Tag: Video Games

The Blockchain Industry’s Next Catalyst: Video Games

By: Daniyal Inamullah

Since the introduction of Spacewar! in 1962, technological progress has had an intimate relationship with the growth of the video game industry. In the “Diffusion of Innovation: How the Use of Video Games Can Increase the Adoption of New Technologies,” the authors research the influence of video games on adoption of this tech, they note1:

“it is the degree of acceptance of the innovation that determines its success or failure … it should not only be accepted because it improves efficiency or quality, but it should be able to be integrated into society’s culture.”

Communication channels are a critical component of how fast technological innovation can be absorbed by society and become ‘normal’ in our daily lives. Drawing from the Spacewar! story, several technological revolutions occurred in the 1960s – all of which had a profound impact on revisions to the Spacewar! software code, applications in game console manufacturing, and expanding a programmer’s vision as they look to implement their next idea. These monumental innovations in the 60s include the first computer mouse, the BASIC programming language, LED, DRAM, and lasers2. Video games made innovation sexy (at least for certain segments of the population), and society demanded more following Spacewar!’s viral response.

The growth in popularity of cryptocurrency assets, prompted by the ICO craze at the end of 2017 opened the door for capital and talent to start seriously thinking about blockchain technology as a distinct asset class. I contend that the success of blockchain-based video games and media applications will be a critical driving force in mass adoption of the underlying technology. Let’s start.

A Short History of Video Games and Technology

The Spacewar! story presents the diffusion of innovation via the world’s first digital video game. One of the initial problems with the game includes the lack of computing power to model gravity’s affect on weaponry; however, programmers rushed to update the initial game software code and made improvements like adding the effect of inertia, scoring, explosion graphics, and even an application for games to be played on a VR headset3. The introduction of the game at MIT was observed, studied, and tested in computer labs all over the world. Games like Space Invaders and Missile Command became increasingly popular as people began interacting more with computers and assimilating them in their culture4. Play Spacewar! here.

Spacewar! Screenshot

Pong was a successor in the video game timeline. It was the first system to demonstrate that computers could be used by the average Joe. The game distinguished itself with its competitive element, breaking previous breakthroughs such as Lunar Lander, Mathematical Games, Oregon Trail that were focused on individual achievement. The game was an immediate commercial success and gaming consoles were shipped to bars, computer labs, and retail markets around the world. The success, however, did not come overnight. One of the creators, Nolan Bushnell, had previously built a coin-operated video game named Computer Space, which flopped due to its complicated controls. Pong was the first to combine the critical elements of a simple interface, amusing play, and easy to manufacture technology5. The success of the platform also motivated the release of the home game console in 1975; a hot Christmas item that pioneered a new industry. Play Pong Here.

Commodore 64 (“C64”), released in 1982, was one of the most successful home game consoles in history. The C64 boasted 64 kb of memory, had a large rolodex of games, a high-quality audio system, and was sold at a whopping price tag of $595! The C64 became a gateway for people to the world of computers, it enabled users to “play many games and … learn the programming language of computers …” by changing the way users interfaced with the gaming systems6.  The distinguishing feature with C64 was that you were able to control the processor directly, allowing users to garner an elementary understanding of software and hardware protocol languages. Another difference was with the marketing strategy. The prior norm was to sell video game consoles in computer stores, the C64 was also sold in discount stores, retail outlets, toy stores, and college bookstores. The natural trend from initial adopters spread to the general public – a sign of acceptance, excitement, and increased diffusion of gaming technologies.

Shatner Pitching Commodore

The US introduction of the Nintendo Entertainment System (“NES”) in September 1986 (which followed the 1983 success of Nintendo’s Famicom model in Japan) illustrates how the mass success of prior video game consoles created industry economies of scale for future iterations. The NES retailed for about $90 (plus $10 if you wanted Super Mario Bros). Even the action set (including the duck hunt gun, a controller, and the legendary dual Super Mario Bros and Duck Hunt game pack) retailed at $150, materially lower than C64’s $595 price tag. The Nintendo value offering, not too different from today, was to offer affordable, high-quality gaming. Nintendo imposed strict controls on its branded games and products in order to avoid the pitfalls of Atari’s relatively low quality games7.

