Morning cryptopeeps. Today I thought I would give a brief overview of the application of cryptocurrency within the gaming industry. I thought this would be timely, as GameFlip are conducting an Initial Coin Offer (ICO) on Bnktothefuture.
Firstly, an overview of applying cryptocurrency within gaming. I think even people who are new to cryptocurrency make this connection pretty early on. The gaming industry is expected to be worth a whopping $108billion in 2017, which I believe is now larger than the film industry. Gamers by default are pretty open to digital innovation. Crucially, in game currencies are not new. Many of the virtual worlds that gamers frequent offer in-game tokens or currencies. Mobile applications usually require players to complete arduous and mundane tasks to earn them. Obviously these are digital currencies that are “backed” by the authority of the architects of the virtual worlds. So the supply of World of Warcraft Gold is completely controlled by its owners Blizzard. They could in theory create much more whenever they feel like it, enriching themselves to make endless in game purchases, but most likely destroying whatever digital economy that they have created. An interesting development is when these types of digital assets become valuable outside of the game itself. An example of this are Counterstrike “skins” which are basically different types of stickers for guns within the game. The skins amazingly took on a life of their own, with secondary markets developing outside of the Steam platform that hosts Counterstrike, and a range of gambling services developing using these skins as leverage. These were investigated by one of my favourite economists; Yanis Varoufakis, before he took on the Troika as Greece’s Finance Minister.
So where does cryptocurrency come in? Well firstly you could see users using cryptocurrencies as in game currencies. It would allow users to be more confident about the value of the tokens they were using. However, the use of cryptocurrencies would mean the in-game prices may be open to external speculation. GameCredits (GAME) is a cryptocurrency that is hoping to be the universal token for gamers. They want developers to adopt the currency and allow individuals to make in-game purchases with a currency they can feel confident in. They note that a huge percentage of digital game-related transactions are open to fraud. They hope that markets constructed with their token could also use their blockchain to ensure the provenance of the digital assets. Enjin Coin (ENJ) is designing their currency to be completely customisable to individual games. I assume this would be similar to the ICOs being issued off the Ethereum network; where a small number of tokens on the central blockchain support a wider coin ecosystem. Some game specific cryptocurrencies include; BitCrystals (BCY) and Nexium (NXC).
Secondly, it is hoped cryptocurrency technology, in particular a blockchain could be used to verify the quality of the digital assets. As mentioned with GameCredits, blockchains could be used to ensure that the skins you are purchasing are real. The challenge in this space would be how the wider ecosystem ensures the quality of the assets. For instance, if a Counterstrike skin is obtained in game, then taken outside of the Steam platform and logged to a third party blockchain, the Valve Corporation would still need to guarantee its provenance. So although a immutable record of the digital asset exists on the blockchain, the digital asset is itself not completely immutable. Cryptocurrencies that are hoping to move into this space are also GAME and ENJ.
The next area of development in the cryptocurency and gaming space is gambling. As what was seen with the Counterstrike skins, there is a huge market for gambling, even using in-game tokens. The growth of eSports have seen an industry for gambling develop alongside the increasing popularity of people watching the sport. Creating such markets in a cryptocurrency does allow the avoidance of some of the regulations associated with the traditional betting industry. Meaning, some unscrupulous book keepers could develop business models focused on children and teenagers. Valve was actually instructed to clamp down on the secondary betting markets associated with its skins due to widespread underage gambling. These practices have also now been regulated within mobile application games, as young people were using them to gamble. The main cryptocurrency in this space is HEROcoin (HERO).
The final area of development is the use of blockchain technology to construct decentralised applications (Dapps) and platforms. This area is growing alongside the broader Dapp industry, which got a lot of attention pre-ICO explosion, but has since gone relatively quiet. I can’t actually give a convincing reason why games would benefit from Dapps. Although community-led projects within games have been witnessed with traditional centralised applications; see the awesome constructions within Minecraft. The main cryptocurrency contender in this space is FirstBlood (1ST) which is hoping to construct applications and provide the basis for trading skins.
The ICO of GameFlip on BnktotheFuture is aiming for the second space identified; verifying the digital assets. Their pitch outlines that they have actually already built a successful marketplace for digital assets to enable them to be liquid (easily tradeable). They claim to have already had over 2million successful transactions through GameFlip and get 10million monthly website views. That is impressive if I am honest. I believe that this industry is a complete no-brainer and we will have networks of blockchain-based applications allowing the trade of in-game assets. The question is; who will succeed in offering these services? I don’t have the answer to this, maybe it could be GameFlip. The thing I would note as an investor is that it is an ICO, so if you intend to invest, ensure you understand the implications of this. It is not a traditional equity offer, so investors will have little ownership over the company itself, just a stake in its network. If GameFlip succeed in becoming a crucial part of the future ecosystem for gaming-related activities, then the value of their tokens will rise. However, some people believe that the entire cryptocurrency sector is currently in a bubble driven by these ICOs. If this is the case, even if GameFlip succeeds, the price could drop significantly first and may not actually ever recover.
I hope this has been useful. I’m sure you know, this wasn’t investment advice and probably doesn’t include everything in this space. To ensure continuity to my previous blogs I will tell you my position. I am worried about the state of the wider industry so I am avoiding the bulk of the ICOs and therefore not investing. However, as stated above, I do believe the gaming industry is a space where cryptocurrency and its technology will thrive. GameFlip do seem to have a toehold in the growing market. I think I would be interested if it was a equity sale.
Thanks for reading.
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- Overview of cryptocurrencies and gaming for people considering the GameFlip ICO - October 30, 2017
- Hullcoin: A cryptocurrency for the City of Hull, UK - October 24, 2017