Crypto VCs, Web3 Startup Founders on What You Need to Know About Blockchain Gaming

• Insider spoke with industry experts about games’ potential to bring crypto to a wider audience.
• Blockchain gaming VC investment reached $2.5 billion during the second quarter of 2022, according to DappRadar.
• This article is part of “Master Your Crypto,” a series from Insider that helps investors improve their cryptocurrency skills and knowledge.

Blockchain games raised $2.5 billion in funding during Q2 2022, according to a DappRadar report. The growing space has attracted some of the biggest names in Silicon Valley, with Andreessen Horowitz debuting a $600 million fund for gaming startups in May. Animoca Brands, a Hong Kong-based game developer and crypto investor, also secured a $75 million raise at a valuation of $5.9 billion in July.

The total investments in the sector this year exceed by some measures last year’s by around 33%.

Franklin Bi, director of portfolio development at crypto hedge fund Pantera Capital, previously told Insider that it’s the blockchain game’s “perfect moment” to “take off.”

“The gaming industry travels in cycles. New cycles are historically characterized by new technology or new business models or new user experiences. Crypto and NFT have opened up all of the above,” Bi said in a statement.

There have been a number of famous names jumping on the blockchain bandwagon. Microsoft Corp. announced in January plans to buy Activision Blizzard Inc. — commonly known as the publisher of franchises such as Minecraft and Call of Duty — for $68.7 billion. Microsoft says the deal will help develop “building blocks for the metaverse,” according to a statement from CEO and Chairman Satya Nadella.

With the gaming market valued at nearly $200 billion this year, there is potential in bringing in a critical mass of users through blockchain gaming. Insider spoke with industry experts about the nascent space and its potential to take crypto to a wider audience.

NFTs as a way to own in-game assets

Gaming could be one of the main drivers of mainstream adoption in crypto, says Pavel Bains, CEO of blockchain startup Bluzelle.

“I have three kids who grew up on Fortnite, Minecraft and Roblox,” Bains told Insider in a statement. “Virtual currencies and acquiring digital assets in the game is what they already know.”

He added: “Cryptopower can help turn these virtual goods into tangible assets for committed players. It’s a natural progression for the next generation, and they will use it as a vehicle to learn valuable financial lessons at the same time.”

In traditional games, players usually buy skins or virtual cosmetics for their characters. This is a market, per trading platform DMarket, that generates approximately $40 billion in annual revenue. These assets belong to the studio, rather than the buyer, which can make NFTs an attractive alternative to the traditional gaming model.

“So what’s happened with the advent of blockchain gaming is that now the virtual goods and objects can be put on the chain and you can have actual ownership of it,” Justin Kan, co-founder of NFT marketplace Fractal, previously told Insider. “The only difference is that these companies themselves give up control and what they get in exchange is a more robust economy.”

NFTs confirm ownership of a player’s asset because it is recorded in a public ledger via the blockchain. Instead of holding these assets with a Web2 game studio, participants can hold tokens in their crypto wallets or another more decentralized custodian.

“We believe digital asset ownership will open up a new layer of excitement and experience for gamers, as they will now have additional motivation to play the games they enjoy,” Kyu Lee, a partner at venture capital firm CRIT Ventures, told Insider in a statement.

Games are entertaining and people want to play them

Gaming is an effective onboarding tool, says STEPN’s Shiti Rastogi Manghani, because it is entertaining and accessible to a wider audience. Dubbed a “move-to-earn app”, STEPN allows users to earn game tokens through training.

“Anything that’s fun, social, engaging will get users in the door,” Manghani, the startup’s CMO, told Insider in a statement. “We’ve seen this time and time again in multiple industries like retail, e-commerce and social media. It serves basic human needs. Gaming or any utility app that checks these boxes will become mainstream. If it benefits users in the process, it is the icing on the cake.”

Younger generations in particular have long been accustomed to playing video games. Games have always been at the “front of new technologies” because people love to be entertained, says Shahaf Bar Geffen, chairman of Web3 startup UnCaged Games.

“The game Tetris was built by Alexey Pajitnov to make computers less intimidating and more accessible to people, Geffen told Insider in a statement.

Roadblocks to blockchain gaming

With any new technology – and especially one in a volatile market – comes many hurdles.

In the midst of a crypto bear market, blockchain games have also shown signs of slowing down. Axie Infinity, the game that once had the largest user base in the industry, had 83% fewer participants in Q2 than in Q1, according to DappRadar. The downtrend for players steepened after a $650 million hack on its Ethereum-affiliated sidechain, Ronin.

“While gaming activity still dominates the overall landscape, we have also begun to see the first cracks appear in the industry, with many top blockchain games beginning to show weakness,” the DappRadar report said.

Potential obstacles to mainstream adoption are a game’s ease of use, says Steven Goldfeder, CEO and co-founder of Ethereum scaling solutions provider Offchain Labs. Is it fun or do people just play for the returns and financial rewards?

“A good blockchain game must be a game first, and a blockchain application second,” Goldfeder said in a statement to Insider. “The integration of blockchain technology should be purely additive, enhancing the gaming experience for users who want to engage with the blockchain, but not by limiting accessibility to those who just want to play the game.”

He added: “Ironically, for blockchain to go mainstream, it needs to be able to work in the background, and at the heart of that is easy onboarding, fast confirmation times and low transaction costs abstracted away from users.”

This article is intended to provide general information designed to educate a broad segment of the public; it does not provide personalized investment, legal or other business and professional advice. Before taking any action, you should always consult your own financial, legal, tax, investment or other professional for advice on matters affecting you and/or your business.