Introduction to blockchain applications in the gaming industry

An intriguing new world of decentralised technologies is well and truly upon us. Let’s demystify blockchain in the video-gaming industry.

Today virtually everyone has heard myths about blockchain technology and its disruptive effects for our social systems. We at BlockPegnio, share the same enthusiasm and ambition about the potential of the technology. However, we worry about the ambiguity and hype surrounding the actual use of blockchain in many facets of our lives.

This is where our series of blog posts come in, where we will try to briefly demystify blockchain in our familiar setting, the gaming and entertainment industry, along with our thoughts about the next day of this arcane technology. Our goal is to avoid the growing torrent of specialist jargon or radical approaches and discuss the business and technical implications of this technological frontier in a simple and understandable way. We hope you will find this collection of thoughts as a helpful tool to navigate through the hype and understand blockchain through the prism of a compelling, inclusive, and easy-to-understand application of blockchain in our daily life, such as gaming.

Blockchain in short

In case you are not familiar with the high-level basis of blockchain technology, we will start with a short overview of its principles and usage in the gaming industry.

Pioneered in October 2008, blockchain was the technology at the heart of the famous cryptocurrency, bitcoin, and it was used to record and verify the transactions between two parties through a payment method run by people rather than a third party. Since then, it has been used across numerous initiatives ranging from virtual currencies, industry-specific applications to enterprise networks. What makes blockchain a promising technology is the brilliant combination of economic incentives and cryptography, that can ensure a number of data qualities for the information stored in the network.

For the sake of simplicity, let’s consider blockchain as a database, that is being distributed across multiple participants of a network. Each of those participants also has access to its complete history as well.

This database is also:

Distributed — each party on a blockchain can verify the “truth” of the information.

Decentralised — each party can transact with other members without the need for an intermediary.

Transparent — every data interaction is visible to anyone with access to the network.

Immutable — every transaction cannot be altered once executed, as it is linked with a “chain” of past transactions.

(almost) Trustless — in every transaction you don’t have to trust the counterpart because the computational logic of the chain will protect you against bad actors (but you have to trust the code and the network you participate).

Those five pillars are not exhaustive by any means for the traits of a blockchain network, yet we believe they provide a sufficient overview of blockchain’s value proposition that is necessary for the rest of this article.

How exactly is blockchain technology being used?

In short, we can group the use of blockchain technology in gaming into three main categories.

Decentralised in-game assets

This category refers to the use of in-game assets that are stored in a decentralised blockchain network instead of an in-house server of a game development company. Back to our database example, all the game assets (such as collectibles, cards, swords, skins,etc.) can be shared between other games or every other application that uses the same network. This shift has several implications for both users and developers.

1. Players retain full ownership of their digital assets, as they are stored in their blockchain wallet. They can freely trade, sell and buy such assets from other players creating an exciting opportunity for player-led game economies. At the same time, game developers have no longer the power to alter the items that are owned from players — the player is in full control.
2. All the blockchain assets have a provable scarcity that enables a fair and transparent valuation. With the burgeoning user spending in the gaming industry, it is of paramount importance, both from an ethical and a commercial perspective, to be able to provide all the information about the value of game items transparently. To illustrate, we have heard many times that various game assets, such as a unique — legendary — skin, have sold for thousands of dollars. Now consider that the player has to trust the game developer that will act in good faith, and the legendary item will always remain “legendary”. With blockchain assets, everyone can have access to information including the creation date, the ownership history, the current supply, the maximum supply and many more interesting indicators.
3. Assets are inteoperable. They can “talk” with other systems and applications while retaining all the existing qualities. Game assets are becoming entries in a public database where multiple applications can have access and give them the utility they wish to. For example, a branded collectible in a finance application (e.g. a loyalty card) can become a sword in one game world, a shield in another one and so forth.

Decentralised interactions using smart contracts

The concept of smart contracts, initially described by Nick Szabo’s in 1997 and heavily influenced by the idea of Ricardian contracts, describes contracts that are written in computer code and allow the automated execution of the terms once the conditions are met. Similarly with real-world contacts, smart contracts are governed by terms that the parties agree before a transaction. However, smart contracts integrate all the contractual obligations in the cryptographic protocol to ensure that terms cannot be altered and the execution of the transaction does not depend on the good faith of the counterpart.

In the case of gaming applications, we use smart contracts in two situations. First, to create a safe environment for players to trade their game assets on a player-to-player basis outside of the game, and second to bring transparency in critical areas of gaming experience.

