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Web3 Games: Emergent Future or Broken Promise?

Shirley McPhaul

24 May 2024 • 17 min read

I hate this article.

Well, “hate” may be too strong of a word, but for someone who has been advocating for Web3 Games since 2021, the truth is that the process of research and writing was both painful and enlightening.

Let me tell you why.

Just to be clear…

I believe humanity deserves a decentralized Web.

This belief is deeply rooted by my own lived experiences, as I have had the privilege of being a World Wide Web resident since c.1998, a gamer since long before that, and an avid social media user since MySpace and in-game comms were a thing back in the day. In short, I have experienced the web in all of its forms, making the ideological discourse behind the “Web 3.0” both captivating and impossible to ignore.

As a matter of fact, the ideas that knowledge should be accessible to all who seek it, that access to the web should be a human right, and that digital creation, specially video games, should be universally accessible as tools of cultural expression, are just some of the beliefs that drove me back in 2018 to become a vocal proponent and educator of the cultural, political and economical value of video games, and that in 2021 drove me to do the same in the blockchain/Web3 space.

However, life happens, and last year my life took an unexpected turn, forcing me to withdraw from everything

Now, as I re-engage with both the video game industry and the Web3 space, I find that a lot has changed and that I have gained a different perspective. This has led me to challenge everything I thought I knew about "Web3 Games", reevaluate the promises made and revisit the arguments against implementing blockchain tech in games.

With that being said, this is by no means an exhaustive document and there’s quite a bit I had to leave out. I also have a gut feeling that I don’t have the full picture yet, so I’m looking forward to exploring, learning and sharing my insights as I find them

WTF is a “Web3 game”, Anyway?

🧐

A Web3 game is… check notes, a game that exists in the Web3.0… ummm… wait, the Web 3.0 doesn’t exist yet, so that… that doesn’t… checks more notes … seems right… Oh! Okay, ehem*, a Web3 game is any game that is not Web2… nope, that doesn't work either.

Unfortunately there is no formal definition for “Web3 games” or “Web3 gaming”, but it can be clearly observed that “Web3 games” is used in conversation as an umbrella term for video games and gamified systems that have some kind of blockchain integration. The terms “blockchain games”, “gamefi” and “crypto games,” although more specific, are also sometimes used as general terms, but they were a lot more common before “Web3” became a marketing buzzword back in 2022.

Now, I would like to point out that even though the definition mentioned here is sufficient in the context of this article, it’s not useful when discussing the “Web3 gaming” space at large, as it may include a wide range of applications from gamified learning apps to gambling games. Which, you know…. fair enough. But I do believe there should be some kind of differentiator here, because my impression is that when we refer to “gaming” as a cultural phenomenon in 2024, we don’t think of a casino goer hitting the slot machines as a gamer, any more than we’d think of playing Duolingo a few minutes a day as gaming. But I digress.

The selling points of “Web3 Gaming” and why some hate them in the first place.

The definition of “Web3 Games” that I propose above is not just too broad, it’s also very boring. Some would even say it lacks imagination. But the thing is that when we define something it’s not supposed to describe the vision of what it could be. It’s meant to describe what it is right now.

That being said, if we ask Google “What is Web3 gaming?”, the top (SEO friendly) results more or less describe it as “a new era of gaming powered by decentralized technologies”, listing the same “features” I myself advocated for back in 2021 as the backbone of this revolution, mainly that integrating blockchain tech to video games will allow gamers to (1) take an item from one game and use in another, (2) have absolute ownership over that item and (3) earn “real money” by playing games.

Here’s the thing though: back in 2021 these claims were entirely made based on theoretical potential, not facts, reason why it really bothers me that three years later, as more and more people enter the decentralized ecosystem, these once theoretical arguments seem to have turned into selling points that are showing-up front and center all over my Google Search results. What’s even more concerning is that some of these results minimize the greatest fact of it all: that right now the technology and ecosystem spearheading “Web3 gaming” are unregulated, highly experimental, and it can be straight-up dangerous to navigate if you don’t know what you’re doing.

And I get it, the Web3 space is exciting and full of possibilities! That's what attracted me to it in the first place. But the discourse of possibility is also what fuels the various narratives that make it unstable, unsafe and that ultimately makes a lot of people dismiss it as a giant ponzi scheme.

