Crypto’s Native Frontier
0x3385
July 18th, 2022

For billions of people around the globe, Web3 represents an opportunity to realize a vibrant new digital world — one that isn’t designed and controlled by a handful of executives in the glass towers of primarily Western megacities.

It isn’t just about economic empowerment, either.

Web3 offers transformative potential that stretches deep into the realms of cultural identity, entertainment, and communication… and ultimately into the place where these concepts have converged for thousands of years: gaming.

The Crypto Revolution is going to reshape our world not because engineers in Silicon Valley are creating a new generation of user technology, but because Web3’s diverse participants are creating open infrastructure that people everywhere will use to build new worlds themselves.

Today, gaming is a $200B market composed of 3 billion gamers and the fastest evolving form of media in the world.

In order to understand why gaming will be a core frontier in the context of the social-technological revolution playing out today, we first need to explore gaming’s history and trajectory.

The Very Beginning:

Gaming is as native to human culture as language is (and in fact may even predate it).

Serving as an invaluable social mechanism throughout history, we’ve used games to bond, teach, develop our values, and make sense of the world.

The cradle of civilization that was the Middle East naturally saw the emergence of the first examples. In the 3000s BC, Mesopotamians played The Royal Game of Ur on beautifully painted boards, while the Egyptians played Senet.

Chaturanga would formally appear in India around 600 AD, though examples of its predecessors date back to 3000 BC. The Persians adopted it as Shatranj before European traders brought it over and turned it into Chess.

As far back as 2000 BC, Mesoamericans were playing a ballgame on courts. The activity was of immense societal importance, incorporated in rituals and used to resolve conflicts or even war.

This era also saw Ancient China develop Wei Qi — known today as Go — originally used to practice and refine strategic thinking. Later Chinese dynasties would also invent playing cards and dominoes.

Games have always held enormous societal significance across a variety of contexts — military, social, educational, and entertainment

We now think of it as an industry, but throughout the majority of our history gaming was an intrinsic activity that underpinned most of culture

We congratulate ourselves for our use of games to teach, train, and connect, when in reality humans have very effectively used games to do all of this for thousands of years

Today’s progressive gamification of society — investing, learning, working, collaborating — is really just a revival of an ancient behavior codified in our brains

Back to the Future:

German-American engineer Ralph Baer, inspired by the mass production and ownership of televisions as a key primitive, first envisioned a game that could be played on a home television in 1966. The following year, he and his colleagues at Sanders Associates invented a prototype system known as “The Black Box” — the first multiplayer console video game system, initially licensed under the name of “Magnavox Odyssey.”

This is an important point in the nature of technology: the creation of a new primitive (in this case, televisions) combines with an existing human behavior (gaming) to unlock a universe of new possibilities

The Odyssey would soon inspire its competitor Atari to launch its own video game in 1972/3, initially an arcade video game called Pong that would later be turned into a version playable at home.

Both the history and future of gaming are underpinned by social connections: yesterday’s arcades will be tomorrow’s metaverse

Leveling Up with Composability:

Atari broke new ground in 1977 by launching the Atari 2600 VCS that allowed users to switch out game cartridges via an external ROM slot. Though Atari built dozens of games themselves, their creation of generalizable gaming hardware allowed third-party programmers across the globe to design their own games for the console.

Other novel features included levels with increasing difficulty, scoring systems, and leaderboards, setting the stage for the communities that would soon form around games themselves.

New Entrants:

An intense wave of consumer demand, fueled by the launch of massively popular games like Space Invaders, was followed by a crash in the industry as excessive hype led to an oversupply of cheap games.

The crash wouldn’t last long, however, as a new (yet very old) powerhouse would rise from the East. Nintendo, founded in 1889 as a manufacturer of playing cards, launched a number of titles in the early 1980s that would shape the industry forever, including Donkey Kong, Mario Bros., Zelda, and other major titles.

Nintendo also launched its own console: the Nintendo Entertainment System (NES), featuring significant technological improvements relative to its existing peers.

In 1989, Nintendo made history once more by releasing the first handheld Game Boy – forever transforming the world of gaming and setting the stage for the mobile revolution that would come many years later.

As we’ll explore later, gaming’s biggest domain has shifted to mobile, paying homage to one of its earliest and most important innovations.

Consoles were never the endgame — they were the intermediate medium while the hardware and software caught up during a long period of intense development

Upgrading the Stack:

The console wars of the 1990s saw companies like Sega, Nintendo, and Sony battle for dominance as they leveraged a rapidly evolving technological ecosystem to develop increasingly sophisticated consoles and game franchises.

The technological explosion that engulfed the world in the ’80s and ’90s saw computers enter millions of homes

The tremendous increase in computing power allowed developers to supercharge their efforts, leading to the dawn of three-dimensional gaming experiences and online play.

