February 23, 2022 - 15 min read
The video game industry is undeniably one of the largest and most profitable sectors of the technology and entertainment industries today. It’s estimated that over one-third of the world’s population plays some type of video game. The global video game market is currently estimated to be somewhere between $150-200 billion as of late 2021, with some estimating the market could actually be as large as $336 billion.
The global video game market is expected to increase to an incredible $545.98 billion by 2028, experiencing a projected compound annual growth rate (CAGR) of 13.20% over the next 7 years.
Crypto and blockchain gaming is perhaps the fastest-growing and most exciting trend in both the video gaming and the blockchain industries. The crypto gaming industry generated an estimated $321 million in revenue in 2020, and exploded in 2021, with some gaming tokens ballooning to billions of dollars in market capitalization. Crypto gaming revenue for 2021 is difficult to ascertain but is likely significantly more than $1 billion, considering that the market cap of the top 5 gaming coins is currently a combined $25 billion and the total market cap of crypto gaming coins is currently nearly $40 billion.
Traditionally, video game economics has been a one-way street; players buy games, purchase gaming subscriptions, and pay for in-game items, with all profits and revenues going to the game creator. Blockchain and crypto gaming, however, is attempting to turn that economic model on its head by allowing players to gain significant economic rewards by engaging in consistent play.
Through the rise of games like Axie infinity, the issuances of in-game tokens, currencies, and NFTs, many individuals in lower-income countries have replaced their full-time income by playing crypto games and some very lucky market participants have even become millionaires in the process.
As of January 2022, the top gaming coins and tokens by market cap were:
In the next few sections, we’ll dive a bit into each of these gaming tokens, the gaming platforms they represent, and what makes them so popular for players and investors alike.
While this article focuses on a wide scope of crypto gaming topics, we would be remiss if we didn’t first discuss perhaps the world’s most popular play-to-earn blockchain-based game, Axie Infinity.
Axie, which was strongly influenced by Pokemon, allows players to breed animated pet characters called Axies, which can be engaged in P2P (peer-to-peer) battles. Axies can be sold, traded, collected, and staked to earn money. The Axie gaming universe contains two tokens, the Axie Infinity Shard (AXS) and the Smooth Love Potion (SLP). The AXS is the game’s main token, while the SLP token, which is earned by winning battles or completing quests, is needed to breed the Axie’s themselves.
While the Axie’s are ERC-721 NFTs, they can be sold and traded for AXS within the game, which can easily be converted to Bitcoin, Ethereum, or U.S. dollars on many major exchanges. Some Axie’s have sold for incredibly high prices in recent months. For example, Axie #643 sold for nearly £230,000 (around $309,000) and is currently listed for sale at an impressive $623,328. Several other Axies sold in August and September for around $230,000. Axie also allows users to purchase land; a plot sold for $2.3 million in November 2021, one of the largest recorded virtual land sales to date.
Incredibly, the profits earned by many Axie players have led some players, particularly in developing countries, such as the Philippines, to quit their jobs in order to play Axie full-time. Many players report generating between $300-350 per week from the game, far more than the average salary in many countries.
However, getting a start in Axie can be expensive. It can often cost $1,000 or more to breed your first Axie, so many more established Axie community members have begun to offer scholarships to help fund a player’s first Axie. The sponsor, which may not have the time or interest to play the game full-time, acts much like an investor, putting in the starting capital while getting a cut of the player’s profit based on a predetermined deal.
Operating on the Ethereum blockchain, Decentaland is currently the largest gaming coin by market cap and the largest online virtual land game in existence. The game allows users to utilize its builder tool to create original art, challenges, and scenes, as well as allow them to participate in events and prize competitions.
However, the game’s main gambit is that it allows users to buy and sell virtual land as NFTs in its marketplace. Each owner controls the exact content that is published on their land parcel, and each land parcel is identified by x and y coordinates, just like real-world property. In addition to land, users can purchase estates, avatar wearables, and even names, among other paraphernalia.
Decentraland NFT properties have gone for record prices in recent months, with one virtual property selling for a record $2.4 million in November 2021. The sale, like most secondary market NFT sales on Decentraland, was done on major NFT market OpenSea’s Decentraland Collection, which currently has nearly 100,000 NFT lands and items listed for sale.
Unlike many blockchain games, Decentraland is governed through a DAO
(decentralized autonomous organization). In addition, Decentraland’s controlling MANA token, the smart contract of which has been thrown away, allowing (in theory) full community governance.
According to Decentraland’s website:
“Decentraland DAO owns the most important smart contracts and assets that make up Decentraland – the LAND Contract, the Estates Contract, Wearables, Content Servers, and the Marketplace. It also owns a substantial purse of MANA which allows it to be truly autonomous as well as subsidize various operations and initiatives throughout Decentraland.”
