Idle thoughts on gaming and web3

(a World of Warcrfta account – not mine – currently on sale on eBay)

I think the intersection of gaming and crypto/web3 is super interesting, mostly because it’s founded on a well known concept in games: virtual items. Because I get asked about it often I just wanted to share some idle notes about it. I am not touching new forms of governance such as DAOs etc which I think they are super interesting but my thinking is still evolving there. Anyway.

There are going to be many implementations but for now cryptocurrencies have a lot of drawbacks: they are a scourge on climate due to their extraordinary energy usage, and force companies to invest in ever increasing computational capabilities to resist 51% attacks, not to mention the technology is immature and the tech stack still evolving – with the added benefit that a mistake can be fatal.

(LPs should perform a closer scrutiny on crypto VCs as most of cryptocurrency investments invalidate any type of ESG stance they might have – and I argue it should invalidate their green credentials and put them in the doghouse.)

However, I believe in practice a lot of game studios might dabble with the occasional item on Ethereum, but they will run their systems in a way that is not fully distributed. And to be fair it doesn’t matter much as your database can be as is centralized as you want, but it matters naught since the game developer has full control over how the item is represented in game anyway.

They will still call it web3, but it probably won’t be crypto or blockchain.

I would also argue that the largest gaming companies were not created by just making a better game, because incumbents have pretty good teams and execution (try to poach an art director or a senior engineer from Riot/Take Two as a startup and see what happens), but by changing the economics of making a game (which could be a new platform, using new tech, new business model, or a change in available infrastructure for customers), which in turn enables a new customer acquisition channel.

As we figure out the tech around web3, the first implementation of this new world should be not technical but legal, specifically in the terms & conditions of a game and the attitude of a developer/publisher.

Game companies for the most part block any kind of secondary market (CS:GO and TF2 being exceptions), and if I were to dip my toes into web3 as a game developer, that’s the one thing I would change first.

I mean let’s look at World of Warcraft, where the re-sale of accounts is banned. And selling services (like having a team carry you in a dungeon above your power or expertise level) for money in-game is banned, but not virtual gold – which can be purchased with a credit card. So what is exactly being banned here?? 🤷‍♂️

A black market economy already exists as a result of Blizzard asking users to jump through hoops. And because it has to exist outside the game developer’s reach, it’s pretty shady, although with less fraud that one might think, but it’s still huge because there is lot of demand.

There are also aggregators of these services, like that allow people (like me) to buy items for a debilitating amounts of money.

So I would recommend game devs wanting to experiment with web3 to start thinking about virtual property as assets that can be traded, and consider how it would impact game balance. Which items should be bound to an account forever, and which ones could be traded away. Diablo 3 at launch had an real-money trading auction house, but it failed terribly mostly because people (including myself) wanted to play DIABLO THREE, as in DIABLO TWO JUST BETTER, and instead got something else that was fundamentally broken because the RTM AH impacted gameplay rendering it not fun. Some ideas were not bad.

The same game if launched today, by another studio, and not called D3, would probably be a huge success and considered a shining example of a play-to-earn game.

Artificial scarcity or not is an element that can be considered at a later date. For now consider the integration of web3 into a game as an Auction House similar to Warcraft’s own, that could be accessed from outside the game, and that would supports multiple currencies. It would definitively create some unwanted behavior (who hasn’t cornered seversal commodities in the Warcraft AH 😏), generally speaking higher pricing or at least stable across servers and closer to their optimal price… but doesn’t matter because as the controllers of the in-game economy developers could always spawn more items and inflate the market thus making sure the game remains fun.
I would also argue that scarcity dictated by (virtual) money is not fun and would 100% cause squatting/rent-seeking behavior, so focus on scarcity by skill (and here there are a plethora of options as gaming skills are multidimensional).

But because everything is fractal, it’s not just in-game items as virtual property that could be traded – the account itself should be something that can be sold. I recently stopped playing Warcraft and my mini-pet collection (top 250 worldwide thank you very much 😅) and virtual gold was worth few thousand US dollars – without taking into account the mounts and other rare items.

As a customer benefit, having a facility to sell my account would be great, and the devs would get a cut of that – but there is more, I would love to have the ability to move a game license from Steam to Epic (think of the game store as a wallet/bank, and the game license as currency, and users pay transfer fees to the devs every time they want to move – IMO win-win). The long term implications of how to price games are unclear to me at this point, but replicating the same rights I have over physical objects like books is something that the market is adopting, and at this point have tried for decades despite opposition from everyone (remember eBay banning trading EverQuest items?) but it has passed the tipping point.