Gaming to onboard a billion people to Web3.

In April 2023, a gamer reportedly paid $400,000 in cryptocurrency for a digital item with rare traits. While digital assets similar to this one brought in $100 million in sales that same month, this $400K sale wasn’t for a non-fungible token (NFT) – it was a skin in the game Counter-Strike: Global Offensive, commonly shortened to “CS:GO”.

When discussing Web3 with gamers, objections often arise, such as NFTs being “useless,” “scammy,” or “expensive.” Some argue that this is just another way for gaming studios to extract value from players, that gaming doesn’t need blockchain, or that crypto is too difficult to deal with. Many also claim that current Web3 games just aren’t that fun.

However, the appetite for in-game items on secondary marketplaces is booming, indicating that gamers understand the value of in-game items, even though buying and selling these items often involves considerable friction. Digital currency is also very much a part of Web2 games like Fortnite and Roblox, with scores of users pouring millions of dollars into them each year. Roblox has over 66 million daily active users (DAUs) as of May 2023 and made $7 million a day in 2022, much of it in the game’s native currency Robux, which can only be used within the Roblox ecosystem and has zero value outside of it.

While other industries like entertainment and loyalty programs have the potential to onboard millions of new users into Web3, gaming provides fertile ground for the seeds of mass adoption. Gamers are already familiar with virtual currency and understand how to buy and earn in-game assets. Moreover, there are nearly 8 billion people in the world, and over 3 billion of us play video games, pointing to a considerable amount of the population primed for a gamified digital future.

Alex Connolly, co-founder and CTO at Immutable, notes that gaming is the perfect candidate for spurring Web3 mass adoption simply because there are so many gamers in the world who are already used to trading digital items and buying digital things. Yat Siu, co-founder and CEO of Web3 giant Animoca Labs, agrees that the gaming industry offers a robust framework for transitioning users from Web2 into Web3.

This piece is one of three in a series about the path to Web3 mass adoption. Read the case for entertainment here and membership, loyalty, and ticketing here.

Healthy supply and demand

To create a winning economic formula, there needs to be both consumer demand as well as an opportunity for profit for the people feeding the supply. Urvit Goel, vice president and head of global business development at Polygon Labs, notes that gaming is the biggest industry when it comes to entertainment, bigger than music and movies combined. However, according to experts, what’s lacking in the gaming industry today is the ability for gamers to truly own their in-game items and profit alongside developers and studios. Connolly explains that we already have a huge community – billions of people who spend hundreds of billions of dollars every year on buying items that they don’t truly own. Siu notes that unlike other industries like music that have moved from the physical to digital realms through streaming, gaming is a digital-first culture that has had an impact on the physical world. He adds that gaming is so powerful and influential that it would seem logical for it to do the same for the metaverse and digital ownership.

The offer of true ownership

Web3 gaming presents a unique opportunity for gamers to truly own their in-game assets through blockchain technology, which enables in-game items like “skins” (cosmetic items that change the look of a character but offer no advantage in the actual game) to exist as non-fungible tokens (NFTs).

Currently, players can buy items like skins from popular web games like CS:GO, Rust, League of Legends, Valorant, or Fortnite directly from the game or through marketplaces like Steam. However, selling or even giving away these items can be difficult. For example, a person created a dummy Fortnite account for their child before they turned 13, but when the child turned 13 and wanted their own account, there was no way to transfer any of the skins or V-Bucks to their new account. Marketplaces like Steam have price limits, so no item can be listed for more than $1,800. The use case for Web3 or blockchain technology is that it allows for direct peer-to-peer transfers of in-game assets as NFTs, eliminating the need for third parties with your assets, money, or access to your accounts.

Web3 allows individuals to decide whether to trade, sell, or sit on their in-game assets. This is different from the current Web2 model where in-game items go to waste once a player grows tired of a game. Minecraft, Roblox, and Fortnite have grown in popularity and retained users because each game allows players to be creators and contributors. User-generated content is the future of gaming, and in Web3, creators can monetize their experience and engage the community. Creating the right tools is essential for great games to build upon.

Although much of the focus is on the end user, both Connolly and Goel emphasized the importance of investing in the development behind the scenes as well.