The Decentraland DAO allows token holders to vote on a wide range of in-game issues, including:
When it comes to virtual land in the metaverse, The Sandbox rates a close second to Decentraland in popularity. Much like Decentraland, players can purchase virtual lands, however, The Sandbox is somewhat different in its overall approach to gameplay, as it emphasizes the use of physics and elements to create in-game items and experiences. Users can utilize elements and materials like glass, sand, water, soil, lighting, lava, and even mechanical devices to create original items.
The popularity of The Sandbox has also been bolstered by its wide variety of celebrity partner endorsements, including The Smurfs, Deadmau5, and Snoop Dogg, who has invested in in-universe land, holds private metaverse parties, and regularly drops his own original in-game NFTs.
Perhaps most importantly, The Sandbox isn’t just its own virtual metaverse, it’s also a platform where players can build their own video games within The Sandbox, without any coding or previous technical experience. Each game creator can monetize their game through a play-to-earn model, as well as creating and market their own digital assets inside the game.
In addition to generating funding through its popular SAND token, the Sandbox has also attracted a significant amount of institutional investment. In November 2021, SoftBank led a $93 million funding round for the Sandbox. Like Decentraland, The Sandbox is built on the Ethereum blockchain.
Gala isn’t a game; it’s a platform built on the Ethereum blockchain specifically designed to allow game developers to easily create advanced blockchain games. Current games under development on the Gala platform include:
Gala currently operates on what seems to be a semi-decentralized model, where anyone, with Gala’s permission, can become a licensed node operator, allowing them to earn the native GALA token as well as limited-edition Gala NFTs. Like the Sandbox, Gala has seen significant external investment in recent months. In December 2021, Gala announced a $100 million fund with C2 ventures in order to help develop new games on the platform, with a specific focus on play-to-earn gaming models.
While Gala is currently operating on the Ethereum blockchain, it’s in the process of transitioning to its own, proprietary blockchain, GalaChain, which it says will provide for “nearly free” transactions throughout the Gala gaming ecosystem.
Somewhat like Gala, Flow isn’t a game, but a custom blockchain designed for crypto and NFT game development. It offers high performance and is specifically designed to allow games and protocols to scale for millions (or even billions) of users regularly purchasing, trading, and interacting with NFTs.
And, unlike traditional blockchains, Flow has split up its consensus algorithm into four different roles and is ideal for even beginners, provided they have a reliable internet connection.
According to Flow’s website:
“Validators can join can Flow in one of four roles:
Flow currently supports some of the largest NFT marketplaces and products, including NBA Top Shot Marketplace, CryptoKitties, and Dr. Seuss and UFC’s digital collectibles.
MMORPGs like World of Warcraft and Runescape, which we mentioned at the beginning of this article, consist of one of the largest segments of the video game market. For example, World of Warcraft had an estimated 116 million players as of December 2021, while Runescape had an estimated 48 million players between its original and classic versions. However, MMORPGs have yet to quite catch on in the blockchain and crypto universe– but that’s slowly changing.
A few of the most popular blockchain MMORPGs on the current market include:
SolChicks is currently the most popular MMORPG blockchain game today. It operates somewhat like Axie Infinity, as it allows players to breed, train and purchase playable NFTs and engage in battles with them to obtain rewards, which they can later sell. Players can also engage in multiplayer online battle combat (team vs. team) to maximize potential rewards.
Sidus, a browser-based sci-fi action game, allows players to engage in intragalactic adventures, pillaging the galaxy for rewards. Players can train and upgrade NFT-based legions, as well as engage in group combat with teams in a multiplayer battlefield and engage in one-on-one duels.
Gamers can also craft new in-game items, trade and sell them, raise and train wild animals, farm resources, and even participate in an intergalactic council.
Worldwide Webb is a game based on the pixel art metaverse. Unlike other games, it allows gamers to import their own NFTs and utilize them as playable character avatars. The game is currently interoperable with popular projects including CryptoPunks, Cool Cats, ApeGang, HeadDao, CryptoToads, CyberKongz, and others. Just like in Decentraland, gamers can purchase in-game lands on OpenSea. Gamers can also engage in interactive NPC quests.
Since the development of MMORPGs like World of Warcraft and RuneScape in the mid-90s, gaming guilds and clans have been an increasingly popular way for players to band together in order to take advantage of economies of scale within games, take on group quests, and gain more in-game currency to purchase a variety of upgrades.
However, until the advent of crypto and blockchain gaming, gaming guilds and clans were generally limited to one game and did not (with very few exceptions) generate any real-world profits. Despite this, in the last year, crypto gaming guilds have exploded and have even been funded by real-world VCs.
For example, in 2021, massive venture capital funds like Andreessen Horowitz (a16z), Pantera Capital, and DeFiance Capital have led multiple seed rounds for gaming guilds. For instance, the guild Yield Guild Games raised an impressive $22.4 million, while guild GuildFi raised an equally impressive $6 million in seed round funding.
Like traditional gaming guilds and clans, crypto gaming guilds allow members to bolster their in-game economic standing, but this time, real money is involved. In many cases, guilds will fund the activities of new players, allowing them to purchase necessary in-game tools and upgrades in exchange for a percentage of their in-game earnings.