In 1989, Nintendo made another splash releasing its 8-bit handheld video game system. What buoyed Game Boy to be one of the most successful products was timing – the late 80s exhibited the first generation of mobile technology (such as the introduction of CDs, the Walkman, cell phones, etc.) and a new generation of media entertainment (cable television, answering machines, personal computers, etc.)8. In just 27 years, the video game industry trended from a small class of individuals (programmers / scientists) to an almost $5 billion (equivalent of ~$9 billion today) global market9.

Since the Game Boy, the industry grew by expanding connection between players, improving graphics processing capabilities, introducing new types of gaming devices, and increasing the speed of game play. Doom’s release in 1993 improved visuals and game play leaps and bounds past its predecessor Wolfenstein 3D10. The catalyst for Doom’s adoption was a feature to play others in a co-op / deathmatch modes over a network. This also coincided with the release of the world wide web in the early 90s; gaming became an incredible bridge to future network architecture.

Along with the expanded network, PlayStation and Nintendo began their war over control of the console market. The competitive decisions from each side demonstrated differing opinions of value on how the technologies could be utilized for a competitive edge. Nintendo built a technically superior machine, boasting a 64-bit CPU chip and 4MB of RAM. PlayStation, by comparison, had a 32-bit system with 2MB of RAM. Below is a comparison of each console’s value offering11:

N64 vs PlayStation

N64 PlayStation
Cartridge CD
Limited storage / shorter games Longer load times
Struggles with texture and CGI Pixelated images
Terrible controller but included an analogue stick + rumble pack add-on More comfortable grip and sturdy
Super Mario 64, The Legend of Zelda, Goldeneye 64, Perfect Dark Tekken, Metal Gear, Tomb Raider, Gran Turismo, Final Fantasy

 

The debate between the two consoles was shaped by various business models, technological improvements, and game theory. The market’s invisible hand pushed the industry forward by rewarding consumer research and pushing capital towards innovation.

Today, the market is expected to grow $16 billion each year and gamers from around the world will spend an estimated $138 billion during 201811. Given the sheer size of the industry, niche markets can blossom and companies in the space can earn their investors a solid return given the pace of industry growth. Microsoft’s entrance in 2001 emanated a new battle with Sony over who will be crowned king of the home entertainment system market. The competition started with the rush to achieve dual capabilities – play video games and DVDs (this is also the predecessor to the popular adage – Netflix and Chill). This morphed into competing to which system can play Blue Ray, use Netflix, XBOX Live versus PlayStation Network, TV offerings (PlayStation VUE), motion-based gameplay (WII), VR capabilities, mobile gaming (PSP vs new generation Game Boys), and so on.

While I have certainly missed some evolutions in between, one of the current trends is a shift to an online-only model. Games such as Fortnite, BioWare, and Fallout exemplify a shift where gamers have a more intimate relationship with developers. BioWare’s general manager Casey Hudson noted in an interview with The Verge “We thought, what if we have a game where the whole point of the experience is for everyone to talk about what’s going on right now?12

This model also necessitates a re-thinking of a video game business’s economics. The following questions demonstrate how technological breakthroughs can propel businesses to adapt to innovation. How do companies make money when they need to pay for constant updates? How do they keep coming up with new ideas? Does that mean they need to hire a new team, and do I need to structure their compensation differently? Is the world ready for subscription models for the video game industry? What would be the impact of a single bad release? How do we evolve? Will Fortnite’s free user model continue to work in the future or will they also need to adapt? What technologies will emerge in the future that may displace current projects?

The Future of Gaming Technologies

Given the intimate history between technological progress and video games, a short examination of some of Gartner’s top 10 strategic trends may point us in the right direction for the next generation of gaming13:

  • AI – Gamification may enable AI to learn in different ways, researchers at Open AI used a rewards-based system to study the impact of intrinsically-motivated deep learning14.
  • Augmented Analytics – Just as Netflix initially catered to common TV shows / movies and then moved on to produce their own shows by data mining consumer taste and size, these capabilities will likely be implemented to produce better games and interface design for next generation tech.
  • Immersive Experiences – Evidence of this trend is illustrated by the move to VR headsets such as the Oculus Rift.
  • Blockchain – There exist many applications for video games using distributed ledger technologies such as security for servers, digital id applications, and establishing transaction protocol in digital environments. As a result of blockchain technologies, the economics between gamers and developers may start to converge.

How Blockchain Technology Fits

Today’s most popular crypto-related games include Blockchain Game and Alien Run – any of these applications would also work perfectly without any type of blockchain tech. Ultimately, there are three applications of blockchain in video games15:

  • Rewards;
  • Promotional / marketing; and
  • Gameplay modifiers.

