The recent adoption of blockchain technology and cryptocurrencies in the gaming industry has introduced a new type of virtual asset that will likely be involved in the disputes of the future. How are cryptocurrencies and virtual assets like non-fungible tokens, or NFTs, being used in the gaming industry and what implications does this have for asset recovery professionals?
For those of us uninitiated, a blockchain is a decentralized record of all transactions across a peer-to-peer network. Put simply, a blockchain is a digital ledger of data that is controlled by a group of people, not a single individual. Each entry in the spreadsheet is open-source and can be viewed by any member of the group, but cannot be changed unless every member of the group agrees, giving the data an extra layer of security. It is most commonly used to log the transaction history for cryptocurrencies like Bitcoin - for which the technology was invented in 2009.
So how does a crypto database become a video game? Most crypto games work by logging each action a player takes in the game on a blockchain, though some are limited to only storing their in-game assets as NFTs. Though this may sound a lot like the microtransaction model being used liberally in the gaming industry today, the key difference with crypto gaming is that the in-game items are owned by the players themselves. This allows them to keep a permanent record of their virtual accomplishments; from quest rewards to purchased commodities.
Since blockchains are still a new technology, these games are mostly limited to the creation and trade of assets with simplistic turn-based gameplay mechanics. At the time of writing, the game with the highest number of active players is Splinterlands, a collectible card strategy game based in a fantasy universe. Players can expect to build up a collection of cards with various abilities and use them to battle other players. Cards can be bought, sold and traded like physical cards with the added security of the transaction having been recorded on the blockchain.
If you’re less into Magic: The Gathering and more into cute fluffy animals, you could try CryptoKitties, where players collect, breed and trade digital artwork of cats with unique ‘Cattributes’. This game was the world’s first to be built on the Ethereum network, proving so popular upon launch that it accounted for 25% of all Ethereum traffic and prompted stability concerns about the network. However, since there’s not much to do with these cats once you own them, it’s active user base has declined since the creation of similar crypto games with more in-depth gameplay mechanics.
One such example is that of Axie Infinity. The premise: players buy, breed and battle virtual monsters called Axies against each other to earn in-game currency. This can later be exchanged for real world money, allowing players to gain from their time spent in-game. To participate requires users to own at least 3 Axies but the cheapest options still cost more than $100. This high price of entry does not seem to have deterred users however, with the game nearing 2m daily active users in October of 2021 and generating close to $2.3 billion in total sales in the three years since it’s launch in 2018.
The connecting thread between these three games is the ability to own the virtual assets for yourself. This gives you the means to trade your items at will with other users for fiat currency; traditional national currency backed by a country's government; and removes any interference with your items from game developers or cheat codes. Not only does this resale market add additional value to the assets outside of the confines of the game, as opposed to conventional in-game purchases that expire when the servers do; but the open-source nature of the blockchain means these sales are safely recorded which can help to prevent fraud.
That is not to say that blockchain games are free of criminality. Stolen funds can be laundered through the purchase of in-game items such as skins, coins and cards and exchanged for ‘clean’ money whilst the Crypto tokens and virtual assets themselves can be taken from user accounts via scams, hacking or in-person coercion. As it stands, the mainstream online gaming industry has little regulation with government legislation left struggling to keep up with it’s advancements. The same is true for blockchain gaming, if not more so. The complexity of the cryptocurrency industry proves to deter regulatory bodies from taking action in such a fast-moving arena. How the gaming industry navigates these issues will provide a useful case study for other industries hoping to adopt blockchain into their processes.
While the high barrier for entry and the technological limitations may prove to be a barrier for mainstream adoption for the time being, blockchain gaming is an interesting new use for the technology. Each crypto game creates hundreds, if not thousands, of virtual assets stimulating the economy in ways both positive and negative. As they continue to rise in popularity, don’t be surprised to find digital cats and monsters amongst your seizures some time in the future!
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