Games for money have been played since time immemorial. Something that adults usually stop doing when they have to earn serious money for a living. Getting rich through play was previously only reserved for the top 1% esports athletes. But, in the past year, this has rapidly become possible for a much larger group of people, thanks to GameFi. I think this will be the biggest trend in cryptocurrency and blockchain in the coming year.
The global game industry is now more than 4 times the size of the global film industry and music industry combined. The gaming industry has an annual revenue of more than $267 billion, compared to the movie industry with $42.5 billion and the music industry with $19 billion in 2018, including streaming. About 3 billion people now play online games, even though many don’t consider themselves “gamers” (yes, Candy Crush counts too).
Big tech & big box
Let’s take a look at the in-game purchases. These are the upgrades that you can buy within a game, such as a beautiful virtual piece of clothing or sword. Last year, $145 billion was spent on this. Critics who don’t believe people spend money on digital art (NFTs) and digital clothing should jokingly look at the magnitude of this within the gaming sector alone.
Even though Google recently announced that it would stop its own gaming platform Stadia, the other big tech companies such as Apple, Facebook, Amazon, and Microsoft are investing heavily in their own games and platforms. They also see how much money can be made in this sector. A sector that continues to grow in terms of users and turnover. A bizarre example is Apple. Apple, alone, does not make its own games. This while 80% of the money is made by games in the App Store. Over 1 billion people play games on the iPhone or iPad, making iOS by far the most popular video game platform in the world.
Due to the amount of money invested in gaming by big tech, an insane amount of games are coming onto the market. But the influence of big tech also has disadvantages. Just like in the field of AI (between Google and Microsoft), there is a major battle going on between the titans for the user. Recently, even governments have called a halt to this. They have blocked the acquisition of one of the largest game developers (ActivisionBlizzard) by Microsoft, worth almost $70 billion.
The emergence of transparent gardens
But the ‘walled gardens’ are also becoming increasingly visible. Apple has been in a lot of trouble with this lately. For example, because it kept its own ecosystem so closed that all payments within the App Store must go through the company and it charges a 30% commission for this. This alone has brought in $85 billion in the past year. You also have these kinds of closed ecosystems within the gaming industry. This makes it impossible, for example, to take a beautiful virtual piece of clothing or sword from one game to another.
Since the emergence of blockchain technology, we have seen several applications that change the way we exchange and store value. What started with an open and more transparent way of storing and sending money (Bitcoin) developed into an open and more transparent way of storing title deeds of assets (Tokenization, which also includes NFTs). In my opinion, one of the most interesting new applications in the blockchain field is GameFi. A concept that combines traditional gaming with blockchain technology. This creates a wealth of new opportunities for players and developers alike.
Play to earn
This completely turns the business model of traditional games that are currently offered on its head. Instead of extracting as much money as possible from players (for example, through licenses and in-game purchases), GameFi offers players the opportunity to earn money in the form of cryptocurrencies or other digital assets. Here the emphasis is really on the development of the economy within the game. Rewards are automatically distributed by so-called ‘smart contracts’. This makes human error and fraud impossible. In addition, these rewards can also be traded or used outside of the game.
However, the concept is not new. You already saw elements of GameFi emerging in Second Life. There was a real in-game currency (the Linden dollar) and transactions of virtual items. Back then, people were already making millions of dollars selling virtual in-game items. The real breakthrough of this came through the World of Warcraft game, where tens of thousands of euros were paid for the virtual blue eggs on eBay. The biggest game platforms of the moment, such as Activation Blizzard and Roblox, already have their own digital currency with which players can pay.
In October 2017, blockchain technology also came into play in games. This happened when the Canadian company Axiom Zen released the Cryptokitties. Cute cats that users could breed based on their genetic traits. Over 1 million virtual cats were bred, with the most expensive selling for over $1 million. It was also the first successful NFT project, a few years before it became a hype at all.
A new economy
GameFi goes beyond just earning rewards. It’s also about creating a community of players who can collaborate, trade, and invest in the game’s economy. The possibilities of this came to light during corona, when people looked for alternative sources of income. Some players in Southeast Asia managed to earn more than an average monthly income playing blockchain games like Axie Infinity.
All expectations surrounding the transaction volume of the most popular games were soon crushed. The transaction volume within Axie Infinity and DeFi Kingdoms alone was $400 million per day. Meanwhile, the total of GameFi games has already risen to $ 10 billion. I myself really blame this on the fact that the traditional game builders simply had no trading function in the virtual assets that you could buy in the game.
By using cryptocurrencies, this can suddenly be done very quickly and cheaply within blockchain games. NFTs also ensure that you can also record property rights. The smart contracts ensure automatic, direct, and efficient handling. All this strengthens, simplifies, and accelerates the trading of virtual properties within the games.
For example, there were full-time gamers in the Philippines who bred “Axies” and resold them to Western collectors. In addition, they could earn Axie Infinity’s in-game token (AXS) by winning battles and completing quests. They could then sell these AXS tokens for dollars, for example, to pay for their daily living.
The next level
Of course, the $ 10 billion that has been spent on GameFi so far is little. Especially if you compare it to the total size of the traditional gaming sector. The players from this are slowly warming up to the idea of also making their games with blockchain technology.
Epic Games is already experimenting with the Blankos Block Party, and Apple allows the sale of NFTs in apps within the App Store. I think traditional players are also increasingly being forced to build and release games in this way. More and more users experience both the convenience and the great possibilities of all kinds of new options that blockchain technology offers. Blockchain technology is still in its infancy in many areas, so it will be some time before it is widely adopted.
Legislators have also woken up.
They are not only concerned with laws and regulations but also with new types of taxes for these new economies and activities. The quality of many games is not yet at the level of the range of traditional games. But the past year has shown how fast developments can go. With the large sums of money currently being invested in GameFi, the fact that you can earn money through play and the current size of the gaming industry alone, I think GameFi could become very big in the near future.
Jan Scheele is active in the web3 (blockchain, crypto, NFTs, DeFi) industry since 2013. Besides (former) CEO of a web3 scaleup and founder of an advisory boutique (working for governments, family offices and several multinationals), he is Digital Leader at the World Economic Forum and Board Member at the Blockchain Netherlands Foundation (BCNL). He is writing, consulting, speaking and training regularly about everything web3, all over the world. Furthermore, he is currently finalizing his book about the rise and global impact of blockchain technology.