In addition, a major difference between traditional gaming guilds and crypto gaming guilds is that these new guilds are not limited to one game; instead, they fund and support players playing a variety of blockchain-based games in order to diversify their investments and maximize potential profits.
As we mentioned earlier, one popular example of a guild funding new gamers is the popular sponsorship ritual in the game Axie Infinity, in which a guild helps a new player acquire often-expensive Axies (digital creatures) via renting them from the guild.
Some analysts believe that guilds, instead of games themselves, will be the real power players in the new crypto-gaming metaverse, as their endorsement (or lack of endorsement) of major guilds could make or break games. This leverage may help ensure that crypto and blockchain games remain fair and profitable for players, particularly with regards to tokenomics. For example, if the creators of a game were to hoard tokens or unfairly manipulate the in-game prices of NFTs, guilds could switch to a different game, potentially taking thousands of committed players with them.
In addition to having significant influence over the nascent crypto gaming industry, some of the most popular crypto gaming guilds, including Merit Circle, YGG, and GuildFi have begun to issue their own tokens. Some have even created DAOs in order to decentralize guild leadership and potentially prevent guild “whales” from dominating guilds, creating a more inclusive environment for newer players.
YGG, currently the largest guild, has a market capitalization of $461 million, according to CoinGecko data. While this is much smaller than the capitalization of the largest crypto games themselves, this may change in the future as guilds grow larger and more popular.
Seeing the shocking success and growth rate of crypto and blockchain games, many traditional gaming companies are looking to jump on the bandwagon. Recently, the CEO of massive game publisher Electronic Arts (EA) has told investors in-game, collectible NFTs are “an important part of the future of our industry.” More than $100 billion of in-game virtual goods were purchased in 2021 alone, so it makes sense that many video game companies would decide to convert these goods into NFTs to increase their scarcity and empower the creation of secondary markets.
However, incorporating NFTs into traditional games is still in its infancy. Recently, gaming giant Ubisoft announced that it would begin bringing NFTs into its popular game Ghost Recon. These NFTs, called “Digits” will be initially issued as gaming items, including equipment, weapons, and vehicles. Each will have its own unique serial number, and each player will only be able to own one of each type of good, which may increase scarcity over time.
Ghost Recon’s NFTs will be built on Tezos, a proof-of-stake blockchain, which Ubisoft hopes will alleviate concerns about the environmental impact of NFT mintings and transfers on blockchains like Ethereum, which has yet to fully transition from proof-of-work to its planned proof-of-stake model. While these NFTs can be resold, they will not be dynamic and will not impact gameplay, which could reduce their popularity, as NFTs directly impact gameplay in many, if not most, blockchain and crypto native games.
Zynga, the creators of the popular social media game Farmville, also plans to jump into the NFT market and has announced that it plans to sell thousands of NFTs in 2022.
While some traditional gaming companies have opted to ride the crypto wave, other companies have been more cautious. Valve recently prohibited blockchain games from operating on Steam, and Xbox and Epic Games (the creators of Fortnite) have announced that they have no plans to include NFTs or cryptocurrency in future products, citing concerns over gamer exploitation.
Those concerns are not completely unfounded. For example, fans of the popular online game Neopets began to protest in October over the game’s issuance of NFTs, urging players to boycott the game until the project is canceled.
Whether NFT issuances increase user excitement or provoke gamer backlash may largely be a function of how they operate within the gaming ecosystem. If NFTs, tokens, and cryptocurrencies are seen to increase financial incentives for users, such as in play-to-earn gaming models like Axie Infinity, they will probably be seen as a net gain for users. However, if NFTs are issued at overly expensive floor prices, and if there are little or no opportunities for gamers to earn money off of these products, they may be seen as a greedy cash grab by video game developers only interested in increasing profits.
If there’s a common thread between almost all blockchain and crypto games, it’s NFTs. Most of these NFTs are static, meaning that they stay the same over time. However, dynamic NFTs, NFTs that can change over time or due to outside circumstances, may begin to grow increasingly popular. For example, Ubisoft’s weapons NFT drops mentioned above will actually be dynamic NFTs and will change in character each time they are transferred or sold to a new user.
In addition to being altered by in-game factors, dynamic in-game NFTs can also be impacted by outside, real-world events. These could include news events, token prices, weather data, political events, or other factors. For instance, NFTs within a military strategy game could change based on the strength of real-world militaries or other similar factors. Since blockchains are generally closed systems and have trouble intaking outside data, these dynamic NFTs will typically need to rely on oracles, third-party software providers that bring real-world, off-chain data onto blockchains. Oracles can be centralized
Oracles, however, won’t be the only software product utilized by the rapidly growing crypto and blockchain gaming industry. Just as blockchain and crypto have influenced the gaming market, gaming in the blockchain and crypto universe will likely precipitate the creation of more new blockchains, protocols, and software products to serve the quickly-growing needs of this incredibly dynamic industry.
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