Web3 gaming has been on a rollercoaster ride over the past 18 months. 2021 ended with an explosion in adoption, with games like Axie Infinity boasting over 2mn daily active users. All this followed a record-setting year of venture investments in the space, a trend that carried on well into last year. But, like most emerging areas of crypto, web3 gaming faced some significant headwinds, most notably from the early iterations of rewards systems that led to the capitulation of the game economy in many leading games.
Chart source data
While the attractive incentives offered by the first cohort of play-to-earn games were an undeniably powerful tool for bootstrapping player liquidity, it proved to be an unsustainable model for growth. Games that failed to adapt early enough have faced the consequences.
The reality is that web3 gaming sits at a crossroads right now. The volatility in the broader crypto markets, along with the numerous scandals – most recently with FTX, has led to a slowdown in adoption from crypto natives. At the same time, bringing “traditional” gamers to web3 has proved particularly challenging due to a combination of substantial onboarding friction and their negative perception of the space. A recent study by Coda Labs showed that most regular gamers surveyed hated NFTs. The reaction to Ubisoft’s video introducing NFTs to their audience further validated this.
While web3 gaming is still in its infancy, it’s fair to say that it’s not quite found a narrative that resonates with all factions of gamers, nor have we seen a web3 game truly scale into the mainstream gaming community.
I believe this will happen in the coming years. Moreover, I see web3 gaming becoming a huge contributor to market share in the gaming industry over the next decade. To understand why it’s worth revisiting the evolution that gaming technology has experienced over the past thirty years.
A look to the past to see the future
Over the past three decades, the gaming industry has been through several waves of very significant disruption. Each time, the existing player base in gaming has had a largely negative response to new, disruptive technologies.
A great example of this was seen with mobile gaming. The introduction of the iPhone in 2007, and more importantly, the subsequent launch of Apple’s App Store the following year, paved the way for a new era of mobile gaming. At the time, Microsoft had recently launched their iconic Xbox 360 console, and Sony had followed suit with the PlayStation 3. This was during the peak of the Console Wars, where high-performance hardware capable of producing stunning graphics was at the forefront of consumer demand. These two combined sold an eye-watering 171 million consoles. After the best part of a decade spent releasing sub-par consoles, Nintendo then re-entered the market with their Wii console, which went on to sell an incredible 101 units.
|Console Name||Release Year||Units Sold|
|PlayStation 2||2000||>155 million|
|Nintendo DS||2004||154.02 million|
|GameBoy & GameBoy Color||1989, 1998||118.69 million|
|PlayStation 4||2013||117.2 million|
|Nintendo Switch||2017||114.33 million|
All of the top-grossing game studios were doubling down their efforts on producing titles for one of the big three consoles. For consumers, this meant spending between $50-60 for each of the games they wished to own. Apple’s release of the App Store, combined with its rapidly growing distribution, tore down the huge barriers to entry in the video games market and unleashed a resurgence of indie game developers that were able to generate meaningful income through the development of mobile apps. For the consumer, they went from paying $60 for a game to paying $1.99, and eventually, as free-to-play emerged, nothing at all.
In the past five years, revenue from mobile games alone has more than doubled, and it’s by far and away the largest segment in gaming by revenue. This number is expected to grow from $152bn in 2022 to $221bn in 2027.
It’s worth noting that up until the iPhone, mobile gaming was only possible with a dedicated mobile gaming console (outside of playing snake on your Nokia 3210). Those that tried to successfully combine the mobile phone with a gaming console ended with a particularly painful end. Remember Nokia’s N-Gage? No? Me neither. While many of these products paved the way for what mobile gaming has become today, they lacked the distribution engine that Apple created.
Web3 gaming seems to be in a similar state right now. Most gaming hardware doesn’t natively support the basic infrastructure needed for web3 gaming, in particular, the ability to use crypto wallets. Apple’s recent attack on apps implementing NFTs has further raised the barriers to entry. While it’s unclear whether we need the web3 equivalent of the App Store, what is clear is that the current distribution channels aren’t set up to support widespread web3 gaming adoption.
The question that many critics of web3 gaming pose is, “wouldn’t this game work just as well, if not better if it wasn’t powered by a blockchain?” It’s a reasonable question to ask because many of the hundreds, potentially thousands, of web3 games that have appeared since 2021 have clearly lacked product-market fit and the addition of blockchain technology was generally an afterthought.
That said, web3 possesses some powerful features and new economic models that simply aren’t possible for traditional games to produce. One of which is the ability for gamers to own assets within the game.
Asset ownership is a much-touted benefit, but the reality is that it’s a little-understood concept. The majority of the discussion on this front has centered on the ability to sell these assets for a profit, but many traditional gamers have been turned off at the idea of the financialization of their gaming experience.
The thing is, ownership is about so much more than this. The hours, days, and weeks of gameplay that gamers invest into the ecosystem of traditional games, and all of the associated reputation and in-game assets they accrue, remain confined to the boundaries of that game. Web3 changes this.
What if the skin you own within Fortnite could be used across a plethora of other games, giving you unique abilities and, more importantly, allowing you to retain the sense of community you’ve built inside Fortnite and transfer that into other game ecosystems? Also, imagine that owning this skin could get you access to special in-person events or online communities.
This level of portability is at the heart of web3 gaming.
This seemingly simple innovation is leading to novel new approaches to building games. Composable game assets are becoming the building blocks from which new games are developed (as opposed to the other way around).
Take Loot, a pioneering web3 project, as an example. Instead of building a game through which players could then earn assets and follow a predesigned story, Loot simply created a collection of assets that they then encouraged creators to build games, stories, and other digital experiences around. This inside-out approach to game design is what gets me personally so excited, and it’s something the industry has barely scratched the surface of.