The third category – gameplay modifiers – may be a key catalyst for mass adoption of blockchain tech in the video game industry. Dragon’s Tale is a great example of how cryptocurrencies can be tied in to modify gameplay. Dragon’s Tale presents an array of games to the player (some more gambling than puzzles); winning the game earns the gamer a BTC reward. The founder of Dragon’s Tale was quoted on his vision for the MMORPG16:

“What if there were a … world where everything that you see … that you touch … was in fact some sort of game. No traditional slot machines, card games, dice, but an RPG where your character advances by success at games of chance. Bitcoins rekindled that idea…”

Although the game essentially adds a digital poker chip to the equation, it was an early demonstration of how cryptocurrencies can be tied into gaming.

The success of CryptoKitties after its release during December 2017 shows us another example of how blockchain can be added as a gameplay modifier to improve the user experience. The game allows users to breed and trade digital kittens, like Tamagotchi meets Facebook meets E*Trade. By early December, the most expensive cryptokitty sold for 600 ETH (which was worth $170,000 at the time), although the median price was $917. Why? Ask people that bought Beanie Babies or Pokemon cards. More than 41,000 kitties have been sold and the game at one point accounted for almost 15% of Ethereum’s network power usage18. Based on their 256-bit genome, there are over 4 billion possible variations of cryptokitties. This proof of concept demonstrates the power of blockchain – digital identification tech merged with limits built into a game’s protocol opened the door to a new market.

Fortnite’s success demonstrates the potential for digital asset trading being commonplace – about 69% of Fortnite players (a free game to download and play) have spent an average of $85 to purchase in-game content19. The trading of rare items, unique avatars or gaming skins, in-game currencies, and even in-game private lounges illustrate just some of the unique applications yet to be discovered. Establishing a scarce resource with utility will be one of the fundamental drivers of crypto adoption. Imagine the ability to create your own weapons on Call of Duty, design soccer balls on FIFA, breeding a Pikachu that can Kamehameha, and trace cheaters through application of an immutable ledger. Open source software would allow users to create their own digital assets and sell them – forever changing the relationship between developer and gamer.

Why Gamers will be Critical for Blockchain Adoption

Gamers have historically been the first adopters for technological advances, I see no difference for the growth of the blockchain industry. The popularized monetization model takes advantage of bourgeoning demand for in-game items to an almost $50 billion industry20. There were an estimated 2.1 billion gamers worldwide and forecast to grow to 2.7 billion by 202121. The next generation is spending more and more time on their phones for communication, gaming, and business. As discussed in the history section, gamers are a lightning rod for technological progress and facilitate innovation shaping our culture.

Creating digital assets eliminates the need for a middleperson. GameCredits demonstrates how developers could get paid more and exponentially faster compared with traditional payment models. The idea of the project is to accelerate widespread adoption of decentralized cryptocurrency assets and empower game developers. This process can be replicated in a variety of industries such as legal, accounting, and supply chain. Gaming can be an important test case of how users will interface with the technology and how growth will be cultivated in terms of monetization strategy and user experience.

Who Should you Pay Attention to?

The following is a list of interesting crypto projects in the video gaming space. Disclaimer: This is not investment advice.

  • CryptoKitties: Discussed above
  • Enjin Coin: Platform to empower users with true ownership of their video game development project, fraud prevention, and marketing tool.
  • Spells of Genesis: Magic (the card game) on the blockchain.
  • MobileGo: Incentive / rewards system.
  • GNation: GameCredits above.
  • XAYA: Gaming platform to help games scale, prevent cheating, and eliminate fraud.
  • Ethbet: Old fashion gambling platform without house bias and instant awards.
  • FirstBlood: Competing in daily tournaments with an automated experience.
  • Refereum: Allows gamers to earn rewards for completing quests.
  • GTCoin: Allows gamers to buy game titles, hardware, and in-game content. Their Game Tester platform aims to close the gap between players and developers.
  • Loom Network: An application platform for developers to create scalable games and user-facing DApps built on the Ethereum network. Cryptozombies was a fun couple of days.

Conclusion

Catalysts for the next stage of the blockchain industry’s growth will be driven by both gamers and developers. As some of the above projects and others begin to take off, it will be interesting to see how the platforms interact with one another – will we have another Sony versus Microsoft versus Nintendo battle? Will power and resources be re-distributed to developers and the creative artists of our day rather than the brokers? I certainly hope so. In the words of Amir Taaki:

“Bitcoin was created to serve a highly political intent, a free and uncensored network where all can participate with equal access.”

