Entertainment Guide: Web3, Crypto, NFTs and You: The Rise of Blockchain Games Explained

We dive into the strange, ever-evolving world of Web3 gaming.

NFTs, cryptocurrency and the blockchain took no time at all to converge with game world. The second we started attaching one serious monetary value for JPEGs after the explosion of NFTs, the question became: can we do this with video games also? It’s a question that major game publishers have had to ask quite a bit lately. The rise of Web3 games can hardly be ignored – they’ve already cultivated a following in the indie scene, with players taking on all manner of games in the hope of finding one that will actually stick.

However, this rise in popularity has not been without its fair share of controversy. From market crashes to exploitative game design, there are plenty of reasons for the public to be wary of the concept as a whole – but given that it’s become a talking point of late, we thought it would be worth finding out what these games are and what they are trying to achieve. To help with that, we spoke with Jansen Teng, co-founder and CEO of PathDAO, an organization committed to bringing new players into the metaverse.

So what exactly is Web3?

For those unfamiliar, Web3 is just a more decentralized version of the Internet as we know it today (now labeled Web2), but with more ownership over user-generated content than before. In theory, Web3 will allow users to access online services without going through the big companies that provide them – like Google’s maps, Twitch’s video streaming and WhatsApp’s messenger service. These services will be controlled by individual nodes – like the computers we use – thus preventing large companies from profiting from your data.

This is a simplistic view of what Web3 represents as an idea, and it leaves out other key attributes such as metaverse, blockchain integration, and cryptocurrency. It is also important to state that Web3 is anything but a fully formed, actual thing that exists. It’s just an idea that someone wants to make happen so they can stop big companies from making all the money they want to make themselves. Web3 gaming just takes this idea and focuses it in a very specific direction: the gaming industry.

In theory, a Web3 game would allow players to take ownership of and control every aspect of a video game—from owning in-game items to having a say in its design. Because this seems impossibly complicated to actually implement, most Web3 game developers just try to throw some blockchain integration into their games and call it a day. Blockchain technology allows developers to pair virtual assets with tokens on the blockchain, meaning you can buy, sell and trade in-game items with other players. This adds a real monetary value to normally junk in-game items like clothing.

Axie Infinity was one such browser game that required players to purchase three Pokemon-like “Axies” to play. These axes cost money in the real world, and players can lend them to other players for a hoped-for profit. Hopeful is the key word here because eventually the economy of the game dropped and suddenly Axies that once cost $350 dropped to under $10 in value.

Axie Infinity is just one example of what a Web3 game can look like, but it paints an accurate picture of what most players are looking for in this genre: games to make money. Enthusiasts approach these games with an attitude that borders on entitlement: “If I spend my time on you, I want a return on my investment.” Time spent on games is a waste of time because it could be better spent making money. But, asks the Web3 enthusiast, what about games actually did Make Money? Is that type of game actually sustainable for most players, who turn to games for escapism rather than financial gain?

Jansen of PathDao claims that players will try anything as long as it’s fun:

That’s where the content is, right? If Elden RIng was an NFT game, you’d still be playing it – it’s one of the best as an immersive experience. If DOTA 2 suddenly became a NFT game, would you still play it. You wanted to fight them first, right? You will say “Why NFT, why Web3?” But that’s where the content is. Gaming is about content.

Most Web3 games can be identified by this kind of play-to-earn game loop, which involves you logging in, completing activities, and getting NFTs or cryptocurrency as a reward. This isn’t all that different from someone logging in and checking off daily in games like Fortnite and Destiny 2 for cosmetics and gear, except that what you get in return has real monetary value. These titles can look like gambling games, farming games, Donkey Kong lookalikes and more. Depending on how much money is pumped into them, they can be ridiculously simple or quite complex.

Unlike regular video games, however, players must be aware of the financial risk that Web3 games may pose. It’s never as simple as playing and earning because that cycle is often not as consistent as you want it to be. Gaming economies can rise and fall, speculators can inflate the value of a title before the bubble pops, and safety is not guaranteed. Recently, the Twitter account of an Ethereum NFT game developer was hacked – leading to $30,000 in cryptocurrency and dozens of NFTs being stolen from their owners.

This space is rife with fraudulent actors of all kinds, and the regulations needed to make these games as safe for players as they should be do not yet exist.

Where is all this going?