Lets not forget that back in 2021 the idea of video games as the grand on-boarding platform to Web3 spread like wildfire, igniting a frenzy of investment, which at the time seemed like a great thing. Especially if you found yourself in the middle of it already working on something cool. However, when Venture Capitalists start throwing money at projects hoping that at least one will stick, it lures all sorts of “business”, allowing for both well thought-out proposals and half-baked ideas to get funded. This in turn floods the market with not just new startups, but also tons of very legit-looking marketing, making it impossible for anyone to differentiate legitimate projects from cash grabs.

In my opinion, there has been nothing more damaging to the short-term adoption of decentralizing technologies in gaming than “Web3 games” itself, and the idea that technological innovation should precede user safety and wellbeing. It’s really no wonder that there is so much skepticism (and straight-up hate) towards the crypto space. It has been well earned.

However, this is something I can say only now in hindsight.

Three years ago when I was deeply enmeshed in the blockchain space, I dismissed all pushback against “Web3 Gaming” as reactionary. Because, even though the hype was intense, the fact is that the promises made were not just compelling, they are technically possible and at the very least partially true.

The ability to take an item from one game and use it in another. Universal interoperability.

Interoperability refers to the ability of systems to communicate and use shared information effectively. This means that (theoretically) in an universally interoperable Web3 ecosystem, players could “unplug” their digital objects and/or data, from a game and plug it into another. It also means this data would be useful in a meaningful way in the new game environment. That’s the promise. Or at least the tamed version of it, because the actual narrative I’m familiar with sounds more like this:

“Have you ever played a game on one platform, only to wish you could continue on another? Or maybe you’ve purchased in-game items that you wanted to use in another game? This is where interoperability comes in. (…) a player could use the same avatar, weapons, and in-game currency in different games without having to start from scratch each time. This would not only create a more seamless gaming experience but also unlock new opportunities for monetization and value creation.” -Unlocking the Future of Gaming: The Power and Potential of Interoperability (Trikon Ecosystem, May 2023)

This represents the un-tainted, idealistic view some people have of what interoperability will look like in games. I know because I used to say very similar things. In public. However, now that I am a little wiser, I can tell you that this vision of universal interoperability in games is not going to happen, regardless of how technically feasible it becomes.

The video games business

Let's be honest here for a minute: the idea of universal interoperability sounds very cool from a gamer's perspective. For example, the prospect of flaunting an item that’s really hard to get across every game you play scratches a gamer’s desire for recognition, especially if that item has some sort of interesting history. Perhaps it was owned by someone famous, or it was used in a particularly difficult raid. Then, there’s vanity items, which can be expensive! So, buying them only once and then being able to take them with you to every game you play seems like a no brainer.

Unfortunately, these prospects completely ignore fundamental truths of both the video game industry and the way video games are created.

Realistically, the ultimate vision of a completely interoperable gaming ecosystem is never going to happen for a simple reason: video game companies and distributors are in the business of selling games in a system that calls for profits and rewards competition, not collaboration. Video Game companies, especially those publishing “always online” and free-to-play games, want you to stay on their platform for as long as possible because that’s how they make the most profits. Universal interoperability might encourage gamers to “visit” other games, so unless those other games belong to the same video game company, exploring interoperability might hurt a game’s bottom-line. Same thing goes for vanity items. Why would a video game company allow users to bring items they paid for somewhere else to use in their game? Universal interoperability simply makes no business sense for the existing video game’s industry.

As a matter of fact, I would argue that most of the business activities around “Web3 games” are all producing centralized ecosystems that are interoperable within their own walls, retaining players within their own gardens. Decentraland and The Sandbox were the first ones to create these types of platforms where players can “own” their digital spaces, experiences and items, in addition to having to transact with their platform’s cryptocurrency ($MANA and $SAND, respectively). Skymavis, creators of the popular Play-to-Earn video game, Axie Infinity, took it a step further by launching the Ronin Network, an entire blockchain dedicated to their own games and products. Other networks like Solana and Immutable X have followed suit in advertising themselves as “gaming chains'' to attract investors, creators and users alike.

