eSports, and gaming more broadly, face difficulties arising from complex internal markets which lack trust and are too easily subject to error and hostile actions.
While eSports and gaming are both booming, the next step needs to be one that protects their digital economies and allows hobby players, eSports professionals, and the developers and designers who create the games, to operate freely and fairly.
Blockchain is a perfect fit.
eSports are booming
There are 2.2 billion computer games players in the world, forming the base from which sports draws its competitive players - in the same way as pro sports draws from younger social players.
Competitive players number in the hundreds of millions:
And when they step into the arenas where they play their sports, they’re competing for serious prizes.
The average salary for a pro eSports player is around $1,000 to $5,000 - not too shabby; some ‘average’ earners are taking home $60,000 a year, playing computer games. Meanwhile, 2017’s biggest winner made just under two and a half million dollars in prize money alone - level with the purses for top-flight pro boxers.
Total prize money in 2015 was edging up to $50m. In 2017, Fortnite alone was worth $100m in prize money.
And it’s among the fastest growing market sectors, with 33% CAGR:
As the space grows and professionalizes, it comes under increasing pressure to resolve internal conflicts and make itself safe for large amounts of money.
Some of that money is in the form of fiat currency; but some is in other forms.
Gamers are already familiar with digital economies
Gamers are probably the group of people on the planet who will take most easily to blockchain, and to cryptocurrencies. After all, they’re already familiar with the tokenization of value in digital space.
This is worth looking at in more detail.
Games often have internal markets for products and services. These are sometimes offered by Non-Player Characters (NPCs) - mouthpieces for the game itself. Sometimes they’re offered by other players. Sometimes, they’re acquired from a central source by performing prescribed actions, and are then freely tradable. Sound familiar?
Gamers call it ‘farming.’ Crypto folks know their equivalent as ‘mining.’ But doing a certain number of computer cycles to get more Bitcoin, or doing a certain number of ‘kill-the-goblin’ cycles to get a new magic sword, are actually pretty similar procedures. This isn’t to diminish or trivialize blockchain - it’s to illustrate that gamers are already familiar, not just with the idea of digitized value, but with analogs of some of the mechanisms used to create it.
Gamers are even familiar with the concept of structuring an internal digital economy in such a way as to encourage desirable behaviors.
And just as eSports is a massive and growing industry, so the internal markets that multiplayer competitive games use are also vast. The Nation of Orath, existing only in MMORPG (Massively Multiplayer Online Role-Playing Game) Everquest, is richer than Bulgaria and close to Russia’s wealth.
Some of these markets are sophisticated: World of Warcraft uses Tokens, which can be exchanged inside the game for goods and services, or outside the game for US dollars. Their value is pegged to the cost of a month of gameplay and they function as a tool for bringing money into WoW - or taking it out. For many players across the world this is their full-time job: selling in-game currency for real currency, to other players who are cash-rich, time-poor.
Popular game economies even have to deal with problems like excess currency and inflation, and they use currency sinks to do it. One of the most popular is allowing players to pay for game subscriptions in in-game money.
Probably the most interesting in-game economy is EVE Online. A future space MMORPG, its internal markets have attracted the attention of real-world economists, encouraged real-world and game economists to work together on real economic issues, and suffered complex internal gaming and attacks.
EVE Online’s economic system was designed by economist Eyjólfur Guðmundsson, who describes himself as ‘Economist in all worlds with special interest in virtual currencies.’
So eSports players have cut their teeth in virtual worlds that, whatever the nature of their gameplay, are characterized by complex internal economies using virtual currencies. They’re ready for crypto in a way no other population is.
And that’s a great thing, because blockchain - all of the technology, not just the currencies it supports - is ideal to solve some of eSports’ most serious and intractable problems.
How blockchain technology solves eSports’ problems
Outside of major games companies, smaller indie developers rely on large distributors like Steam or OS app stores to move and promote their product. Those large distribution companies dwarf the majority of their content providers and are in a position to dictate terms, which are consequently opaque and tend to favour the distributors.
At the same time, gamers only have the access to new games, patches and developers that the distribution platforms want them to have.
Blockchain offers a technology that lets both interested parties cut out the middleman; gamers and games developers can communicate directly in trustless systems without third parties. Compensation can be agreed and paid in a fair, transparent way that doesn’t need to be overseen.
Asset ownership and transfer
How much can asset ownership and transfer matter to gamers and developers? Even if we’re talking large sums in aggregate, aren’t individual purchases typically just minute microtransactions?
Yes and no. AppFlyer’s 2016 report on in-game spending found that ‘only about 3.5% of gamers spend money in-app, but those users are big spenders, spending 30 times more than the average gamer (paying and non-paying) with $9.39 vs. $0.32 a month per gaming app.’
$9.39 doesn’t sound like a huge sum - and that’s the big spenders. But it’s far from the whole story. Fortnite is a completely free game whose sole form of monetization is in-game purchase. It generated $318 million, solely through in-game purchase - in May this year. (That’s something in the order of $10m a day.) Typical purchase amount is around $84. And as far back as 2015, average Game of War players spent $86.50 a year on in-app purchases.
We’re getting closer to a compelling case that in-game possessions require more serious protection than they have right now. Losing something that cost you $80 isn’t the same as losing something that cost you 50¢. But some in-game purchases are even higher.
