Depth: From the perspective of the traditional game industry, how should blockchain games develop?

Original: Ponyo, Hyewon Jeong, Xangle

Compilation: Zen, PANews

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Blockchain games have been around for six years, from the launch of the first blockchain game, Crypto Kitties, to the Play-to-Earn concept proposed by Axie Infinity, to the entry of global gaming giants such as Ubisoft, SEGA, and Nexon into the blockchain gaming market. However, mainstream adoption of blockchain gaming remains elusive. Not only that, but many gamers have a negative view of cryptocurrencies and NFTs, and chain games based on popular IPs have also received disappointing reviews. When will the era of blockchain gaming really come? Why are gamers still skeptical about it? What does a blockchain game need to gain a foothold? This article aims to address these fundamental questions and provide insights into the future direction of the blockchain gaming market.

When will the era of blockchain gaming begin? **

A lot of capital has started flowing into the blockchain gaming market in just a few years

Gaming is one of the areas where blockchain technology has received a lot of investment after infrastructure. In 2021, blockchain gaming investment momentum is strong, with success stories such as Axie Infinity and MIR4 emerging—in terms of investment and financing markets, investment was only $151.6 million in 2020, but has increased significantly to $5.5 billion in 2021 and further to $8.5 billion in 2022. Investment is expected to decrease to around $2.3 billion in 2023 due to the overall downturn in cryptocurrency. Overall, cumulative investment from 2021 to 2023 reached a staggering $16.3 billion.

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This level of investment is already moving closer to that of the traditional gaming industry. The share of blockchain gaming investment in the overall gaming industry has risen steadily, from 1.1% in 2020 to 9.5% in 2021, 38.3% in 2022, and a staggering 57.2% in Q1 2023. However, despite the massive influx of money into the blockchain gaming market, it has yet to become a dominant force. Why is it difficult for blockchain games to gain a foothold? How will it evolve in the future compared to the development of traditional PC and mobile games?

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PC and mobile gaming are direct beneficiaries of technological advancement

The evolution of the gaming industry can be understood through three major inflection points. The gaming industry was revolutionized in the 70s of the 20th century with the introduction of arcade games, and underwent three more important shifts in the 80s (console games), 2000s (PC games), and 2010s (mobile games). From less than $5 billion in the early '70s to $45 billion in the '80s, and from $80 billion at the beginning of the 21st century to $140 billion in 2010, the gaming industry has seen significant growth in revenue at every stage.

As of 2022, PC gaming reached $40.5 billion and mobile gaming reached $92.6 billion, accounting for 22% and 55% of the entire gaming industry, respectively. However, neither computer nor mobile games have reached the current level of revenue from the start. The gap between the advent of PC/mobile gaming and its accelerated revenue growth is illustrated in the chart below.

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When PC games were first accepted by the mainstream, their annual revenue was only $1 billion, accounting for only 2.4% of the entire gaming industry at the time. It took 13 years for PC gaming revenue to grow to $10 billion (29.4%) and another 25 years to reach $15 billion (22.1%). Mobile gaming followed a similar trajectory, starting with $1 billion in annual revenue, or 2.9% of the gaming industry, and it took 10 years to reach $10 billion (16.1%) and $15 billion (20.4%) in 12 years. While the new wave of games such as mobile gaming has significantly accelerated in terms of revenue growth, it will still take a long time for these segments to gain significant traction. In other words, neither PC nor mobile games can quickly establish and grow their own markets.

So, what are the key factors driving the growth of the PC and mobile gaming market?

The first condition is the widespread use of hardware and the progress of technology. The popularity of the PC and the development of internet technology have fueled the growth of PC gaming. Similarly, the expansion of mobile gaming coincided with the popularity of smartphones and the development of mobile communication technologies such as WiFi, 3G, and 4G. As you can see in the chart below, both PC and mobile gaming revenue has grown with the growth of related technologies. PCs and the internet have changed the game landscape by enabling players to enjoy games at the same time with countless other players, freeing themselves from the limitations of playing games alone. On the other hand, smartphones and mobile communications transcend the existing time and space limitations of games, allowing players to connect to games anytime, anywhere. The development of gaming hardware has created a more convenient and enjoyable gaming environment, attracted a new group of gamers, and contributed to the expansion of the PC and mobile gaming markets.