Whatever happened to permissionless decentralization, I do not know. Maybe I’m misguided on my own interpretation of what Web 3.0 is supposed to be. Or perhaps these are centralized businesses using the Web3 discourse for their own reasons. The point is that we are not even remotely close to an environment that would allow universal interoperability to become a thing. That’s not to say I don’t think it’s possible, just that it will require time and organic growth of the decentralized web for it to be feasible.

But, would universal interoperability make games more fun?

I don’t know if games would be “more fun”, in a world where universal interoperability is possible. But, I do think there is a case to be made for interoperability as a fun and long-standing feature in video games. Just consider Nintendo’s Pokémon! Interoperability between Pokémon games across time and consoles has been at the heart of this beloved franchise since the 90’s. And even though it is true that this feature never needed blockchain or decentralization to exist, any gamer who loves Pokémon can recognize the value of bringing their creatures with them to each new game they play, and how this value has nothing to do with money, but rather how it enhances the very personal and individual experience of the game itself.

All this begs the question: could a decentralized gaming ecosystem implement universal interoperability in a way that’s disconnected from the current video game’s industry, works for both gamers and creators, and adds new fun elements to games?

I think it’s too soon to tell.

What I do know is that there are plenty of problems we still need to solve before worrying about interoperability, and “digital ownership” is at the top of the list.

The complete and absolute ownership over your items: Digital Ownership

Digital ownership generally means having control over digital content or possessions. However, in practice, this “ownership” is limited by licensing and copyright laws, meaning consumers don't 'own' digital objects, at least not in the same way we can own material property. Nonetheless, I would argue that this is the case because we didn’t have the technology to do it any other way. At least not until smart contracts became part of the equation.

In a nutshell, smart contracts let us keep track of who owns what in the digital world, allowing us to trade digital objects as if they were physical goods. This means that now we can do things that were not possible before, like reselling and even leasing digital objects, with the added bonus that the smart contract can be set-up in a way that the original creator receives a commission each time the item is re-sold. Or at least, that’s the promise.

And just to be clear: this is technically possible and it is being done by artists across the Web3 space. However, the short-term implementation and practicality of “on-chain digital ownership” is still in question from the consumer’s perspective, especially when it comes to games.

Digital Ownership in Games

In theory, long-standing issues native to digital purchases could be (at least partially) resolved with a decentralized trustless system capable of tracking all digital items in circulation. If this system existed, then things like non-transferable digital purchases that force players to buy multiple copies of the same game, or the removal of content from platforms due to licensing agreements expiring could be a thing of the past. However, in practice gamers have just enough agency within the existing platforms (take Steam’s community Marketplace, for example) that there is no real pressure for the existing system to change. Moreover, fulfilling the promise that owning your digital items allows you to do whatever you want with them would only be possible to the extent that a decentralized web is adopted and the general public becomes “Web3 literate”.

Now, this is not to say I don’t believe in on-chain digital ownership in games. I do. But the way I would like to see it come to life requires cutting out the platforms/distributors, so that digital ownership can be enacted in a trustless-system that is “fair” to all parties involved (creators and consumers). Unfortunately, the platforms/distributors in question here are corporate giants like Sony and Microsoft, and they have no reason to create something like this. Quite the opposite. Furthermore, as far as I know, the “native Web3 projects” that could create a “Web3 gaming” distribution system/marketplace are backed by venture capital, making me very skeptical of anything they produce. The most viable option (in my opinion) would be a grassroots movement free from corporate investment that focuses on community, not money, and that belongs to the individuals actively using it.

Unfortunately, we are far from getting there. I would even argue that we’ve accomplished the opposite by adopting the trend of using digital item sales as a means for “crowdfunding”. And sure, it sounds like a fantastic idea: sell 5K digital items upfront at $200 each and raise 1 million USD on a weekend, all while building the community that will play your game once it’s published. Easy-peasy!

