web3 gaming hero image

Web 3.0 in Gaming: Play Time’s Over for Web 1.0 and 2.0

Gaming has undergone a loss of innocence in recent years. As it evolved from niche subculture to mainstream entertainment, the industry grew obsessed with controversial pay-to-win mechanics such as loot boxes and microtransactions.

These strategies give a “leg-up” to players who are willing to pay with real-world funds or in-game currency, giving them faster or exclusive access to specific features. At the same time, publishers use their games as channels to collect user data for monetisation purposes without rewarding players with a better customer experience.

And when these games terminate service, all progress and achievements attained by the players are lost. As GuildFi astutely puts it,

“Value is extracted from the creator instead of being shared with them.”

All this is set to change. Web 3.0, or Web3 for short, presents the potential to reverse the direction that the cogs of gaming currently turn. Powered by cryptocurrency, the blockchain, DeFi, NFTs, and DAOs, Web3 seeks to empower players. No longer will the progress made in one game be lost to time. And neither will the adventure be locked behind paywalls. Power and ownership are firmly back in the grip of the players’ hands.

In this article, we will look at the intriguing opportunities that Web3 opens up in the world of gaming. Below is an overview of what will be covered:

  • What is Web3?
  • The problems with Web 2.0 gaming
  • Web3 in gaming

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What is Web3?

Web3 is the latest version of the World Wide Web (WWW), or the Internet’s key information retrieval system. It is the immediate successor to the current Web 2.0 iteration.

Web 2.0 is the WWW version with which we’re most familiar. Since debuting in the early 2000s, Web 2.0 overhauled how we used the Internet beyond merely view-only webpages. This version of WWW introduced functions like interactivity, social connectivity, and user-generated content to the Internet.

And now we have Web3. While it has not entirely overtaken Web 2.0 yet, it certainly carries the potential to radically transform the Internet as we know it. According to Investopedia, Web3 is defined by the following core features:

  • Decentralisation: Information is no longer stored in a central server (HTTP). Instead, it is contained in multiple locations at the same time. 
  • Trustless and permissionless: Web3 will run on blockchains and/or decentralised peer-to-peer (P2P) networks. This removes previously endemic restrictions to Web 2.0, such as the need for a trusted intermediary and permission from a governing body.
  • Machine learning: Web3 will use machine learning to enable computers to produce faster and more relevant results. 
  • Connectivity and ubiquity: Web3 will make information and content more widespread, connected, and accessible.

As a result of these key features, expect to see Web3 readily employing cryptocurrency-related technologies – think the blockchain, distributed ledgers, and decentralised finance (DeFi). 

This is already in play, as Forbes identified in its report on the top two tech trends in 2022. Specifically, non-fungible tokens (NFTs) are recognised as a critical product of Web3 that has gained massive popularity. NFTs pave the way for content creators to “mint”, own, sell, and get paid for their content without being regulated by a central authority.

The principles and technology behind Web3 are increasingly channelled towards gaming, offering gamers an immersive experience that returns power and autonomy to their hands.

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The problems with Web 2.0 gaming

Before diving into the specifics of how Web3 will shape the gaming world, it is imperative to consider the endemic issues to Web 2.0 gaming. On the whole, Web 2.0 gaming is notorious for its hyper-centralised and exploitative data models that do not favour gamers.

Below are two key issues with Web 2.0 gaming that we’ve identified:

1. Lack of ownership

Take miHoYo’s fantasy role-playing game Genshin Impact as an example. Set in the world of Tevyat, Genshin Impact runs on the premise of collecting characters and weapons. You will build up a sizable collection of characters and weapons when you’ve played this game long enough. 

Yet you don’t own these characters and weapons. Outside of the world of Genshin Impact, these characters and weapons carry no value. And this is a problem not only confined to Genshin Impact. 

Many games developed on the Web 2.0 infrastructure run on the same premise: what you earn and achieve in a given game remains in that game. You cannot transfer these assets for use elsewhere.

Games, therefore, become walled gardens, where earned assets are confined in their source games. This problem takes on an especially cruel edge if the game is an online one – the developer could end service for the game at any time, obliterating all progress made by players in one fell swoop.  

As our managing partner Jenny Lee described in her podcast episode on NFTs in gaming,

“When you think about the fundamental gaming experience, you spend so much time and effort creating [and boosting] your game characters. […] That IP or creation is not transferable, it doesn’t allow you to continue [creating] value or [sell] outside the game.”