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Secondly, the development of new game genres played an important role. The history of PC and mobile gaming is a process of successful games constantly pioneering new genres and expanding them. With the success of new genres, game developers focus on developing games with these genres, which in turn promotes the growth and vitality of the market. For example, Ultima Online (1997) was not the first MMO (Massively Multiplayer Online) game, but it played a crucial role in shaping the MMORPG (Massively Multiplayer Online Role-Playing Game) genre. The success of Ultima Online paved the way for MMORPG games such as EverQuest (1999), Runescape (2001), and World of Warcraft (2004). DotA (2003) was also a pioneer of the MOBA (Multiplayer Online Arena) genre, giving rise to games such as League of Legends (2009) and DotA 2 (2013).

Let’s take a look at mobile games. After the rapid growth of the mobile game market in the late 2000s with the advent of smartphones, the market flooded with casual games with the success of Angry Birds in 2009, with games such as Cut the Rope (2010) and Candy Crush Saga (2012) marking the dawn of the era of casual games. Since then, the market has been further expanded by the success of multiplayer midcore strategy games such as “Clan Wars” (2012), as well as midcore/hardcore multiplayer game genres such as MMO strategy games such as “Game of War: Fire Age” (2013) and MOBA games such as “Honor of Kings” (2015). The success of PUBG Mobile (2018) also showed that the battle royale genre could thrive on mobile devices, paving the way for the mobile adaptation of the PC game Fortnite Battle Royale (2017)! [Depth: From the perspective of the traditional game industry, how should blockchain games develop?] ](https://img-cdn.gateio.im/webp-social/moments-69a80767fe-14b9bd3b07-dd1a6f-cd5cc0.webp)

All in all, the growth of PC and mobile gaming can be attributed to technological advancements and the exploration of new game genres. Among them, the role of technology in driving the market growth is more significant. When we look at the revenue scale, the computer gaming market has expanded with the advent of internet-connected services, while the mobile gaming market has taken off with the widespread adoption of smartphones. Increased internet speeds, as well as improved specifications for PCs and smartphones, have brought enhanced graphics and faster frame rates, creating an environment that can accommodate more gamers and provide a smoother gaming experience. Multiplayer modes such as MMORPGs, MOBAs, and Battle Royale were created to make the genre more immersive. It is also because the growth of PC and mobile games has relied on previously widely used hardware and technological advancements that their rise has taken quite a long time.

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Advice on a long-term view of blockchain games

So, what should we think about blockchain games? When looking at market size and growth rates, the short-term market size may not seem large, but the current growth rate is considered promising.

First of all, since blockchain games have not been accompanied by new hardware, it is expected that the short-term market size of blockchain games will be small. With the proliferation of new hardware, PC and mobile games are naturally a staple on the platform, thanks to advances in technologies such as the internet, mobile communications, and semiconductor development. As a result, they occupy a significant portion of the expanding market with a wider range of hardware.

Blockchain games, on the other hand, run on PCs and mobile devices that are already popular and widely used, which means that blockchain games have to compete with existing games in a market saturated with PC and mobile games. They need to compete for limited market share in an environment with limited upside. In other words, unlike PC and mobile games, which directly benefit from the growth of the hardware industry, it is difficult for blockchain games to make the same gains in the short term, which is why it is difficult for blockchain games to be on the same level as PC or mobile games.

Although the short-term market size may not be large, the mature blockchain gaming market is expected to grow as new hardware that blockchain games can thrive on becomes more widespread. Therefore, it is advisable to consider the growth potential of blockchain games from a longer-term perspective, which will be further elaborated on below.

So, is the blockchain gaming market really growing slowly? The blockchain gaming market is expected to grow from $746.1 million in 2018 to $7.4 billion in 2023, with an average annual growth rate of 58.1%. While the market size may be smaller than PC or mobile games in the first five years, the absolute growth rate shows a good trend and even shows a higher growth trajectory.

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Success stories expected in the short term

Therefore, the question we should ask is not how fast the blockchain gaming market is growing, but what will happen in the short term and what technologies will accelerate the long-term growth of blockchain gaming. **Short-term expectations include the creation of initial success stories, while long-term prospects include benefiting from AR/VR hardware market growth.

From a short-term perspective, just as the PC and mobile gaming markets have succeeded in new genres in the past, leading to more development of that genre, creating a cycle of success, we expect a similar pattern to emerge for blockchain games. With the initial success stories, more game developers will get involved and create more successes further. This process will involve multiple trials and trials, resulting in improvements that will provide gamers with a new gaming experience that goes beyond P2E.

