued on the Ethereum network, to complete their collections.
  • Training Etheremon to lay eggs, transform them to new species to sell or lend them to other MonSeekers.
  • Battling with other MonSeekers in various game modes – such as gym battle, castle battles, practice and tournaments – to collect EMONT (an in-game currency ERC-20 token).
Etheremon logo

Etheremon has been based on the Ethereum network: Shutterstock

For those not already in the know, ERC stands for Ethereum Request for Comments, an official protocol for proposing improvements to the Ethereum network, while ‘20’ is the unique proposal ID number.

ERC 20 defines a set of rules that must be complied with if a token to be accepted and called an ERC20 token. The rules apply to all ERC20 tokens as they are required to interact with each other on the Ethereum network. These tokens are blockchain assets that can have value and can be sent and received, including Bitcoin, Litecoin, Ethereum and other cryptocurrencies.

Victim of success

Singapore-based Etheremon is a member of Emont Alliance, a company that assists developers to build and develop gaming application programming interfaces (APIs) on the Ethereum network. However, this month it was announced that some of Etheremon’s functionalities – such as battles between users – were being transferred off the Ethereum platform and onto an alternative blockchain developed by Zilliqa (ZIL) a next-generation, high throughput platform

“Since we launched the game, Ethereum initially served us well and proved popular with users, but more recently it’s become harder to promote our marketing efforts and players have started to complain about the level of transaction fees,” says Ngo ‘Nedrick’ Nam, Etheremon’s co-founder.

Gas price

Ethereum’s transaction fee or ‘gas price’ has risen sharply: Shutterstock

Within a few weeks, the ether ‘gas price’ – an internal fee for processing a transaction on the Ethereum network – rose from 1 Gwei (a denomination of ether, ETH, the cryptocurrency used on the Ethereum network) to 100 Gwei, meaning that Etheremon’s users went from paying between 30 cents and 50 cents for each transaction to $35 per transaction.

“Also of concern is the number of potential new players of Etheremon, who don’t get beyond the initial sign-up,” says Ngo. “Often they have to create a brand new wallet if they wish to avoid using their existing wallet and when they make a purchase it can take some time before it actually shows up.

“They also need to acquire a set of characters before it’s possible to start game-playing. So the setting-up process is complicated and we’re doing what we can to improve it, while also making it a better game experience.”

Continuous development

CryptoKitties home page

The success of CryptoKitties caught many by surprise: Shutterstock

Ngo says that the success of Crypto Kitties reflects that it was the first blockchain-based game launched and its novelty appeal couldn’t immediately be replicated. However, the scale of demand took everyone by surprise and Ethereum wasn’t ready for the ensuing mass adoption.

Nor has the platform easily accommodated all of the features of Etheremon, such as the Battle link, which requires interactivity. “The problem is that Ethereum is not really ready for us: the infrastructure isn’t there yet for complicated games and that’s why we’ve had to move some of it off-chain,” says Ngo.

“Although the number of features on Etheremon was initially limited, more apps and new use cases have since been developed,” he adds. “It’s essential to be continuously developing, as different players have different demands – which is why we’re steadily working to expand our range of features.

“Ethereum’s ability to reduce its transaction fees is limited as they reflect supply and demand; so a big event drives up the price and deters potential players who fear that their money won’t be well spent. The fee has fluctuated considerably over recent months and we’ve been losing too many apps and features that we want players to enjoy.”

Scalability is vital

Ethereum’s limitations persuaded Etheremon to look at the blockchain developed by Zilliqa, which is also Singapore-based and, says Ngo “has developed a reputation from moving earlier and faster than its peers.”

Zilliqa logo

Zilliqa is a Singapore-based blockchain developer

Zilliqa’s head of research Dr Amrit Kumar, comments: “The issue we’re addressing is that popular blockchains are widely used but their capacity to handle transaction is restricted – far more so than Visa, for example, which regularly processes 5,000 to 8,000 transactions per second and far more at certain times of year such as Christmas.

“We regard this as a major problem and one that needs to be overcome if blockchain for gaming is to become more popular. Currently, although the system by which a transaction goes to be processed is secure, it’s also redundant and we want to introduce greater scalability.”

So although Ethereum’s developers are working to improve its scalability, the platform has been limited to a maximum of 20 transactions per second while Zilliqa’s development team report that in tests the ZIL network was able to process 2,000 per second – or 100 times as many.

Sharding the solution

Zilliqa’s answer to the scalability issue is ‘sharding’. It works by dividing a network into, for example, ten smaller networks or ‘shards’ that enable parallel processing. A maximum of 600 nodes sit in each shard.


Sharding, a solution for blockchain scalability

Sharding is a solution for blockchain scalability: Cryptoniam

Sharding has been in existence for many years, mostly for databases or data storage, as a simple way to store data across multiple machines. Basically every machine will have a “shard” (a piece) of the data.

However, Zilliqa’s adoption of sharding for blockchain offers a solution to the scalability issue. “In addition to Etheremon, we’re talking to other companies dissatisfied with the current system and will announce their names in due course,” says Kumar.

He adds that blockchain can also help reduce the number of fake buyers and sellers that prey on gamers and also identify phishing websites and web pages – helping the anti-phishing campaign conducted by the PhishTank website.

“We’re keen to ensure that greater scalability doesn’t adversely affect the user experience, as blockchain-based computer and mobile games offer enormous potential,” says Kumar “For example, if you’re an artist you can develop a digital piece of work that has a value – that even applies to Crypto Kitties, which are more of a digital asset than a gimmick.

Digital red rose

A digital photo of a red rose was sold for $1m: Shutterstock

“So it offers potential in many other areas where assets can be developed – for example in February a digital photo of a red rose sold for $1 million to a group of 10 collectors who shared the cost in cryptocurrency.”

Post written by Chris Wheal
Chris Wheal is editor of OpenLedger's news and features service. An award-wining business journalists himself, he runs a team of freelance journalists from across the UK and north America.

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