For the first case, smart contracts make decentralised marketplaces possible, meaning that the player can trade, buy, sell or even loan game assets without the intermediation of the developer and without the need for the player to know and trust the recipient. In traditional games, users can either trade their assets to receive credit for the same game (in the form of a game-specific pseudo-currency) or employ less secure and offer illegitimate manners to sell a whole account to another player. Blockchain can shed light in this area by bringing trust to player transactions and transparency to a considerably large and unregulated second-hand market.

As for the in-game activities, smart contracts can ensure players that no-one is cheating in the game economy. To illustrate, we can link the creation of an asset with a smart contract. This way, every player will know the origin and creation date of every item in the whole game. The developer can’t “destroy” the experience by over-creating and overselling items that were supposed to be of a specific rarity, and bad actors can’t wipe the game history after a hacking incident. And even in extreme cases where they will succeed, these actions will be posted on the blockchain network, and users will be informed.

Decentralised Computation

In a more advanced setting, developers might decide to host their game servers partially or fully in decentralised environments. This option is arguably the most challenging and unexplored, mainly due to the incapacity of existing technical solutions to meet the computational needs of modern games and offer and seamless experience for users.

Having a game server in a decentralised environment ensures, among a few others, that the game won’t shut down suddenly one day leaving the users stunned. Moreover, the decentralised computation can make the critical calculations of a game in a transparent and audit-able environment. But again, this option at the moment comes with a significant number of trade-offs that we believe outnumber the proposed benefits.

What we are experimenting with great interest in this area are hybrid solutions that can decentralise specific areas of the game “logic”, for instance, the generation of random numbers or outcomes, without altering the way the core game engine works with traditional servers. This will ensure players that a random event was truly random and the developer did not pre-determined a particular outcome in bad faith.

Why is the problem-solution approach flawed in most blockchain use-cases?

When it comes to the adoption of new technologies in existing markets, a common question from analysts, investors and often users themselves is “what is the problem that technology X tries to solve”. While we can acknowledge that such an argument helps to filter true innovative attempts from an endless ideation process, it is simply not compatible with blockchain technology for a very good reason.

In 2017, Harvard Business Review named blockchain as a “foundational” and not as a disruptive technology, as one would have expected. The ramifications of such a statement are that we can not rely on blockchain just to create solutions inside the silos of the existing paradigm. For example, blockchain won’t be the ultimate cost saver that will overtake the competition in existing markets. Instead, it will set new rules, social and business dynamics and a whole spectrum of opportunities.

In our case, the use blockchain technologies in the gaming industry won’t drive the operational costs for developers magically lower, nor the experience for users will become more entertaining per se (at least in the traditional product-quality sense). Instead, it will offer an opportunity to all stakeholders to re-think the gaming experience as a whole and design products creatively on top of the very same design pillars of blockchain technology, such as transparency, decentralisation and immutability.

A much better perspective to evaluate and discuss what blockchain can bring to various industries we believe is that of the opportunity envisioning. Rather than strictly look for decreased time, costs, increased margins and similar metrics, one should also focus on things that are not possible without the use of a distributed public ledger.

Blockchain in its core brings better data integrity, that can be used from both users and developers. In gaming applications, blockchain first and foremost has the opportunity to democratise and inspire trust in crucial gaming aspects. Considering the interest in online competitive games and e-sports across the world, ensuring users that this experience is as fair as possible is both legitimate and well needed. Secondly, blockchain assets will support the design of new interconnected and interoperable experiences, as the same assets can obtain a whole new meaning in different applications. Lastly, blockchain in gaming will shift the power dynamics in favour of the user. This new paradigm of digital ownership will allow players to get rewarded with real-world value for their achievements in the digital worlds, something that until recently was a privilege of only the development companies.

Why should you care?

At this nascent stage of adoption, we can agree that its really hard to predict whether and how this technological paradigm will prevail, and to what extend. Instead of watching the transformation happen, we invite you to come closer to blockchain technology, starting with any use case that better suits your needs and interests. If you regularly spend time playing competitive games, if you are developing applications with mechanics similar to the ones we described above, or if you are business thinker that tries to understand what blockchain can do to our status quo, then gaming is a fruitful land for your to experience and observe blockchain technology in this pivotal moment we are living.

We hope that after reading this post, you will understand that blockchain is not only about the financial industry nor just an investment opportunity for market speculators. As for the complexity that is inevitably incorporated when first discovering it, we believe it should not be enough to write off and ignore the technology in its entirety. Innovations like blockchain are always unpredictable and byzantine at first because they bring change in areas none could have predicted ex-ante, similarly to the advent of the internet two decades ago.