On the positive side, more and more game developers are increasingly getting involved in the blockchain gaming market. Among them, Korean game companies play an important role in blockchain game development. With the exception of NCSoft, most gaming giants have taken a positive approach to blockchain gaming. Their approach varies, from releasing a major game in the form of a blockchain game to creating an original IP and leveraging blockchain technology in platforms other than gaming.

Many international gaming companies take a more conservative stance on the market compared to Korean companies. Still, there is a growing trend of major gaming companies such as Bandai Namco, Square Enix, Konami, and SEGA in Japan, as well as Western companies such as Ubisoft and Take-Two Interactive, gradually entering the blockchain gaming market. While they haven’t made it to the game release stage like Korean game companies have been, the rough outline of their first game seems to have been largely formed.

Blockchain games will benefit from the AR/VR industry in the long run

In the long run, blockchain games will become the main content provider of AR/VR hardware and are expected to grow in tandem with the AR/VR hardware industry. This expectation stems from the belief that blockchain technology will play a key role in the metaverse space enabled by AR/VR hardware.

The metaverse is an abstract concept with no concrete definition. However, when it comes to the core attributes of the metaverse model proposed by Matthew Ball (a managing partner at venture capital fund EpyllionCo., who was one of the first to think about the metaverse business revolution), the potential of blockchain technology will play a significant role in two key areas: data, digital interoperability assets, and the creation and operation of content by different actors.

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In order to ensure that digital assets maintain the same value across platforms within the metaverse, they need to be designed and issued under a unified blockchain standard. This allows digital assets to move freely between different metaverse platforms, ensuring interoperability. Just as PC and mobile gaming continue to evolve and fully embrace the expanding market and proliferating hardware, blockchain gaming is expected to play the same role on AR/VR hardware.

How can blockchain games be successful? **

**Why are games based on popular IPs always unsatisfactory? **

When we talk about the success of blockchain games, we’re not just talking about the quality of the game, it’s also about whether it can attract and retain existing gamers as well as Web3 users. Games that prioritize the Web3 ethos over overall quality may fall short of the expectations of traditional gamers. However, even if a game with a mature IP is integrated into blockchain functions while trying to maintain the quality of traditional games, these features can sometimes create obstacles for gamers.

In the existing gaming market, games with well-known IPs are usually hugely successful. This is because when a new game is launched, they naturally attract a loyal fan base associated with that IP. Typical examples include Blizzard’s Diablo series and Nintendo’s Legend of Zelda series.

• Diablo Series: Originally launched in 1996, Blizzard’s Diablo series recently launched its fourth installment, Diablo 4, which set a record-breaking sales record. It earned $666 million in just one week of its release, making it one of the fastest-selling games in Blizzard’s history.
• The Legend of Zelda series: Nintendo’s The Legend of Zelda series first launched in 1986 and recently launched its 20th installment, The Legend of Zelda: Tears of the Kingdom. The game also made history for the series, selling over 10 million copies in just three days, making it the fastest-selling game in the Legend of Zelda series.

However, it remains difficult to predict whether these loyal fan bases will be able to seamlessly transition to blockchain games based on existing IPs. From the perspective of gamers who like original IPs, they may not have much motivation to participate in blockchain games, due to the lack of new content, high barriers to entry, and lack of meaningful gameplay. On the other hand, these games can attract the interest of Web3 gamers and token investors. Such games provide Web3 gamers with a rare, quality-assured blockchain game and develop a user base that can absorb the initial selling pressure, making it more robust for token investors than other blockchain games. To appeal to Web2 gamers, these games make use of familiar gaming IPs. However, games that rely solely on established IPs without careful consideration of game design ultimately attract Web3 gamers and token investors, which is why blockchain games that are redesigned without careful planning often fail to succeed.

Current blockchain games are not appealing to traditional gamers

So, how can Web2 gamers make a smooth transition to the world of blockchain gaming? When we look at the regional revenue distribution of the global gaming market, we see that Asia-Pacific accounts for 48% of the share, followed by North America (26%) and Europe (18%). Notably, the Asia-Pacific region is dominated by three countries: China (63%), Japan (25%) and South Korea (8%), which together account for more than 95% of the market share.

