Blockchain Gaming - The Next Major Opportunity?
Under the surface there is a huge movement bubbling in the biggest entertainment industry in the world - gaming. Here's what's happening.
As always, the content of this letter is not financial advice or an inducement to trade, markets can be volatile in the short-term and highly risky, always do your own research and only invest what you can afford to lose. Some projects I have participated in.
For a while I’ve wanted to put out a post on the bubbling blockchain gaming (‘play-to-earn’) movement, which I think is set to disrupt the biggest entertainment industry on the planet.
It’s a longer post but I hope a good insight into what is currently happening and what might happen next. I’ve split it into 3 sections:
Fundamentals of what is happening
Major gaming platforms leading the way
Specific games ready to go mainstream
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Let’s start with some quick facts :
(Taken from the Global Games report from NewZoo, which you can read in full here) :
The global gaming market is estimated to be worth $175.8 billion in 2021, projected to be $256 billion by 2025
It is larger than the entire movie industry and music industry put together
There are close to 3 billion players globally across all platforms.
Roblox has over 40 million users per day in its virtual world
Fortnite (Epic Games) makes over $1 billion per year on sales from in-game digital assets (avatar outfits, pick axes, battle passes etc)
Players spend roughly $100 billion on in-game assets across all games each year
The global Esports audience will grow to 474 million people in 2021 - The biggest prize pool in competition sits at over $34 million for The International
I could go on, but you get the point. The numbers are staggeringly huge.
Great, why should you care?
On a very fundamental level, humans love games. It’s one of the first ways we learn to socially interact. With the metaverse looming, I think immersive virtual worlds are going to leverage game mechanics more than ever before. Scrolling through 2D webpages is going to look old very quickly.
The current gaming experience
Let’s focus on the huge video games market for the moment.
Up until recently, players of games generally have this experience :
1) You pay for the game and spend hours playing it.
2) You earn achievements within the game, level up characters, unlock special rewards and in-game items.
In many cases you pay to unlock these additional items; new skins, new weapons, new battle passes, FIFA coins to get new players to create your Ultimate Team etc - in some cases you can’t progress or compete at a high level without paying.
3) Over months or years, you might spend hundreds or thousands of dollars (and hours) on a game and then when you’re finished playing…
… that’s it. All money you spent has gone to the game studio and you can’t get it back.
Now on the surface, that’s not necessarily awful - you’ve been entertained, but you have also contributed hugely to the success of that game title and ecosystem. Not only have you not been rewarded, but you’ve been further charged for participating and supporting that title.
Similarly if that game title decides to stop releasing updates or to discontinue, all the value you earned is lost.
Blockchain Gaming is about to change everything…
NFTs (as I’m sure you know) use blockchain technology, which essentially allows anything digital (including in-game assets) to be provably unique and scarce.
For the first time ever, you can now also prove who created and who owns the unique digital thing. Hence the explosion in value of the whole space recently.
This doesn’t just apply to art or collectibles but also for games built on a blockchain.
In this model, every digital asset within a game - your character, your inventory, your achievements, skins, land, resources - everything, can be an NFT, owned not by a game studio but outright and provably by you, the player AND traded on an open market.
In short, your time and achievements in video games can now be monetised as digital assets. This is fundamentally huge.
What has happened so far?
The major success story at this point is from one of the earliest blockchain games Axie Infinity. I won’t go deep into the game mechanics here, but it is essentially a Pokemon meets chess, strategy game with fun cartoon characters.
You have a team of 3 Axies (which you own as NFT’s), you can either play Adventure mode against the environment, to earn experience points and level up your characters or Arena mode where you battle other players to earn $SLP (a tradable cryptocurrency - alongside the game’s governance token $AXS).
The mechanics of the game get quite complex but the crux of it is that; the more you play, the more you earn and the more value you add to your NFT characters - which you can sell at any point for crypto on the open market.
An important point here is that because the game is built on a blockchain; Ethereum (specifically the Ronin sidechain), it is of course available, immutable and functional globally, 24/7 to anyone with an internet connection (as is the tradable marketplace).
Axie Infinity got particularly popular in the Philippines during the pandemic, where people earned a living from it - one player claims to have bought 2 houses from profits made playing it - article here
To date, Axie Infinity has done $2.3 billion of revenue (source) and has a total market cap of almost $30 billion - check out this tweet from digital real estate firm Republic Realm :
Yes Axie Infinity, a single blockchain game (released March 2018, which has only really gone mainstream in the last 9 months) is creeping up on the market cap of all of Electronic Arts. Something huge is brewing.
Axie has been the first mover and a runaway success (the $AXS token itself has risen 1600% in the last 12 months) but it is the first of many blockchain games being developed now and launching very soon.
Not only are major games moving to blockchain models but so too are major and well-known talent (game designers, developers etc) as we will go on to see below.
Let’s look at what’s happening now in the space and the upcoming future opportunities.