Denver, CO

47.81°F

12:00pm
/ Cambridge, MA

50.08°F

12:00pm

Konvoy Ventures is a thesis driven venture capital firm focused on the video gaming industry. We invest in infrastructure technology, tools, and platforms.

Controversy of Blockchain Gaming

NFTs, economies, and innovation

Controversy of Blockchain Gaming

Blockchain gaming has dominated headlines this past year as game developers explore new business models and gamers experiment with the “new” internet (often called web3). While this has been a contentious development in the gaming industry, both pro-blockchain and anti-blockchain advocates have viable arguments. There is a clear battle between the skepticism of traditional gamers/game developers and the wave of players interested in leveraging this paradigm-shifting suite of technology. It should also be noted that, to our knowledge, the majority of the pro-blockchain gaming faction is still composed of people interested in using games to achieve mass blockchain adoption vs. purely a better gaming experience.

While the space is full of contentious arguments, name-calling, and baseless claims coming from both sides, we wanted to dispel the 3 most common myths and misconceptions that we frequently encounter.

1) “NFTs are a scam.” Blockchain is an extremely powerful and innovative technology. As with any new technology or market, exploitation is guaranteed (the same way 3rd party WoW gold marketplaces or CS:GO trading bots were created). Some members of our investment team may have even experimented with some of these bots. It’s common that new markets eventually get exploited (especially in the first few innings of its existence), yet the goal should be to create a system that is harder to exploit, not to disband the market entirely. Some NFTs truly do offer a lot of utility to gamers and it is hard to not see them as part of the next shift in gaming after Free-to-Play (F2P).

The F2P business model transitioned the focus from upfront game prices to microtransaction-based (and ad-based) revenue. This created a new attraction for cosmetic-based items like skins and emotes, which were the primary method of monetization given the free entry price. One thing that did not change with this business model evolution is the way in which players “owned” their assets - their in-game items and access to the game. Most gamers have become comfortable with the fact that when they “buy” a game they are actually just buying a license to play that game and the developer or publisher can revoke that license at any time. With in-game assets to date (pre-blockchain), the users do not actually own anything (ownership would imply control + transferability). If the game shuts down, all of those assets are gone.

With NFTs, which also intersects with the topic of digital rights management (DRM), ownership is encoded into the asset itself and gives users the ability to trade or sell that asset to other users. What this also opens up is another revenue stream for developers through secondary sales. If done right, NFTs can be an extremely important part of the economic model around digital assets in the gaming industry.

2) All games need a blockchain economy + token. This is one of those areas that we think a lot of blockchain developers are overthinking. Every game does not need an underlying economy and token in order to be successful (this is a myth). There are games in the past like Eve Online that were built for fluid, self-sustaining, economies, but this is not for every game.

This is becoming a major issue within gaming as many game developers are either pivoting their existing portfolio towards token economies or are starting studios with that as the key differentiator (news flash: it’s not that novel anymore). However, this gravitational pull towards blockchain economies is understandable considering how much hype and capital is flowing into this genre of gaming titles. The issue is that many game genres have simplistic gameplay loops that are probably better without token economies, given that they often cannot support a legitimate economy. The belief that “every game needs a blockchain economy” is a mentality by many game developers that we think pushes away other traditional developers or players from giving blockchain technology a chance. It often looks like exploitation and borderline scams (sometimes it is definitely a scam or pyramid scheme). In short, we are excited about blockchain economies in games but it is not a “must have” for all game genres.

3) All games should be interoperable. This is a common misconception in blockchain gaming due to the nature of “ownership.” In the real world, when you own something you can generally take it and use it anywhere. As we wrote last week, in games, this is not the same because of how games are built. In short, one of the main issues is visual interoperability - graphics and fidelity are different from game to game. For a lot of games, the graphics or art style is actually what makes the game recognizable and is an important part of the brand. Without partnerships between games, it would be hard for a game like Minecraft to have interoperability with Call of Duty.

Another major part (and heavy lift) for asset and game creators is game balancing. To use Minecraft as an example again, the pickaxe has five different types: Wood, Iron, Stone, Gold and Diamond. Each different type of pickaxe has attributes that are directly related to the world and how it reacts with other assets such as blocks, trees, and enemies. If games are meant to be interoperable with other games then game developers will need to balance thousands of other assets or make it so assets that are brought from other games are purely cosmetic. Either way, this is immensely complex.

We actually believe interoperability is something that should be built from the asset level and that asset should be something like identity or avatars. Think about how we traverse the internet now. We have an email or social log-in that brings our identity into other platforms. With something like an avatar (e.g., Ready Player Me, which is a portfolio company of Konvoy), games and experiences can be built from scratch with that avatar integration to give users an easy way to take their identity from one world to another. On top of this, it makes asset (cosmetic) interoperability smoother because the same character model is being used in each world.