Sadly, for what I have witnessed over the past few years, that’s not the way it has worked out partially because, once again, reckless people gaining access to large bags of money usually leads to less than optimal results. Moreover, the fact that people can use digital items for financial speculation really ruins it for the rest of us, because it seems that every time a digital item is sold under the promise of some future access or benefit, it adds to the speculative frenzy that dominates the space, inflating the perceived potential and/or success of a project. And since things are what they are, not what they seem to be, this makes it clear to me that right now “digital ownership” is less about whatever “freedom” could be gained by owning digital objects, and more about either acquiring them to “hold” long term in the hope they'll become valuable someday, or “flipping” them in the short-term for some quick financial gains.

This is why I think that as things are right now, digital ownership disproportionately benefits those selling digital items, rather than the people buying them, who sadly very often find themselves holding broken promises and useless tokens. So, as much as I like to encourage people to experiment with new technologies, I am of the opinion that in 2024 the lack of direction, uncertainty and historically unethical implementation of digital items around “Web3 games” outweighs any benefit it could have for players to become involved in games that require a digital item purchase to simply “play a game”, even if the argument is that you will earn it all back as you play.

Earn “real money” by playing games: Play to Earn.

Back in 2021 the idea of making “real world money” from the time and effort put into a virtual world was one of the things that excited me the most about applying blockchain tech to games. However, now that I’m a little bit wiser, I’ve come to understand why mixing playing video games with “real world money” seems like a great idea on paper, but not so much in practice. Let’s take the “Play to Earn” (P2E) model as an example.

P2E is generally used to describe video games where players can earn cryptocurrency by participating in the game's ecosystem. Usually, this means players complete in-game tasks, level up, and acquire items that can be traded or sold for cryptocurrency, which then can be converted into real-world money. From what I have seen, the games that call themselves “P2E” have a heavy emphasis on monetization, and are sold to gamers as a way to profit from their gaming.

However, it’s not that simple. Here are three reasons why (I’m sure there’s more):

The money players “earn” needs to come from somewhere, and the go-to solution here has been to force players to “buy into the game” by purchasing a digital item, giving the “P2E'' business model an unsettling pyramidy shape.
Designing a video game that is both fun and able to pay “real world money” back to players without it being somehow exploited is 100% unheard of. And video game companies have tried! The Diablo’s Auction House flop is a great example of these sorts of experiments, and how players will play the system, making playing the game more about grinding and less about fun, while creating unfair “pay to win” situations.
Unfortunately, the direct monetization of games has proven to create an ethical gray area that leads to human exploitation. Examples include the World of Warcraft “Gold farming” problem back in the day, and more recently Axie Infinity, often cited as the first successful P2E game, and arguably the first dystopian neo-feudalist digital world to emerge from “Web3 Gaming”.

What I’m getting at here is that a “Play-to-Earn” game sounds like a very good idea. But in practice, as the model is currently understood and executed, it seems that only the players who get in “early” see any monetary gains, and that ultimately all these games really do is create the environment for very dystopian human dynamics.

Now, to be fair, “Play-and-Earn” (PaE) is (apparently) also a thing, which according to a blog posted on the NASDAQ.com website:

“(...) emphasizes a traditional gaming experience, where players engage with the game for enjoyment and entertainment, with the option to earn rewards through various in-game activities. The primary difference (between P2E and PaE) is that PaE games' earning aspect is secondary to the overall gaming experience. Players can still acquire virtual assets or tokens, but it is not the primary motivation for engaging with the game.

(...) The focus (of PaE games) is on providing an enjoyable gaming experience rather than generating income. Players in PaE games may not necessarily see their in-game assets as investments but rather as collectibles or items to enhance their gameplay.”

Listen, I know Nasdaq.com is a site focused on finance, and not necessarily the best reference. But, I find the fact that this article is the second website listed on Google Search under “P2E vs PaE” extremely telling of who actually benefits when there’s money to be earned in games.

Anyway, the point is that at the end of the day video games built with the goal of generating money for the people who play them will encounter one of three fates:

Become unsustainable and die.
Embrace the pyramid and/or label themselves appropriately as “gambling”
Become something new entirely that should not be classified as a “gaming”

But only time will tell.

Where Do We Go From Here?

For the last three years universal interoperability, digital ownership and the ability to make money by playing games, have been used as the main selling points for applying blockchain tech to games. However, it has become clear that none of these things will make better games in the short term, and that these promises integrate discourses about individual agency and digital freedom, in addition to getting enmeshed in important ethical and political considerations that are a lot bigger than gaming, and quite frankly have nothing to do with games.