As more homes came online, LAN parties became extremely popular, with players meeting up in person to compete by connecting to the local network.

The 2000’s saw a new era of console wars, this time between Microsoft (Xbox), Sony (Playstation), and Nintendo (Wii), with competition centering on graphics, quality of storyline, and, eventually, the online gaming experience. Marketplaces sprung up, allowing users to purchase titles or downloadable content, upgrade software, and communicate with other players.

Advanced open world games with simulated autonomous characters also became extremely popular as a predecessor to the digital metaverse boom we’re seeing today.

PC-based MMORPGs became a global phenomenon in their own right, competing less on graphics or story and more on community, digital identity, and portability.

The explosion in PC gaming offered a glimpse of what billions of users would ultimately prioritize in their gaming experiences

Going Mobile:

Decreasing computing and hardware costs allowed the global gaming audience to grow exponentially over the late 1990s and early 2000s.

Just as the prevalence of personal computers provided a new medium for the industry to expand into, so too did the billions of mobile phones produced in the late 2000s and early 2010s offer a new route for adoption.

Mobile gaming continued where PC-based gaming left off, prioritizing experiences that offered portability, simplicity, and community interaction.

The rise of mobile phones as the primary computing hardware used by billions of people saw the gaming demographic expand into casual players of all ages, with low-cost games spinning up to meet every user profile.

The market for mobile games was worth ~$120B in 2021 and is expected to triple over the next decade as the computing stack gets even better.

As with TVs before, the mobile transformation offers further proof of a recurring historical pattern: technological infrastructure introduced for one purpose tends to unlock astonishing value across myriad others

Blockchains will likely end up underpinning trillions in value across cultural and social use cases we have yet to imagine, extending well beyond the initial applications in decentralized finance

Beyond Gaming:

Just as the demographic has expanded tremendously over gaming’s first few decades, so too has its very meaning.

Two critical developments took place in the late 2010s:

1) The ability to integrate real world culture into the game itself

2) The creation of in-game economies for digital assets

Franchises like Fortnite were early pioneers in recognizing that online gaming was as much about the competition as it was about expressing social identity and connecting over cultural movements in an open, digital environment.

The industry’s life cycle has seen a steady convergence of social interactions and traditional gaming, with the former seemingly on track to eventually eclipse the latter in importance

Ultimately, Fortnite and others have become enablers of a new world in which the peripheral gaming experience often matters most: video streaming, chat, digital cosmetics, microtransactions, etc

Decentralizing Web2:

The rise of Roblox — a platform facilitating and hosting user-created games — represents another major industry development. Roblox boasts an incredible ~200M monthly active users, with over 70% of user sessions taking place on mobile devices.

Just as YouTube broke ground by making video content creation open to everyone, Roblox has turned players into builders (though most users are still only players).

Roblox includes its own in-game currency (Robux) that players can use to purchase items in its digital economy.

The Steam Deck is another fascinating development.

Built on an open-source operating system (Linux), the Steam Deck offers cross-platform capabilities for players to access games from a range of developers, as well as older games using emulation software.

The rise of Cloud Gaming is another emerging trend making gaming accessible to everyone.

Now, players don’t need to invest in expensive hardware to access incredible games anywhere in the world.

These colossal themes playing out are a major reason why Web3 makes sense as the logical successor domain for gaming: the ideological alignment is extraordinary

The shift away from expensive hardware and closed ecosystems, the proliferation of a rich social layer, and the quest for creative ownership are inevitably driving the industry towards a blockchain-enabled future

Play to Earn:

The blockchain revolution naturally started with financial applications, given the original purpose of Bitcoin itself was to create a peer-to-peer decentralized transaction system. So it shouldn’t be surprising that the tactics that worked early on in DeFi were soon applied to the world of Web3 gaming.

In particular, two areas saw the most significant amount of early adoption:

  • Blockchain-enabled marketplaces for in-game digital assets
  • Native gaming tokens that had in-game utility but more importantly served to reward early players

However, most of crypto’s early games have largely been built off-chain, with only the digital economies themselves (exchange and settlement) taking place on-chain.

Ultimately, these games crashed back to earth due to a few key problems:

  • Terrible gaming experiences centered on yield generation, inevitably attracting short term mercenaries
  • Poorly thought-out economies with native governance and utility tokens effectively programmed to go to zero
  • Closed-wall infrastructure that is neither composable nor interoperable

Where We’ve Fallen Short:

The approach to date has essentially been to take DeFi and build narratives with prehistoric graphics and storylines on top of it. Predictably, this approach fell into a dangerous purgatory, having failed to attract serious players or even durable traders.

The next phase of Web3 gaming is gravitating towards improved graphics and storylines, as well as better economic design

This new route won’t be a walk in the park either.

