Good and Evil Ways to Tokenize Virtual Economies

“The token is only useful when the context exists.”

Crypto industry is slowly penetrating the gaming industry. From gambling to virtual real estate markets and war RTS. It has the potential to shift our perception of the virtual world and give real value to artificial things. But there is a long road ahead, the road that is, unfortunately, filled with scammers who want to make a quick buck on someone else’s expense.

Ultimately, I see two ways of integrating crypto in games: tokenizing the virtual economy and integrating crypto as a payment system. Today, we’ll dive deeper into the concept of tokenization, and next week will talk about the potential of in-game payments.

What is Tokenization

Tokenizing the virtual economy means delegating the virtual world’s system of ownership to the decentralized database, like blockchain. As a result, players can truly own products of the virtual world, trade them both inside the game, and outside.

How Tokenization Works

A token is a piece of information, stored in the distributed database. It can be the unique ID of a thing in a game, or a hash value of something in the game.

Thanks to cryptographic functions, only the person who has the signature key for the token, can transact with it. Transaction doesn’t have to be a transfer of ownership, it can be some sort of modification as well.

In other words, the token represents something and it can’t be tampered by anyone except the owner.

Keep in mind that the token is usually just a representation of something, not the thing itself. The token is only useful when the context exists, for example, a virtual world of a game.

Evil Tokenization

Both gaming and crypto communities should condemn such cases, instead of promoting them as “modern blockchain games”.


Dr. Evil designing the next blockchain game

Some developers go too far, making games with the sole purpose of creating tokenized digital assets. People, who are gamblers by nature, are attracted to “play” such games to get ownership of something that they could sell at a more expensive price if the demand grows. And usually, it involves “investing” money in virtual things, that do not exist outside of the developer’s world, and has not entertainment value as well.

Price is usually determined by demand and scarcity. Tokenization provides scarcity, so developers must guarantee demand for such virtual economy to grow. In the context of games, the demand usually depends on the entertainment value of a game. If it’s not worth time spent, the perceived value will soon vanish.

An example would be the virtual real estate market, where everybody can buy or sell a piece of virtual land. The game has no purpose except making money on someone else’s expense. It doesn’t contribute anything, it does not entertain. I am sure, people who bought into at peak prices will not enjoy the inevitable downturn.

Games like that only create bubbles, a temporary perceived value, and don’t differ much from the pyramid schemes (not by structure, but by purpose). Both gaming and crypto communities should condemn such cases, instead of promoting them as ‘modern blockchain games’.

Good Tokenization

…your kid could buy you a new fridge just for playing his favourite games…


Stormtrooper cosplayers on the street

We can all agree, that crypto shines as a universal system of ownership more than anything else. Such a system has the potential to connect virtual and real worlds by allowing seamless transactions between them.

Time has come for game developers, especially large studios, to start utilizing blockchains as a system of ownership inside their games, at least, partially.

Universal ownership is beneficial for both businesses and players. Businesses are getting new, more personal, ways to connect with their audiences. Players can now make time spent inside the games, economically worthwhile.

Let’s take a closer look at different types of exchanges that universal ownership system enables.

Digital-to-Digital Exchange

Developers could offer bonuses or access to exclusive content in exchange for in-game items, and it can also be a cross-game system. Imagine getting Far Cry 5 DLC in exchange for the rare item in Dota 2.

Sony PlayStation could provide redeemable achievements, from which you would get discounts for their platform exclusives.

Why would companies do it? Competition for player’s attention, advertising, cross-collaborations. Symbiotic games would get new ways to connect with players, while the latter would get nice bonuses if they stay in the borders of partnering ecosystem.

Digital-to-Physical Exchange

Brands could offer physical products or bonuses for in-game achievements.

Signed a hard-to-get sponsorship contract with RedBull in Fifa game? Redeem the in-game item to get a box of RedBull drinks, or keep earning more virtual money to buy better players for your Fifa team. And maybe sell some of them for something more healthy instead.

Money-to-Digital Exchange

As an example, charities could collaborate with game studios to motivate people donating for good causes. Cross-game cosmetic items for donations - one more connection with potential donors. Combine that with in-game crypto payments, that we’ll talk about in the next article, and imagine the audience reach charities would get.

Player-to-Player Exchange

The redeemability of virtual items automatically puts a price tag on them, creating the global market of virtual items across many different games and ecosystems. Combine this with a trustless decentralized exchange, like Tagion, and your kid could buy you a new fridge just for playing his favourite games… Or sell a fridge for the legendary Dota 2 cosmetics. It depends on the kid and the fridge I guess.

Conclusion

Games should be about entertainment, not about making money. Creating a fun game is hard by itself, shifting focus towards a sustainable in-game economy makes it a practically impossible target to hit. So instead of trying to create complex virtual economies, that are practically useless, we should focus more on giving players more control over their virtual things and capitalize on new business opportunities it creates.

I am eager to hear your ideas on how tokenization could make games better and what other business opportunities it would open? Please, share in the comments.

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