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How Cryptocurrencies Could Transform Video Games -- Or Not

January 09,2018 05:22

At first blush, cryptocurrency and gaming would seem to compliment each other on some thematic levels. Video games, after all, are the vehicle by which many people got used to the idea of buying virtual goods with real money: it wasn't all that long ...


Dave Thier , Contributor I write about video games and technology. Opinions expressed by Forbes Contributors are their own.

(Photo by Dan Kitwood/Getty Images)

If you read the news one way, Blockchain and cryptocurrencies are going to change everything. The market may be cooling a bit from mid-December when all a company had to do to skyrocket its stock price was add "blockchain" to its name, but bulls in the space are still eagerly searching for ways to apply the relatively new technology to all sorts of different areas. Gaming -- long a pioneer in virtual economies -- is far from immune. There have been a number of gaming-focused cryptocurrency projects large and small that promise to bring the decentralized, trustless ethos of blockchain to the gaming world, though as always it can be hard to find the signal in the noise. But is widespread adoption of cryptocurrency in gaming a pipe dream?
At first blush, cryptocurrency and gaming would seem to compliment each other on some thematic levels. Video games, after all, are the vehicle by which many people got used to the idea of buying virtual goods with real money: it wasn't all that long ago that people were doubting that a company could make any money selling virtual cows in Farmville, and now people are speculating with tens of thousands of dollars on cryptokitties. On top of that, nearly every game with an in-game economy already functions with its own kind of virtual currency -- gold, diamonds, credits, etc. -- that players buy with real money. It's a one-way street, and so we're still a long way off from a real currency -- you can buy Candy Crush Gold with USD, but you can't buy USD with Candy Crush Gold. Still, some of those building blocks would appear to be in place.
Michael Pachter of Wedbush Securities notes that there would seem to be some benefits to a theoretical cryptocurrency adoption, at least from the gamer's perspective. The biggest is portability: if multiple games were to all of a sudden start using the same blockchain, gamers would be able to use the same money in different games, offering a great deal more flexibility than a system where every game has its own currency. You could also sidestep credit cards, which are still how most video game micro-transactions operate. That could be big in developing markets, though it pre-supposes a wider adoption.
"The latter is not that big of a deal for existing gamers (most have credit or debit cards), but could expand the market beyond the current base," Michael Pachter.
The benefits to gaming companies, however, are less clear. The rampant speculation that's become endemic to the cryptocurrency ecosystem could add a massive complicating factor that a developer or a game might just not be equipped to deal with, and the looming possibility of crashes would be threatening to long-term plans. A developer might find themselves with a popular game based on a plummeting coin, meaning that it could be losing money even as it gained players. And that portability would be sure to make lots of companies nervous: there's a reason that we haven't seen systems like that before, and it's because developers are afraid of letting people take their money out of their ecosystems whenever they want.

Candy Crush Saga. PHILIPPE HUGUEN/AFP/Getty Images

"The problem is bigger across games. It’s do-able, but free-to-play publishers live in the dream world that players 'only' play their game and not others," says Pachter. "They don’t perceive a need to allow players to 'cash out.'  Think about it like a slot machine, where you can take your money at any time.  Gambling houses figured that out decades ago, but game companies haven’t yet. You can’t even use gold across games published by the same company (like King games—Candy Crush, et al.).  Yes, they should figure it out, and no, they won’t.  The publishers fear that if they let a gamer cash out, he’ll leave and never come back; if they require the gamer to keep the cash in the game, they’re more likely to spend it."
If King can't even be convinced to let you spend Candy Crush Saga Gold in Candy Crush Soda Saga, it's easy to see how a more ambitious system could run into roadblocks.
One of the main benefits of cryptocurrency is that speculators -- and potentially gamers -- could see a real cash return on investments of either time, resources or money. There have been plenty of tiny games that reward players with small amounts of Bitcoin, after all. But inserting such systems into a bigger game could be a good way to place a lot of risk at the developer's doorstep with most of the benefit going elsewhere. Convincing reputable developers to take the plunge would be a real challenge for any gaming-oriented coins, though at least one established developer is working on its own coin: the somewhat embattled Crytek is hoping "crycash" might garner some new players for its free to play game Warface. 
David Cole of DFC Intelligence is skeptical of the entire space, suspecting that it may be long past its prime for investors or potential applications. It's worth noting that we've been here before: Steam recently stopped accepting Bitcoin as a form of payment both because of skyrocketing transaction fees and a level of volatility that makes it hard for any company to run a non-speculative business. The former problem is specific to Bitcoin, the latter is not. Still, while the benefits for established companies like Valve are nebulous, cryptocurrency might be a better proposition for newer developers and games.
"It seems to tie right into that gaming demographic audience, and it is somewhat of a game," says Cole. "Games are doing a ton of stuff on virtual goods, selling items and really trying to figure out the most effective way to build consumers. And cryptocurrency, the whole idea is that more and more places are going to adopt it. Free-to-play games are going to be one of the first places to do that."
The vendor-side complications, the risk and the volatility just make it a tough proposition, Cole says. The problem, to some degree, is that it's actually relatively easy to imagine a future system where tons of different virtual economies run off a single decentralized cryptocurrency, and that future holds many interesting possibilities for how players and developers create and distribute content. How we get there, however, is much harder to conceive of. Right now, cryptocurrency needs a hit to make it in gaming: a new, novel game that both uses the concept in an interesting way and packages it with a successful game to boot. Without that, it's hard to see how this works.

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