By competing on the DeFi front, games were effectively fighting for attention using yield. This strategy was nearsighted but admittedly worked in a market that could only go up.

By making graphics and storylines the new industry battleground, Web3 developers are taking on the traditional AAA studios who have an extraordinary head start.

More importantly, truly crypto-native solutions are less likely to get built this way. This approach feels a lot more like the late ’90s equivalent of taking every business and throwing “.com” in front of it.

Builders need to be wary of forcing crypto rails into unnatural use cases.

The other issue lies in making gaming an asset-based experience at its core, rather than a social one. By doing so, we create barriers to entry that can be exploited by developers, guilds, speculators, and other potentially malicious actors, thereby derailing crypto’s mission to empower the world.

If crypto-native developers want to win, they need to battle on home ground and on their own terms. Trying to beat the incumbents at their own game is a very challenging (and resource intensive) strategy

Building On Crypto’s Unfair Advantage:

The true renaissance will occur as we start leveraging crypto rails to redefine what gaming looks like.

Part of that centers on the gaming experience:

  • Interoperability across games so that players can transport their assets and inventories across different platforms without having to start over. This holds true for identity & in-game achievements as well
  • Trustless relationships between players that conceal strategy and/or protect identity. Zero knowledge technology will be incredibly powerful in enabling these use cases
  • Complete storage of game logic and state on-chain, removing persistent reliance on developers and creating total transparency around the equality of rules and accomplishments
  • Users can shape (and profit from) the direction of games through governance or direct economic ownership
  • Player inventories and identities become durable yet dynamic assets as they experience upgrades or depreciation
  • Games that exist in perpetuity, free from the constant threat that developers might shut off access

Another component concerns the construction of games:

  • By building games entirely on-chain, the creativity of users becomes an asset in itself as players can use open-source game logic and state to build extensions that capture aspects unique to their culture or real-world experiences
  • Rather than AAA game developers trying to interpret and incorporate local themes, players are empowered to organically design personalized environments that are infinitely more meaningful by leveraging on-chain primitives
  • The Atari 2600 encouraged third-party developers around the world to build new games by making the technological (and capital) hurdle minimal
  • Importantly, blockchains also provide a mechanism by which creators of user generated content can own their work
  • Using open-source, interoperable software to tear down the walls that AAA studios have built up will set the stage for incredible creativity to flourish around the world.

This version of reality makes winners out of us all

Expanding the Definition:

Another reason for infinite optimism concerns who gamers will be and what gaming will mean.

The rise of the mobile phone marked a critical turning point in bringing gaming to an exponentially larger audience: grandparents and children; teachers and athletes; artists and mathematicians.

The “what” changed as well.

Sophisticated storylines gave way to simple contests like puzzles, spelling bees, chopping fruit, and launching birds.

We’re likely to see that trend continue, with blockchains expanding deep into the domain of classrooms, board meetings, corporate training, sporting events, identity cultivation, and more.

The interoperable and composable nature of truly crypto-native games will see a wide range of opportunities for diverse individuals to contribute

Clothing designers who can build skins and outfits for open world environments; graphic designers who can craft remarkable new digital realities; musicians who can incorporate their songs into games, etc.

In an ideal world, the sustainable economies of Web3 games will center on organic user generated value, rather than utility tokens designed to inflate to infinity

Blockchain enabled gaming may well prove to be the reserve currency that connects our world through shared, immersive cultural experiences

Ultimately…

We’re likely to see hybrid experiments play out in the immediate term. Building compelling games entirely on-chain remains a significant technical challenge, so we can expect continued innovation around games that primarily live off-chain.

Further, expect to see sustained creativity around the question of efficiently recording state changes on-chain while preserving true decentralization and efficient performance.

Supporting infrastructure will be a particularly exciting field in the coming years:

  • Cross-game NFT marketplaces
  • Interoperability stacks
  • Identity primitives derived from in-game activity
  • Franchise discovery platforms
  • Low-code tooling / SDKs
  • On/off ramps and specialized wallets

While a number of very talented developer teams are trying to design rich gaming experiences in Web3 native fashion, it may ultimately be that we see a continuation of the trend of social and peripheral experiences outweighing the importance of deep storylines and stunning graphics.

If this proves to the case, however, the on-chain social layer will need to improve drastically. Yields simply aren’t enough to build a sustainable ecosystem of participants.

The decentralized future is incredible exciting, but we’ll only realize its full potential by building a world for everyone, by everyone.

History teaches us that the creation of a new technological primitive, when combined with innate human behavior, leads to incredible value creation, with gaming perhaps the most fundamental example of them all

Gaming is a universal experience codified into our brains across millennia of social interactions

We’ve previously explored how the crypto revolution represents a reversion to the earliest principles underpinning human commerce.

It’s therefore only natural that one its biggest unlocks sees us return to the roots of our very nature

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