This lack of ownership in gaming renders players powerless, with no real means of recourse when their games shutter.

Gaming companies tend to be walled gardens – that’s their original DNA to keep things in-house, to control the gameplay experience. And so something like NFTs that want to democratise their in-game assets, it’s against their DNA. They prefer to be closed ecosystems. 

Some folks think this is a scam; it’s very polarising runs the gamut. They’re wary because interoperability cannibalises their current revenue models. They need to think further. 

2. The proliferation of black markets

Continuing the earlier example of Genshin Impact, some unsavoury players have turned to the black market to monetise the game’s digital assets illegally. The game runs on a gacha system, where an in-game premium currency is exchanged for random chances to obtain premium characters and weapons.

While the currency can technically be obtained for free, you can purchase it with real-world money. Due to this, a player’s account is deemed more ‘valuable’ the more premium characters and weapons they own. Such accounts have become targets by black market operators, who hack their login information and sell them to other players for real money.

As before, such black market practices are not unique to Genshin Impact. Done in violation of the games’ terms of service, the developers do not stand to benefit from them. Where in-game items are transferable among players, black markets are built around their illicit trade.

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Web3 in gaming

Web3 seeks to end the problems linked to Web 2.0 gaming by redistributing the power that developers once monopolised. As our Vice President Dimitra Taslim explains,

“Play-to-earn fundamentally changes the distribution of economic power among different stakeholders in the gaming ecosystem…specifically giving more influence into the hands of the gamers who, arguably, make a game valuable in the first place.”

In so doing, Dimitra believes that Web3 will return gaming to its roots, allowing players to explore and adventure without being restricted by predatory practices. This all boils down to non-fungible tokens (NFTs), a core tenet of Web3 that enables digital assets to be tokenised, owned, traded, regulated, and shared across multiple ecosystems.

Below are four key ways that gaming will be improved because of Web3:

1. Allows players to take true ownership over their digital assets

The non-fungible nature of NFTs means that real ownership in a digital world can occur. NFTs enable players to convert in-game collectables and artefacts into assets with real-world value, serving as representations of real-world objects. Players can retain ownership over their assets even if their games shut down.

2. Enables cross-platform transactions with cryptocurrency

As NFT-based gaming assets have real-world value, players can trade them and potentially earn from the transactions. With these trades occurring on marketplaces dedicated to the games, developers will be able to profit from them.

These transactions are fully transparent and recorded on a digital ledger that is publicly accessible.

3. Makes gaming a secure and permanent experience

With Web3 and NFTs operating on the blockchain, all in-game assets are unique and cannot be duplicated or destroyed. As game assets are essentially NFTs, they will remain intact even when the game is shut down abruptly. 

4. Enables interoperability across different games

Given that NFTs are designed to be transferable across the blockchain, game assets can thus be shared across different games. With such interoperability, the gaming ecosystem becomes open-sourced as game assets are no longer restricted.

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Axie Infinity: A Case Study

representation of nft gaming
Image credit: Axie Infinity

Axie Infinity is one such game that has already put Web3’s precepts into motion. This digital pet-themed battle royale runs on an economy wholly owned by players, where they can seamlessly sell and trade their digital pets (eponymously named Axies) for digital currency.  To enable this function, Axis double as NFTs that are tradeable outside the domain of Axie Infinity.

Axie Infinity also has its own in-built currency called ‘Small Love Potion’ (SLP), which is integral for breeding new Axies. Earned by winning battles in the game, SLP doubles as a crypto coin that players can trade on cryptocurrency platforms that support it. SLP has a self-regulating supply; upon starting an Axie breeding process, SLP is consumed and permanently removed from the cache. 

Apart from SLP, Axie Infinity also uses a governance token called Axie Infinity Shards (AXS). AXS is the currency used for staking and buying Axies off the marketplace. 

All stakeholders stand to profit from Axie Infinity. Both the game publishers and the players themselves gain rewards from their trades in and out of the game. 

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Web3 will revolutionise gaming

Web3 doesn’t just herald the onset of a new Internet. It also signifies the dawn of a new age in gaming, one that promises to empower gamers. With NFTs enabling the play-to-earn model to upend the traditional pay-to-win strategies, we look forward to seeing Web3 continue to reshape the parameters of this endlessly creative and innovative industry.

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