Web3 gaming is still figuring itself out and has a long way to go before it reaches mainstream popularity. It would be one thing if Web3 games only promised games to earn video games – but enthusiasts expect a lot more to come out of the scene. A true Web3 game wouldn’t just stop at giving players a complete cut of the profits they can play to earn; it is the minimum. Players should be allowed to take part in developing the game itself, have a say in game design and jointly shape the future. What exactly is the incentive for someone to make a game like this?

Jansen points out that all game developers fundamentally want to make money and evaluate their success on average revenue per user. Pointing to statistics, he says Web3 game developers typically take “maybe five or 10% as a transaction tax,” which can snowball into much higher numbers when digital assets are repeatedly sold in a game. He also points out that because “it’s a form of liquidity for your assets,” players can simply sell out if they decide to end a game rather than lose money on the assets they’ve spent money on. Jansen explains:

From a game perspective, when I come and pay for a loot box or buy a skin, in my mind it’s no longer an expense. It’s either an investment or something I can liquidate for the same value or maybe a lower value. I can actually sell it – it’s no longer an expense. Because of that, players tend to spend more because now you can actually get out [of your purchases]. So instead of spending $100 that I’m writing off, I’m willing to spend $1,000. You combine that with 5-10 times more consumption, and suddenly the value that can be obtained from the user increases exponentially. That’s why many game developers are flocking to the Web3 space, because they realize that it’s actually a whole new economic model that can generate so much more revenue.

As PathDao’s co-founder sees it, future Web3 games won’t be as Web3-forward as they are now. They will just be regular games that slowly turn out to be Web3 games eventually. Then players would be too invested to stop playing altogether – giving these Web3 elements more potential engagement. He expects “a Trojan horse environment,” where Web3 titles position themselves as “normal games” before the Web3 element kicks in, “to come in like a Trojan horse in the endgame when you’re too engrossed, too invested, and that’s where they start to show you the open economy these games can have.”

Some other Web3 game developers today follow more or less the same logic. By focusing on making great games instead of Web3 games, their projects have a better chance of going beyond Web3 enthusiasts and reaching mainstream gamers. “If you make content that’s fun enough, people look past your deal breakers and they kind of play your game. I think that’s the basic gamer mindset,” Jansen says.

Right now, the Web3 gaming scene isn’t being touched by major game publishers like PlayStation and Bethesda – but that could change. The blockchain gaming scene is full of copycats of better games because they are easier to develop with small teams that lack the resources of larger publishers. An NFT card game like Alien Worlds can’t compete with Hearthstone or Magic the Gathering: Arena, but it occupies a niche that the latter two can’t fill right now. Major game publishers could drop a Web3 game and obliterate the competition with ease – but they’re shying away because their fans have voiced a collective distaste for the space. Web3, NFTs and gaming on the blockchain in general has this crazy scent on it that is hard to shake off.

Some companies are going to try it anyway. Despite controversy when it first expressed interest in blockchain gaming, Square Enix recently announced its first foray into the genre: an ‘NFT Collectible Art Project’ called Symbiogenesis. The ambiguity of this announcement is only exacerbated by the twitter bio, which declares itself a “new franchise” launching in the spring of 2023. What exactly is this? Who is this for? It certainly isn’t for the publisher’s fans, who have responded to the reveal with nothing but disappointment (mostly because it was rumored to be a Parasite Eve reboot before the reveal), which is the main reason most companies like these choose to avoid Web3 gaming altogether.

Ubisoft tried to introduce a new NFT system called Quartz in Ghost Recon Breakpoint, one of the most criticized games in recent years. It called Quartz, “the first building block in our ambitious vision to develop a true metaverse.” Funnily enough, it all closed down after a few months. CEO Yves Guillemot then walked back on his Quartz NFTs, using language that made it seem like it was all one big experiment and they hadn’t actually launched anything yet: “We should have said we were working on that, and when we have something that gives you a real advantage, we’ll bring it to you. Exploring doesn’t mean launching.”

Only they launched it, and it flopped, and the Internet doesn’t forget. Is it really worth it for companies like these to burn so much goodwill?

Watch this space

Web3 games are still in their infancy, and the only ones who will convince you of the impending breakthrough seem to sell you something. It’s not entirely impossible for products like these to finally reach their target audience one day – but there are far too many obstacles to overcome first. How games to make money appeal to mainstream gamers – a demographic historically resistant to change and increasingly skeptical of the company’s money-grubbing mouth – when this is not what they are playing games for in the first place? How do you educate players about Web3 gaming and what it can offer, then incentivize it to become their platform of choice?

The Web3 scene doesn’t have the answers to these questions yet, and it may never have, but it needs to—or it will continue to fall short of the expansive growth it seeks.