Alongside the composability of game assets, on-chain reputation is another valuable building block for both gamers and developers. Whereas today, your achievements and reputation within a game are isolated within the walled garden of either the game (e.g. World of Warcraft) or the platform (e.g. Steam).
Taking these achievements and reputation on-chain means this information can be seamlessly read and integrated into other ecosystems without any permission needed from the developers of the other game. This removes a lot of friction from the process of creating larger open-world experiences that can stitch together to create something far greater than the sum of its parts.
How long will it take?
For all the promise of web3 gaming, there’s still a long way to go until it’s fully realized. There are a number of reasons why this is the case, but two of the biggest contributors are the lack of infrastructure for web3 in the current gaming ecosystem and the friction that exists in onboarding new players.
For a start, Apple has made it painfully difficult for any web3 game to operate within its App Store. This immediately lowers the total addressable market open to web3 right now. The ongoing situation with Coinbase Wallet, where Apple are demanding 30% of gas fees from transactions within the app, is a perfect example of the barriers to entry that are in place.
As many have pointed out, even if Coinbase wanted to comply they couldn’t because there’s no infrastructure to pull these fees out of on-chain transactions and into Apple’s in-app purchase system. Existing App Stores need better tooling before these kinds of restrictions can be put in place.
These obstacles will be removed over time, and if not, disruption will come in its place.
The stickier problem right is getting non-crypto natives comfortable with self-custody. Creating a wallet is confusing, and for many, a scary proposition. There’s a reason why the lion’s share of the global population stores their money in bank accounts: it’s both impractical and for many, terrifying, to be the sole point of failure in the security of your wealth.
Most web3 wallets that exist today have been built for crypto-natives. They provide a poor user experience, limited mobile app support, and a steep learning curve on their use. For web3 to reach the masses, this must change.
Infrastructure like web3auth that enables wallet creation via Twitter or Google OAuth, combined with technology like Paper.xyz that provides payment services to users via credit cards (removing the need to buy crypto assets), are all great starting points. The experience in web3 gaming should feel like that of traditional gaming, all while the blockchain elements are running in the background – not put to the front and center of the experience.
These are some things that help in the short term. Over the long term, the promise of unlimited composability needs to come to fruition.
Ironically, many web3 games that are being built today are creating their own walled gardens. Competing open metaverse projects like Decentraland and The Sandbox aren’t interoperable, while many games are simply building their own purpose-built chains to support their individual needs.
There are some examples that exist today, like Ready Player Me, that are building with interoperability first, and many of the leading open metaverse projects have plans to support this, but we’re still years away from this being a smooth experience.
As interoperability becomes standard, the wallet experience – or lack thereof – is improved, and web3 infrastructure is built into the primary distribution hubs of gaming today, we’re going to see an explosion of creativity that I believe will captivate gamers in whole new ways.
Web3 has its growing pains right now, but as history has shown us, gaming is a sector that leads the way with emerging technologies. It’s a matter of time before web3 is synonymous with gaming.
- Wang, T. (2022) Axie Infinity nears 2M daily active users as creator raises $152M series B, CoinDesk. CoinDesk. (Accessed: December 21, 2022).
- Bourgi, S. (2022) Blockchain games and metaverse projects raised $1.3B in Q3: Dappradar, Cointelegraph. Cointelegraph. (Accessed: December 21, 2022).
- Howells-Barby, M. (2022) Building Sustainable Play & Earn Ecosystems, Matthew Howells-Barby. (Accessed: December 21, 2022).
- Browne, R. (2022) The FTX disaster has set back crypto by ‘years’ – here are 3 ways it could reshape the industry, CNBC. CNBC. (Accessed: December 21, 2022).
- Gokalp, S.G. (2022) Web3 user study, Coda Labs. (Accessed: December 21, 2022).
- Quarmby, B. (2021) Gamer-hate: Ubisoft’s new NFT project video gets 96% dislike ratio, Cointelegraph. Cointelegraph. (Accessed: December 21, 2022).
- Apple unveils iPhone SDK (2008) Macworld. (Accessed: December 21, 2022).
- Constantine, R. (2019) Who finally won: PS3 or xbox 360?, The Escapist. The Escapist. (Accessed: December 21, 2022).
- IR information : Historical data (no date) Nintendo Co., Ltd. (Accessed: December 21, 2022).
- Rgrosso (2020) The cost of gaming since the 1970s, TechRaptor. (Accessed: December 21, 2022).
- Video games – worldwide: Statista market forecast (no date) Statista. (Accessed: December 21, 2022).
- The history of snake: How the nokia game defined a new era for the Mobile Industry (no date) It’s Nice That. (Accessed: December 21, 2022).
- Nokia N-Gage: The Museum of Failure (2019) Museum of Failure. (Accessed: January 10, 2023).
- Clark, M. (2022) Coinbase says Apple forced it to remove NFT transfers from its IOS Wallet, The Verge. The Verge. (Accessed: January 10, 2023).
- Loot. (Accessed: January 10, 2023).
- Nation, J. (2022) Apple disables version of Coinbase wallet over NFT gas fees, The Block. The Block. (Accessed: January 10, 2023).
- Kostina, E. (2022) How interoperability is unlocking an open metaverse culture and future, Jing Culture & Crypto. (Accessed: January 10, 2023).
- Cryptocurrency prices, charts, and crypto market cap (no date) CoinGecko. (Accessed: January 10, 2023).
- List of best-selling game consoles (2023) Wikipedia. Wikimedia Foundation. (Accessed: January 10, 2023).