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Conversely, the user base of a leading blockchain game like Axie Infinity is spread across the Philippines (41%), Venezuela (6%), the United States (6%), Thailand (5%), and Brazil (3%). The majority of its users come from Southeast Asia and South America, which have relatively small market shares in the global gaming market, at 4% and 5%, respectively. As for MIR4 Global, it has a user base spread across Asia, South America, North America, Europe, India, and Central Asia. Overall, the Philippines stands out in Asia, while Brazil has the most users in South America.

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This suggests that blockchain gaming is not very attractive to gamers in the three major gaming regions of East Asia (China, Japan, South Korea), North America, and Europe. It’s important to note that a license is required to offer games in China, and South Korea’s restrictions on blockchain gaming services mean that they are not reflected in the statistics. Japan is actively exploring the blockchain gaming market after South Korea, suggesting that Japan and South Korea may take a different path in the future.

In the West, gamers earn more on average, and the play-to-earn model of blockchain games is not attractive to them. Additionally, the Western gaming market largely revolves around single-player games, which makes integrating the token economy and NFTs challenging. Unlike Asian gamers, who are accustomed to free-to-play, Western gamers have historically resisted pay-driven content, leading to a backlash against tokens and NFTs. When Ubisoft announced its NFT plans in a YouTube video, it was met with overwhelming (95%) opposition and it eventually had to delete the video.

Shift the focus to “Mods”

In order to attract traditional gamers to blockchain games, we must offer the format of the game they prefer, while also providing a gaming experience that is unique to blockchain. Overcoming challenges such as wallet setup, transaction execution, and more, which initially seemed complicated, is critical to enhancing the user experience. The blockchain industry is well aware of these issues and is actively researching ways to improve the UI/UX of blockchain services. It is expected that with the advancement of blockchain technology, these issues will naturally be solved, so we will not delve into this issue anymore. So, what are the essential characteristics that a game should have in order to be both recognized by existing gamers and provide unique value that only blockchain can provide?

When blockchain meets games, it offers gamers more than just tradable tokens. The real potential of blockchain lies in giving gamers the freedom to create their own unique modifiers (often referred to as “MOD”, an abbreviation for Modification, which is a modification or enhancement of a game) and monetize it. Even in traditional games, mods are a common phenomenon, and players can tweak various elements of the game to create something new. For example, the popular game “PUBG”, created by the South Korean company Krafton, is derived from the ARMA 2 mod, specifically the “DayZ” mod, and later the “DayZ: Battle Royale” mod. DayZ is a modification of the ARMA 2 universe, while DayZ: Battle Royale adjusts the rules of the game based on the DayZ game system. In addition, League of Legends was born from the DOTA mod for Warcraft 3, while Counter-Strike originated from the mod for Half-Life.

While some mods such as Battlefield, League of Legends, and Counter-Strike have grown into standalone, successful games, most game companies have taken the attitude of either restricting or banning modding. In fact, the right of gamers to develop secondary content is entirely at the discretion of these companies. From the gaming company’s point of view, this is a no-brainer. Unlimited modifications can change the vision of the original game, affect the profitability of paid downloadable content (DLC), and even put a company’s intangible assets (such as game code) at risk. However, despite these concerns, we can still expect some advantages by integrating blockchain.

Gaming Company: The Quest for Sustainability

Gaming companies are constantly updating content to attract and retain gamers. However, no matter how financially sound a gaming company is, or how interesting their games are, ensuring a constant influx of new gamers and keeping them engaged with updates is no easy task. In addition, there has been an explosion of non-gaming content options compared to the past, such as YouTube, Instagram, TikTok, Netflix, US, and more. These platforms work tirelessly to generate content, and our leisure time is still limited. Gaming companies find it challenging to compete with the volume and speed of user-generated content on these platforms, which corresponds to the transition of the global gaming industry to a more challenging phase.

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Game mods offer a solution that addresses the inherent limitations of games in terms of sustainability. Allowing game mods enables gaming companies to share the responsibility of continuous content updates with gamers. This results in faster and more extensive updates, expanding the reach of the game and extending its lifespan by slowing down the rate at which gamers run out of available content. Ultimately, this approach relieves the sustainability burden on gaming companies. Players who make mods regularly understand their players’ preferences and needs better than game companies. The efficacy of this user-centric content creation and its associated revenue sharing model has been proven on platforms like YouTube and Roblox.