When asked what it would take to get a billion players to Web3 gaming, Connolly identified two massive challenges in the space right now. “The first one is the infrastructure that exists today to support Web3 games isn’t mature enough. It doesn’t smooth over enough of the user experience issues, it doesn’t deal with scale well, and it has problems with security.”

Immutable recently launched the Immutable Passport to “support the next generation of Web3 games by solving their user experience, onboarding, transaction and purchase, and game development challenges,” Connolly said. “This is how you get a high-quality game to the market as quickly as possible.”

Goel said that Polygon’s focus has been on supporting developers in building excellent consumer experiences.

“The promise around digital ownership is something that people want,” Goel said. “They just don’t care how we get there. And NFTs are a way to get there, but the masses don’t want to hear about the technology, they just want the thing to run.”

“The biggest barrier to entry isn’t cost,” Tucker added, “it’s actually the friction around the technology, like wallet creation.”

Tucker believes that technology gradually moves mass adoption and noted how fast smartphones became ubiquitous. Similar to smartphones, he said, Web3 will also hit that inflection point where its use cases become more widespread.

“It kind of happens when something really breaks through and then it’s just good,” Tucker said.

The importance of the fun factor

While “fun” wasn’t universally agreed upon as the most important factor for mass adoption by the experts we talked to, the majority of leaders in the space come back to the point that games are supposed to be fun. According to a 2022 report on U.S. gamers, most people play video games because it brings joy (93%), provides mental stimulation (91%) and allows players to relieve stress (89%).

“A lot of the games we will actually see in the market are not very fun,” Connolly said, noting it as the second massive challenge in the space. “We think that all it will take to reverse this perception is a high-quality game that people simply want to play and that just happens to support Web3 asset ownership.”

Tucker agreed that fun was important, but added that a breakthrough hit would also need to give “players an experience that they don’t ever want to remove themselves from because it’s just so much better than what they had before.” Yuga seemed to have cracked some of the code for its Dookey Dash game, which while not the most graphically impressive or complex game, was fun enough to entice players to spend an average of 28 hours in the games’ sewer to top the leaderboard and win a one-of-a-kind, highly valuable NFT reward.

This layer of value is one of the things that Siu thinks makes Web3 gaming such an attractive proposition. While games obviously have to be enjoyable, Siu stressed that a player’s time should be given actual value.

“Your relationship to the game changes if you know that your time in the game is worth thousands of dollars to the game,” Siu said. “If you’re a guild leader in a game, it’s probably worth much more than sort of a casual player, and that should be somehow enumerated.”

Siu also noted that esports, a $1.4 billion industry that draws in millions of viewers at live events and through streaming platforms could benefit enormously from the verification that on-chain gaming provides.

“One of the challenges with esports right now is that it relies on video screens for verification of events in the competition,” Siu said. “But if everything is on-chain, you have a way of verifying everything.” He noted that this would not only benefit the tournament but also the lucrative sports betting industry, which could leverage blockchain to authenticate results.

Experts said that the next big Web3 game could be a AAA game or could be a mobile game that offers a more accessible user experience.

“I’m not sold that it’s going to be a high-end PC game or a high-end graphics game that’s going to be dragged to mainstream adoption,” Goel said. “There are more mobile devices in people’s hands than PCs and there are more people that have played Candy Crush than say, Madden from EA.”

Not far off

Experts have proposed ideas for the future of blockchain gaming and its potential to attract the next million users to Web3, but it is not clear when this significant moment will happen, although they agree that it is not far away.

With significant investment in this area over the past year and a half, Connolly predicts that innovative products will make an impact within the next 12 to 18 months, “simply because it takes that long to create a really great game.”

“There are some really impressive things coming,” he said.

Goel predicts that some of the “most advanced games” are currently in the final stages of development and are expected to be released soon. “We believe that by the end of this year, there will be a handful of really enjoyable, high-quality games.”

Siu noted that Animoca Brands has invested in “over 140 games” so far, many of which are scheduled to be released by early next year. “It takes a few years to make a good game. This means that I think the true effects of mass onboarding will occur within the next 12 to 18 months.”

In the end, the question is not if, but when Web3 games will enter the market in a way that drives mass adoption.

“It’s just a matter of time,” Tucker concluded.

Edited by Rosie Perper.

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