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by Christopher Tozzi, Mar 13, 2018

Using Blockchains to Transform Video Game Economies


Video Games

In essence, digital currency has existed within the video game industry for years. Traditionally, however, game players have faced strict limitations in their ability to gain real-world value from in-game payments. 

With the help of blockchain technology, that may be set to change. Startups and enterprise video game companies are looking to blockchain-based tokens as a way to bridge the gap between in-game rewards systems and the real-world economy.

Such a transformation could introduce radical changes to the way players experience the games they play. It also stands to enable a more lucrative rewards system within games and, by extension, evolve video gaming from a primarily recreational endeavor to one that offers real financial compensation to successful players.

Traditional In-Game Coins

Long before the blockchain revolution spawned massive interest in digital currencies, video game developers were integrating digital coins into their games.

“World of Warcraft” allows players to earn virtual gold, which can be used to purchase items within the game. The online edition of “Dungeons and Dragons” offers electrum and platinum currency units. “Pokémon” players can trade in “Poké Dollars.” Recently, Microsoft announced the introduction of a new in-game currency for “Minecraft,” called “Minecraft Coins,” which can be used to purchase features within the game.

These are just some examples. Wikipedia offers a much longer list of in-game currencies.

The similarity between digital currencies within video games and blockchain-based cryptocurrencies is limited. However, both categories of currency share the core characteristic of enabling users to purchase assets — whether physical or virtual — using currency that is not dependent on traditional financial institutions and whose value is determined independently of fiat currencies. In this sense, currencies within video games served as a precedent for the cryptocurrencies of today.

In-Game Economy Limitations 

Yet one crucial difference sets in-game currencies apart from cryptocurrencies: The extent to which in-game currency can be used to purchase goods and services in the real world is very limited.

In a handful of cases, video game companies have experimented with attempts to increase the real-world value of in-game coins by making it possible to use the coins to purchase items that are external to the game. The game developer Blizzard has begun accepting “World of Warcraft” gold for purchases within other games that it sells, for example. “World of Warcraft” gold can also be used to pay for subscriptions to other games.

In-game currency exchanges also exist. They allow users to trade in-game coins for fiat currency, in a fashion similar to cryptocurrency exchanges like Coinbase or Kraken.

However, the extent to which in-game economies can be integrated into the real-world economy is still limited. Most games don’t offer the ability to purchase external items using in-game coins, and those that do provide very limited external purchasing options. In addition, although in-game currency exchanges make it possible to trade some in-game coins for real-world money, only the most popular games are supported and there is no guarantee that sellers will be able to find buyers for their in-game currency.

On top of this, fraud is widespread within video game economies, which makes trades risky.

All of the above mean that in-game economies remain mostly isolated from the real world. Except in limited cases, players who earn in-game coins cannot reliably or securely transform their earnings into something that holds value in the real world.

Blockchains, Cryptocurrencies and Out-of-Game Economies

Blockchain-based cryptocurrencies provide several crucial features that game developers could leverage to bridge the chasm between in-game economies and the real world:

  • As digital currencies, most cryptocurrencies can be easily integrated into any game without having to rely on financial institutions to process transactions.
  • Many major cryptocurrencies are designed to support any kind of transaction. Their usability is not limited to specific contexts, such as one application platform or one game.
  • By recording transactions on the blockchain, crypto payments significantly reduce fraud risks.

By taking advantage of these features, gaming companies could replace traditional in-game currencies with cryptocurrencies, which are much more readily usable in the real world.

Efforts are already underway to use blockchain-based cryptocurrencies in this way. Some of them are the work of startups in the blockchain ecosystem, such as DMarket, which aims to create a universal cryptocurrency for use within video games. Tap Project has a similar goal. 

From the other side of the industry, at least one enterprise video game company is now experimenting with blockchain-based payment systems. Ubisoft recently announced research projects in this vein, although the company has so far offered few specifics about what it might develop.

Bitcoin.com has also reported that Jeff Burton, a co-founder of Electronic Arts (EA), is working with the blockchain educational startup BitDegree. That does not mean that the gaming company is necessarily interested in cryptocurrencies, but it’s a sign that blockchain technology is likely to be on EA’s radar.

Getting developers from multiple gaming companies to sign onto universal gaming is a major challenge. It is also unclear whether a blockchain-based initiative from a single enterprise gaming company, like Ubisoft, would be able to transform the entire industry.

Still, the opportunity for blockchain-based currencies to transform the meaning of in-game economies for video gamers is clear. As with many cryptocurrency initiatives at present, the major challenge lies in creating solutions that achieve widespread adoption; the solutions themselves are easy enough to envision and implement.