In 2010, Club NEVERDIE, a nightclub on an asteroid in the Entropia game, was sold for $650,000. That’s serious real estate money — the kind you might want serious security for.
And yet, gamers don’t have much security at all. Most transfers from in-game to non-game currency take place through centralized third-party websites with poor security and privacy protections, and little oversight or regulation.
The result is widespread fraud. Sometimes this consists of sophisticated currency fraud:
Here, a single attacker using multiple proxy servers to purchase game goods in a weak currency and sell them for a strong one, keeping the difference. Other hucksters run crooked ‘Key lotteries”:
No direct theft takes place, but as Kaspersky Labs’ Tatyana Sidorina explains, ‘the algorithm behind the giveaways is not revealed, which means that players might face any odds at all, and they’re certainly likely to “win” a game key worth less than the original sum paid.’
Online auction houses are also vulnerable. In the end, Blizzard (World of Warcraft’s owner, and, now, Candy Crush’s too) closed its Diablo auction house, citing gameplay concerns: ‘The gold and real-money auction houses have provided a convenient and secure system for trading, but it's also become increasingly clear that despite the benefits they provide, they ultimately undermine Diablo’s core gameplay.’
Popular Science explained that the auction house could also be used to fence stolen goods in the game after these had been scammed from other players. Two notorious scammers were Stinger and Patrick Napomuceno: ‘Working together with Patrick Nepomuceno, Stinger would get another player to follow a link under false pretenses, which would then give Nepomuceno remote access to the mark’s computer. In the game, the hijacked character would shed its items, and then Stinger would collect them,’ PopSci’s Kelsey D Atherton explains.
In other words, asset ownership can be attacks in multiple ways; the theft is tough to prove; and there are plenty of options to sell on stolen goods. Thefts like this are punishable by law, at least in some countries, but many players have no recourse.
Of course, a technology exists that has solved this issue before. Even while early cryptocurrencies were secure, the exchanges where users went to switch Coins for other Coins or for fiat currency were old-fashioned centralized websites whose servers could be hacked.
MtGox in 2013 illustrated that all too clearly: a system is only as strong as its weakest link, and centralized exchanges left the whole blockchain space exposed.
The newer generation of decentralized exchanges, themselves blockchain-based, eliminate this issue and allow free, safe trade in multiple currencies - just as gamers trade in-game items for other in-game items, in-game currencies, or fiat currencies. The decentralized exchange is one key component in the solution to gamers’ woes.
The other missing puzzle piece is blockchain-based purchase ledgers.
In-game proof of ownership
One of the biggest problems faced by gamers in secure, in-game proof of ownership. We’ve established that in-game items can be worth large sums and represent significant investments of time and effort; in the case of pro eSports players, their in-game items are their ‘sports kit’; sudden theft of their arms and equipment equates to live sports players suddenly being forced to take the field barefoot, putting them at a major competitive disadvantage.
The space urgently needs a secure system of allocating ownership that can’t be broken, hacked or gainsaid.
At the moment, hashed databases stored on servers secured by firewalls are the solution but these are vulnerable to hacking attacks, as is any centralized collection of value (‘honeypot’). Once the central server is accessed, many players’ items can be reassigned; stolen.
Blockchain-based ownership ledgers inherently solve this problem, creating a record of ownership that’s immutable, encrypted, distributed and auditable.
Attempts at fraud in this scenario would be limited to attacks on individual players to steal or cheat them out of their in-game items - like Stinger and Nepomuceno, above. And recovery of lost items would be far easier when the process of fraud, the true owner’s identity, and the identity of the fraudulent player, are all immutably recorded.
What would that look like in practice?
Blockchain-based solutions for eSports and gaming
Numerous businesses are entering the space with blockchain-based solutions for specific issues addressed in this post.
Blockchain startup GameCredits is building an eponymous platform on Ethereum, built around the GAME token, which users can spend either on game content (games, patches, updates and add-ons), or on in-game items.
Beyond the Void
Strategy game Beyond the Void is taking the whole of its in-game economy onto the Ethereum blockchain.
Nexarium, it says, allows players to spend their Nexium (BtV’s ingame currency) on ingame items, and later, on items from partner games.
DreamTeam is an infrastructure platform and token gateway specifically for exports and gaming; a blockchain solution to the problems discussed in this post.
In particular, DreamTeam aims to make the process of profit-sharing and payment among eSports teams more transparent and accountable.
As DreamTeam founder Alexander Kokhanovskyy explains, ‘currently, there are no standardized contracts for players and no open transfer policies in place within the eSports realm. DreamTeam is attempting to solve these issues using the power of blockchain technology. DreamTeam will give its users a simple all-in-one solution that will solve all of the above problems single-handedly and provide smart contract templates for any type of agreement in order to address them.’
Finally, FreeMyVunk is designed as a secure trading platform for inter-game item trade, based on the blockchain. The company is calling on gamers to demand that games companies issue their ownership certification for ‘Virtual jUNK’ (VUNK) on the blockchain. At the moment, this blockchain-based inter-game exchange - a DEX for game tokens, if you want to think of it that way - is in the conceptual stages, seeking to use its social channels and prospective user base to leverage its way to full functionality (VUNKtionality?).
In other words, it’s the natural fusion of internal game economies into a wider, inter-game tokenized economy, based on the natural choice of technologies for decentralized, agile value exchange: the blockchain.
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