In the long term, I don’t think there is a final answer to whether “Web3 gaming” is just clout or a genuine revolution in the gaming industry. It’s too early to tell. That being said, and judging by my first impressions re-entering the Web3 space, it makes me very sad to see the whole thing devolve into marketing buzzwords, and how it has become shorthand for a bunch of half-realized promises enmeshed in money grabs and straight-up scams.

I do think that whatever “Web3 Gaming' is today hardly represents what it's supposed to be in the minds of people who, like me, believe that the technology associated with the idea of Web3 grants us the ability to create different systems. Systems that simply could not exist before, and that might allow us to have (among other things) a gaming ecosystem that is open source, peer-to-peer and that is also built in a way where technology is used in service of humanity, not against it. That vision is fraught with challenges, both technical and ideological, and for it to succeed requires a paradigm shift in how we think about corporate structures, institutionalized power, game design, digital distribution, player engagement, and the role of technology in creating new and meaningful experiences, among many other complex things. However, although deeply disappointed at what “Web3 Gaming” has become, I still believe it is possible.

I know I am not the only one looking for this future in games while being absolutely certain at least some bits and pieces of the ‘Web3” shitshow will be instrumental in getting us there.

You think so too? Let’s be friends and talk about it! :D

Absolutely disagree?? Let's be frenemies and talk about it >:D

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References:

Blockchain Use Cases. consensys.io Accessed: 17.May.24

https://consensys.io/blockchain-use-cases

Blockchain Use Cases. ibm.com. Accessed: 17.May.24

https://www.ibm.com/blockchain/use-cases/

Clarke, Anthony. Gaming in the Crypto Age: Play-to-Earn versus Play and Earn. nasdaq.com. Published: 19.Sep.23. Accessed: 17.May.24

https://www.nasdaq.com/articles/gaming-in-the-crypto-age-play-to-earn-versus-play-and-earn

Laukkonen, Jeremy. Steam Community Market: What It Is And How To Use It. lifewire.com. Published: 25. Sep. 23. Accessed: 17.May.24

https://www.lifewire.com/steam-community-market-what-it-is-and-how-to-use-it-4586933

Moore, Bo. Why Diablo's Auction House Went Straight to Hell. wired.com. Published 20. Sep. 13. Accessed: 17.May.24

https://www.wired.com/2013/09/diablo-auction-house/

Peters, Jay. PlayStation keeps reminding us why digital ownership sucks. theverge.com. Published: 05. Dec. 23 Accessed: 17.May.24

https://www.theverge.com/2023/12/5/23989290/playstation-digital-ownership-sucks

Rahman, Wasif M. Web3 Gaming and The Interoperability Narrative. medium.com. Published: 14. Apr. 23. Accessed: 17.May.24

https://medium.com/@wasifmrahman/web-3-gaming-and-the-interoperability-narrative-84f473702a1d

Trikon ecosystem. Unlocking the Future of Gaming: The Power and Potential of Interoperability. medium.com. Published: 12.May.23. Accessed: 17.May.24

https://medium.com/@Trikon_Official/unlocking-the-future-of-gaming-the-power-and-potential-of-interoperability-e4387b3d47ac

Here’s the top ten websites Goggle showed me when asked “What is Web3 gaming?

Other related stuff you should checkout:

Robinson, William. How Web3 Games Work (and Sadly Don't). GDConf. Published: 15. Aug. 22. Accessed: 17.May.24

https://youtu.be/4OBXcakC2uo?si=u3gmuuz9QWF3yMFh

Watts, Jarrod. You're (Probably) Wrong About Web3 Gaming. Blog.jarrodwatts.com. Published 08.Jun.23. Accessed: 17.May.24

https://blog.jarrodwatts.com/youre-probably-wrong-about-web3-gaming

Wallace, Mitch. Yes, A Digital-Only Gaming Future Is Coming, And We Can’t Stop It. Forbes.com. Published: 13.Oct.23 Accessed: 17.May.24

https://www.forbes.com/sites/mitchwallace/2023/10/13/yes-a-digital-only-gaming-future-is-coming-and-we-cant-stop-it/?sh=689f930773bd