Sources:

  1. Hernández, J. F., Cano, P. y Parra, M. C. (2017). Diffusion of innovation: How the use of video games can increase the adoption of new technologies. Sphera Publica, 1 (17), 25-46.
  2. Oxford, Tamsin. 6 Technologies to Thank the 1960s For (2009). https://www.techradar.com/news/world-of-tech/6-technologies-to-thank-the-1960s-for-650980
  3. Brandom, Russell (2013). ‘Spacewar!’ The story of the world’s first digital playing game. The Verge. https://www.theverge.com/2013/2/4/3949524/the-story-of-the-worlds-first-digital-video-game
  4. Spry, Jeff. Firsts: Spacewar! Was the World’s First Video Game. Syfy Wire. https://www.syfy.com/syfywire/firsts-spacewar-was-the-worlds-first-video-game
  5. Montfort, Nick. The Sweet Pong of Success (2000). MIT Technology Review. https://www.technologyreview.com/s/400695/the-sweet-pong-of-success/
  6. Mihelich, Peggy. Commodore 64 Still Loved After All These Years (2007). http://www.cnn.com/2007/TECH/ptech/12/07/c64/index.html
  7. Lupton, Jonny. A Brief History Of: The Nintendo Entertainment System (NES) (2018). https://www.funstockretro.co.uk/news/a-brief-history-of-the-nintendo-entertainment-system-nes/
  8. Brain, Marshall. 12 New Technologies in the 1980s. How Stuff Works. https://electronics.howstuffworks.com/gadgets/other-gadgets/80s-tech.htm
  9. Shapiro, Eben. Market Place; Differing Views on Video Games (1991). The New York Times. https://www.nytimes.com/1991/06/19/business/market-place-differing-views-on-video-games.html?sq=video+game+industry+1995&scp=4&st=nyt
  10. McCauley, Jim. A Brief History of Doom (2015). Prima Games. https://www.primagames.com/games/doom/feature/brief-history-doom
  11. Ell, Kellie. Video Game Industry is Booming with Continued Revenue (2018).
    https://www.cnbc.com/2018/07/18/video-game-industry-is-booming-with-continued-revenue.html
  12. Webster, Andrew. Fortnite has the Most Interesting Video Game Story in Years (2018). The Verge. https://www.theverge.com/2018/7/2/17525200/fortnite-storytelling-rocket-launch
  13. Garfinkel, Jennifer. Gartner Identifies the Top 10 Strategic Technology Trends for 2019 (2018). https://www.gartner.com/en/newsroom/press-releases/2018-10-15-gartner-identifies-the-top-10-strategic-technology-trends-for-2019
  14. Greene, Tristan. Researchers Gave AI Curiosity and it Played Videos Games All Day (2018). https://thenextweb.com/artificial-intelligence/2018/08/23/researchers-gave-ai-curiosity-and-it-played-video-games-all-day/
  15. Chandler, Simon. Video Games and Blockchain: New Experience for Players or More Profit for Developers (2018). Coin Telegraph. https://cointelegraph.com/news/video-games-and-blockchain-new-experience-for-players-or-more-profit-for-developers
  16. Sagar, Yayanand. Dragon’s Tale: Vision that Became More than Just Bitcoin Gambling (2017). News BTC. https://www.newsbtc.com/2017/05/11/dragons-tale-vision-became-just-bitcoin-gambling-platform/
  17. Chong, Nick. World’s Most Expensive CryptoKitty Sold for 600 ETH ($170,000) (2018). Ethereum World News. https://ethereumworldnews.com/worlds-expensive-cryptokitty-600-eth/
  18. Cheng, Evelyn. Meet CryptoKitties, the $100,000 Digital Beanie Babies Epitomizing the Cryptocurrency Mania (2017). https://www.cnbc.com/2017/12/06/meet-cryptokitties-the-new-digital-beanie-babies-selling-for-100k.html
  19. https://www.statista.com/statistics/748044/number-video-gamers-world/
  20. Curran, Brian. Blockchain Games: The Current State of Blockchain Gaming Technology (2018). https://blockonomi.com/blockchain-games/
  21. SingularDTV (2018). https://medium.com/singulardtv/how-video-games-helped-pave-the-way-for-cryptocurrency-f930521eef55