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Mod Maker: Get Paid

In traditional games, players put in the time and effort to create mods out of love for the game, and they often share them for free. While some mods end up being standalone, profitable games, most remain free. Due to the lack of proper incentives for modders, they sometimes abandon development halfway through or leave mods unattended due to a lack of incentives after completion. In blockchain games, we have the opportunity to reward modders with a tokenomics, depending on their level of activity and level of interaction with mods. This approach ensures that contributors to the gaming ecosystem are fairly recognized, promoting their continued engagement with the gaming community. As the number of modders increases, so does the variety of content available, expanding the user base. As a result, this increases revenue and provides creators with more lucrative returns.

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Players: It’s all about fun

From the perspective of gamers, the arrival of blockchain has brought about a rapid supply of high-quality content and improved the gaming experience. Gamers can delve into original games that have been creatively tweaked and find one that perfectly suits their tastes. While gaming companies focus on profit and create games for the masses, modders don’t have to bear the pressure of development costs and margins and can provide customized games for specific niche players. Moreover, mods that can be easily rewritten based on player feedback are very popular among gamers. The introduction of blockchain has taken the fun of gaming up a notch and naturally appealed to gamers.

The potential of mods in blockchain games

Providing gamers with the opportunity to recreate and monetize through mods can create a win-win situation for game companies, modders, and gamers. But the problem also arises that mods are not unique to blockchain games. How blockchain games are different; Will Web2 gaming companies get out of their current closed mindset and allow for complete modifications? As mentioned earlier, unlimited modifications come with various side effects.

The answer to the first question lies in what makes blockchain games unique, mainly interoperability and transparency. In traditional games, each mod typically runs in its isolated world, with different habits, rules, and economic systems, making them essentially separate games in the eyes of the player. As a result, transitioning from one mode to another comes with significant switching costs. However, gamers no longer need to worry about such costs when mods built on the same blockchain can share in-game assets and economic systems. They can invest equal amount of time, effort, and resources to enjoy a more immersive gaming experience.

However, this can lead to a major problem: it can upset the balance between early players and latecomers. Most traditional games achieve equality between all players by separating servers or introducing seasons, ensuring that everyone competes on a level playing field. This provides an incentive for latecomers to enjoy the game while extending the game’s longevity by attracting these new players.

If characters and in-game assets can be used unrestricted across all mods, closing the gap between early players and latecomers becomes challenging. Of course, it is up to each game company or modder creator to determine whether to build a larger user base to enhance the sustainability of the game or maximize profits by biasing it towards a core player base, even if it deepens the imbalance. However, it is crucial to consider possible measures to prevent a situation where only a few players continue to dominate and thus avoid an imbalance.

Another advantage of blockchain gaming is transparent profit sharing. In existing platforms with revenue-sharing models, such as YouTube or Roblox, it is often difficult to determine the criteria for profit distribution, and it is not clear whether profits are actually settled according to those criteria. However, by using blockchain, profits are automatically distributed according to smart contracts, and all settlement records are transparently accessible. This increases players’ trust in gaming companies and contributes to the vitality of the gaming ecosystem.

On the second question, of course, we should not expect game companies to fully open up their game resources and development rights from the start. Allowing for extensive modifications can lead to problems such as changing the original vision or encroaching on intangible assets. Still, some gaming companies are exploring this path and conducting partial experimentation, with Nexon being a notable example. Nexon’s MapleStory Universe is a testing ground for validating the impact and potential of blockchain integration. MOD N, an integral part of the MapleStory Universe ecosystem, is a blockchain game development platform that leverages Nexon’s NFTs and NFTs from external games. Nexon intends to evaluate contributions to the ecosystem based on the popularity of games created by MOD N and provide corresponding rewards.

Conclusion

Games are increasingly expected to play a central role in driving the widespread adoption of blockchain technology. This excitement is amplified, especially with the announcement of the world’s major gaming companies entering the space. However, it must be acknowledged that the blockchain gaming market is still in its early stages. We recommend taking a step back and taking a more medium- to long-term perspective at the growth potential of blockchain gaming.

In addition, we emphasize the importance of integrating blockchain into games after careful consideration. The model adopted by many large game companies is to rely solely on existing IPs without elaborate game design, which can be a challenging path. Instead, games should provide a familiar gaming experience for current gamers while providing a unique blockchain gaming experience. We strongly believe that the most important potential of blockchain lies in giving gamers the freedom to create secondary content and monetize it.