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What is Web3 Gaming?

Posted July 22, 2022 3:38 pm
5 min
By Priscila Dick

Headlines across the world are being dominated by emerging technologies such as AI (Artificial Intelligence), VR (Virtual Reality), AR (Augmented Reality), blockchain, cryptocurrencies, NFT (Non-Fungible Tokens), and many more. The arrival – or more precisely – the enhanced sophistication of these technologies is surely leading to waves of digital transformation across various industries. One of the most notable technological trends born from these innovations is the world of Web3, and one of the main industries that’s being pulled into it is the gaming industry.

Learn: Web3 can be understood as a combination of technologies including cryptography, innovative database management, digital ownership attribution through NFTs, decentralization, and financial paradigms. It started with Bitcoin, in 2008, and evolved as new solutions emerged over the years.

According to Amsterdam-based gaming market intelligence company, Newzoo, the global video game industry is projected to generate $200 billion in sales in 2022. This presents a massive opportunity for Web3. In fact, according to Immutable X CEO, James Ferguson, the next billion crypto users are going to be onboarded through games. Yet, the question remains: how do cryptocurrencies, NFTs and games work together? In this article, we will dive into the specifics of how the combination of games and Web3 can be understood and what is Web3 gaming (also referred to as NFT gaming or blockchain gaming).

Axie Infinity and the Birth of P2E Gaming

Axie Infinity was the first truly successful Play-to-Earn (P2E) game, released in 2018. A typical Web3 game has two tokens (sometimes more or less) and NFTs. These tokens include both a governance token and a utility/reward token. Governance tokens usually award network performance and offer users a way to be part of the decision making within the game’s ecosystem. The AXS token plays this role for Axie Infinity. Utility tokens are often required to play the game (i.e. breeding). They are offered as rewards to players for playing the game. The SLP (smooth love potion) plays this role for Axie Infinity. Governance tokens are typically capped in supply, while the utility or the reward tokens are inflationary (no cap). NFTs are core to every P2E game, representing the characters and in-game assets that you play the game with. The cute little axies are the characters (NFTs) for Axie Infinity. 

In Web3 projects, selling tokens and NFTs are one of the preferred ways for projects to raise capital and to offer access to players and investors to a share of potential gains. When it comes to Axie Infinity, it offers players more than tokens, but also NFTs, which means ownership of in-game assets. Axies, which are the playable characters in the game, belong to players. This was revolutionary when first released: besides earning rewards based on an in-game token, players could also own the in-game assets. 

How do P2E Games Earn Revenue?

Most P2E games have a marketplace for their NFTs and charge a small percentage for buying and selling in-game assets. This is just one of the ways P2E games can generate revenue. Some games charge a fee for certain game mechanics. For example, in Crabada’s Idle Game you need to rent crabs from the tavern to reinforce your crabs. Each time you rent a crab from the tavern, you are charged a small fee counting as revenue for the game. Because of this, there are endless in-game assets and mechanics which developers can utilize as revenue sources.    

Learn: Web3 games are games that offer fun and engaging experiences while being built using technologies such as blockchain, NFTs and cryptocurrencies.

What’s P2E?

Most Web3 games today rely on attracting new players so existing players can keep “earning” rewards that hold value. That’s because if everyone can earn by playing the game, rewards tend to become less valuable over time. Especially, as more and more players sell their earnings. Historically, many P2E games have gone through boom and bust cycles. Late entrants in that economy suffer the greatest losses. Because of this, many Web3 games based on such reward structures have been rethinking how to approach gameplay versus earnings. We are still very much in the experimental phase of Web3 gaming. Tokenomics, gameplay and earning potential is constantly changing.

Learn: P2E stands for “Play-to-Earn.” It is a type of game where players are rewarded with tokens when engaging with NFT based games built on different blockchain platforms.

Play-and-Earn and Play-to-Own

In contrast to traditional video games, most Web3 games allow players to transfer game items out of virtual worlds/game economies. This allows players to trade their items on NFT marketplacesandtheir crypto earnings on specialized exchanges. Subsequently, allowing them to garner money. 

With that in mind, first generation projects (including Axie Infinity) emphasized their focus on the “earn” part of the industry. While currently, newer projects are placing all of their emphasis on the games’ experiences. Matter of fact, even Axie is now revamping its gameplay experience.

Doubling down on this aspect, many within the Web3 industry are starting to label the space as “Play-to-Own” (P2O). This is due to players’ ability to own the in-game assets regardless of market value. While others have taken the term “Play-and-Earn” as the go-to word. Differentiating P2O from Play–and-Earn is not easy, since both concepts are relatively new. Considering ownership is based on NFT technology, it is available in most Web3 games. What differs between approaches is P2O is essentially about allowing players to own assets, without relying on tokens or cryptocurrencies. It is about letting value be determined by players and actual in-game utility of the NFTs. 

When it comes to Play-and-Earn, NFTs are still present, but it is also common to see cryptocurrencies involved. The difference is that in-game economies are built to be deflationary and rewards are more scarce than P2E. To earn you need to win matches or be better than other players (in general terms). Meaning not everyone will be rewarded. Another way to refer to such projects is as “Play-to-Win.”  

Final Thoughts

Nonetheless, we must clarify that a game embedded with blockchain technology isn’t “P2E” or even “P2O.” A game can be built using blockchain to register logs and not offer NFTs or cryptocurrencies, for example. 

So far, there are not any AAA games being released based on existing P2E mechanics. The next generation of blockchain games will be built using Web3 tech, but with significant caution regarding earnings versus gameplay. What do you think the future looks like?

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