Web3 gaming: What is it and where does it stand?

Whenever a novel technology arrives, big industry players get keen to experiment with it and try to implement it into their own products. From finance to medicine, blockchain has seen it all. Today we’ll talk about blockchain technology in video games, whether it’s an experience built from the ground up or an application of the tech to already existing projects.

What is Web3 Gaming?

Web3 gaming refers to decentralized projects where players have ownership of in-game assets, like a skin for your character or a rare item. In traditional gaming,  in-game digital assets and, ultimately, all the rights to them, are owned by the developer on centralized servers . They only give players permission to use them.

Primarily, Web3 games focus on play-to-earn mechanics by using cryptocurrencies and NFTs. They are based on decentralized networks like Ethereum or Solana, which guarantee verifiable ownership and give greater control to the players and their in-game items via crypto-secured gaming wallets. Besides items and currency, crypto wallets hold user identity as an alternative to regular accounts in traditional games.

Types of Web3 games

The first game to use blockchain technology was CryptoKitties, launched in 2017. Players would buy NFTs, each of them representing a virtual pet, which could be bred with others to create new NFTs.

Shortly after its launch, the game’s transactions made up 30% of the traffic on the Ethereum blockchain.

The Sandbox is another example of a blockchain game, which was released in 2018. It gives the opportunity to create in-game items and sell them to other players using game-specific cryptocurrency.

Axie Infinity, one of the most popular blockchain games by Sky Mavis, is a play-to-earn game which lets players buy and improve in-game NFTs via various actions. Those NFTs can later be sold to other game users by the developer. As a reward, a player that has worked on such an NFT gets compensation for their gaming assets in crypto as a part of the game's economy.

The game gained a lot of popularity during the pandemic. About a third of the project’s user base came from the Philippines, where some people even provided for their homes by playing Axie.

Following a hack in early 2022, during which Sky Mavis lost around $625M, the game's popularity expectedly dropped. Since then, the developers have removed all mentions of “play-to-earn” as the value of their tokens has plummeted.

The role of smart contracts in Web3 gaming

Smart contracts define the “rules” when it comes to blockchain games: all the logic and economy is written in them. That means that every player can see all of the transactions between other players, or, even better, the source code of the new features that the game developers have implemented, to make sure  everything is fair — for example, in terms of balance.

That is obviously a great advantage over traditional video games, where users don’t have any access to the source code of the project and can only experience or see the changes implemented in the game itself.

But the other, darker side of this transparency is that bad actors can take a look under the hood too, learn the architecture and the code, and like in the case of Axie Infinity, rob the developers and players of hundreds of millions of dollars.

Do gamers like blockchain?

Starting from 2021, big video game publishers like EA and Ubisoft tried implementing blockchain tech into their games and even stated that NFTs and decentralization were “the future of our industry.” Such statements received heavy criticism from the gaming community, resulting in abandonment of the planned features to be included in already released games, and even canceling entire games based on the distributed ledger technology.

Steam, a digital storefront service for PC games owned by Valve, banned blockchain games from being sold on the platform in October 2021. This came as an extension to their policy of banning games that held in-game items with real-world value.

The CEO of Valve later elaborated on the decision and said that while he believed that blockchain technology was legitimate, there were “too many bad actors in the market to allow cryptocurrency or NFTs onto Steam.”

Even without the bad actors, developers didn’t understand at the time how to integrate blockchain without any repercussions. After in-game customization items – “Digits” based on the proof-of-stake Tezos cryptocurrency – were added to Ghost Recon Breakpoint, players noticed that Ubisoft had outlined in their terms of service that the company carried “no liability” and was aware that blockchain “may be subject to specific weaknesses, which make them possible targets for specific cybersecurity threats."

Following an audience backlash, Ubisoft removed the announcement video from their channel and stopped “Digits” support in March 2022 altogether. It has since backed out on NFT plans.

It is safe to say that gamers don’t like to be bothered with NFTs implemented into their favorite games: clearly for them, the goal of the publisher is to earn more money rather than give full ownership to the players and remove central authority.

Industry veterans shifting into Web3 games

Dan Houser, a co-creator of the second best-selling game of all time — Grand Theft Auto V, has invested in a blockchain game development company called Revolving Games and joined the advisory board.

The team is currently working on a licensed Battlestar Galactica Eternity MMO blockchain strategy and an adventure role-playing game called Skybourne Legacy. Revolving has already raised around $20M for its decentralized gaming projects.

Peter Molyneux, another game developer famous for the Fable franchise, shifted to decentralized space in 2021 with his NFT-funded game Legacy, which is set to be a “blockchain business simulator.”

By the end of the same year, it had sold more than $50M worth of in-game land. The most expensive piece of digital property in this virtual world named “London” was sold for $900K. All of the sales were made through LegacyCoin, a cryptocurrency created for the game based on the Ethereum blockchain. Legacy is still in development and doesn't have a definite release window.

Web3 gaming as a separate entity

With the rise of scalability solutions for the Ethereum blockchain and many other factors, the Web3 gaming sector is expected to grow up to $65.7B by 2027.

While gamers don’t like when their games are fiddled with for questionable applications of innovative technology, leading publishers have demonstrated their utmost interest in blockchain tech. The most likely scenario is that blockchain-based gaming will create a segment of its own, like mobile games have over the past decade, rather than change the existing rules of the established video gaming industry.