Cryptocurrency and Gaming – Why it’s not as Simple as Pushing one to the Other, and How it Could Work Instead
When it comes to any area and application of blockchain technology, gaming has been one of those areas that have enjoyed the greatest level of excitement. It consists of some of the first use cases (at least theoretical) application digital assets that provide an immediate digital scarcity within games, all backed up by blockchain for the first time.
Of all areas, games are an ever-growing market that has only gained speed over time. When you add cryptocurrency into the mix, this is a recipe for truly fantastic results.
Examples of this initial hype and success when blockchain and gaming come together include titles like CryptoKitties: one of the first titles to really use the ERC721 protocol, and Gods Unchained: a title that both centers its marketplace and competitions around a collection of hundreds of digital assets.
For both of these titles, items are provided to the community it a rather straight forward way. With players being able to easily verify the total number of Kitties or Cards just by looking at the blockchain behind it (Ethereum). Players can then trade these items in order to earn money which serves as a primary, or secondary incentive for players to get involved in the game.
There’s no denying that this amalgamation of blockchain and games will be lightning in a bottle for the entire industry, and this comes from someone that has seen and interviewed a good number of blockchain game projects about their roadmaps and business models.
In the past, there have been conversations about the fact that mainstream game developers have little gone their way in terms of incentive when it comes to tokenizing the digital assets within their game titles. This is also not helped by the fact that it’s regarded as being against their interest, in general, to incorporate blockchain at all, which makes sense – it runs against the grain of their business models.
And when there have been ‘experiments’ geared at incentivizing real-world marketing for digital assets, it’s often ended in failure. The reality is that, for these game titles, players have far less fun when they have to deeply consider the kind of real-world value at stake with these digital items. Logic acts as the greatest enemy to crypto game concepts.
The logic behind this would often result in developers coming to the conclusion that they can tack on blockchain or a cryptocurrency to the game model that they have and benefit from a ‘winning’ combination. The reality is the contrary, however, and these kinds of projects are far more likely to fail as a direct consequence.
Is there no real formula associated with developing a successful game on blockchain? It’s not known at this point in time, but there are certain modalities that are worth considering in the meantime – One being Brian Balfour’s ‘The Four Fits.’
What this model refers to is the relationship that exists between:
With this model in place, Balfour uses it in order to describe the sort of relationship will end up looking like when a company rapidly grows with ease, and contrast it with what it looks like when it struggles to gain traction (or completely fails to land).
Overall, the fundamental concept that these four elements require is an effective relationship, with systems in place that allow them to complement one another, for example –
- The product needs to be able to fit into the market by providing a product that is in demand by the marketplace.
- The underlying model needs to fit within the market so that the business can work effectively in order to match their rate of monetization with users.
- This channel is also needed to fit within the model in order to lead a highly viable monetization strategy.
- The end-product is needed to fit seamlessly within the channel, allowing users within the same market to effectively receive the product.
When we bear this four-pronged approach in mind, we notice that one element that does not essentially have to fit within this ecosystem is the market. The reason for this is the simple fact that the market is beyond anyone’s control. With this approach in mind, the product and the model are needed to conform to the demands of the market, with the channel being dictated by the resulting model.
Along with this, should the product prove capable of fitting within the subsequent channel, the end result is a truly seamless set of fits in place in order to allow for relatively straight forward paths towards growth.
So, when we discuss the notion of ‘adding crypto’ into the world of gaming, this can seriously hamper the nature of balance that takes place within this four-pronged system, throwing into jeopardy the idea of creating a successful game.
Here’s one kind of example that Ben Horowitz provided when considering distribution channels:
- Box is involved in selling cloud storage (the product)
- This cloud storage solution fits into a marketplace where the various businesses have a feverish need for cloud storage services.
- The company model – Large style subscriptions while allowing for more than one ‘seat’ – fits in with the flexible nature of the market, and is familiar with other companies in terms of business model.
- Their product fits effectively within this channel; overall, their salespeople can sell it effectively by directly pitching it to enterprise companies.
So, let’s go ahead and put this same kind of thinking to work with a sensational game like Fortnite:
- Fortnite operates as a free to play battle royale game (the product)
- This same product effectively fits within their market, which is made up of first-person shooters and gamers that enjoy the genre.
- The Model – the sale of in-game (cosmetic) items – ones that fit the market rather well.
- The Channel – Providing a range of paid and viral acquisition that conforms to the model of a larger-scale population of players that participates in monetized content at a far higher rate than their costs in order to obtain these players.
- Overall, their product conforms remarkably well in line with their channel; they distribute the game for free on all kinds of platforms to an enormous, existing installer-base (Console, PC and Mobile players).
So, when the notion of ‘adding crypto’ to already existing games, it impacts on the overall balance of video game models that have an already tried and (successfully) tested formula. For example, the process of tokenizing Fortnite skins has a profound influence on the model that would work to damage the underlying successful model.
Through this ‘conversation,’ I would argue that the process of tokenizing skins within the game would have the negative impact of breaking a previously successful channel. One of the net negatives of tokenization would seriously harm the amount of revenue per player that was previously banked upon. Were this to be the case, Fortnite’s channel would need to be re-assessed in order to account for this, such as deactivating paid acquisition.
When we look at products such as fortnite, the application of cryptocurrency can otherwise have a negative influence on the product. An example includes a kind of collectible card game that can suffer serious issues with balance on account of only being able to sell a small number of non-inflated number of the rarer quality powerful cards within the game (these rarer/ powerful cards are held by only a small number of players, meaning that others have an uphill struggles of battling these card owners in-game). This may have a seriously negative impact on the market overall, changing it from an initially large scale population of casual gamers down to a far smaller, harder core of gamers eager to play to win.
If they raise prices in order to support this pivot in the channel. Inevitably, the company may, in fact, find that this product no longer conforms with any kind of channel. Growth will prove to be an uphill struggle.
When it comes to some crypto games facing this problem with regards to issues of balance, then they are facing balance problems with regards to these Four Fits. In the effort of using crypto within the model, this altered the four fits model and needs to be re-balanced in order to resolve this. Without doing so means that the end product may prove to be a poor fit overall.
There’s a credible reason why gambling games have a relatively robust model even with the inclusion of cryptocurrency. The product still goes to the same place – the gambler market. And, overall, the product is able to fit the channel.
Through allowing for your game to be well-balanced when it comes to the Four Fits, you can ensure that your game, whether involved in crypto or not, will prove successful. And as balance means that there is a continued need to adhered to these Four components means that your game can effectively respond to the changes demonstrated by the market.
If games are able to adhere to these elements of the Four Fits, they will not look like legacy games in the construct. Alternatively, they will look either precisely like legacy games, as we see from the likes of gambling games, or really iconic titles.