I’ve always been fascinated by a game’s ability to replicate real-world systems. Social interactions, weather systems, and even nuanced economies are re-created digitally with almost alarming accuracy. This has always been a part of a game’s appeal: the opportunity to safely play around in a world that feels so real.
Today, games are inching closer to reality. Massively multiplayer online games replaced computer-controlled NPCs with real people, making room for massive online communities to grow organically. Now developers have infused in-game economies with real-world currency in an effort to better monetize their products. Instead of using virtual money earned in-game, you might just be asked to fork over real dollars for that next armor upgrade or level-up.
This is the new in-game economy. As the line between what’s real and what’s becomes further blurred, players take on more risk. Whenever a game invites players to buy items with their money, the game also inevitably (and inadvertently) invites scammers, item dupers, and fraud.
Suddenly, a fake world is fraught with real dangers.
So what’s to protect player-driven economies in a largely unregulated environment? Blockchain technology may be the solution we’re looking for, due to the decentralized network and capability to record each transaction to combat fraud.
How in-game economies work
Economies (virtual or otherwise) are governed by the law of supply and demand. The availability of an item affects the demand for that same item. Generally speaking, the lower the availability, the higher the price. In the real world, items of value are finite. They require time and resources to create which influences their market value. Games attempt to simulate this. Developers set the attributes and rarity of an item in order to incentivize players to spend more time and money to acquire it.
There are three main economic models in games:
- The first is a two (or multiple) currency system that features both in-game and real money. League of Legends and most other FTP MOBAs have this, where many items can be purchased with real money, but players also earn another currency by playing and progressing.
- The second model is a one-currency system. A number of mobile games use this system, whereby the user pays money to install the app and then gradually earns in-game currency to pay for in-game rewards. There are also massively multiplayer RPGs like World of Warcraft, which has a purchase price and a subscription fee, but also an in-game economy and auction house based entirely on earned gold and crafted items.
- And finally, there are games that employ no in-game currency at all, and instead opt to implement real money transactions for upgrades and cosmetics. Dota 2 use this as its main form of monetization, differently from its peers.
Acquiring items, such as new weapons and armor, is often what progresses players forward and unlocks new content for them to consume. In short, it’s a rewards system that keeps the game alive and profitable.
But progress can be expensive in some games. As the free-to-play model becomes more popular, players continue to shell out more real-world money. In 2016, Game of War: Fire Age developer Machine Zone drew an astonishing average of $549.69 per paying user. On average, mobile gamers are paying nearly $10 a month on in-app purchases.
All of these economies mix scarcity with real money, a combination that leads to problems — which can be remedied by blockchain.
Beware scammers, fraudsters, and dupers
Whenever there’s people forking over real money, there’s always a few nefarious types looking to take advantage.
It’s estimated that “for every legitimate virtual item sold and downloaded, there are 7.5 virtual items downloads lost to fraud.” That’s an astounding ratio that works to corrupt in-game economies and rip off gamers.
Much of the problem exists due to item duping. Fraudsters find exploits within the game that allow them to duplicate what were originally rare and expensive items in high demand. Similar to the real economy, item duping increases inflation while diluting item value.Then there’s identity theft. Criminals use stolen credit cards to purchase in-game items that they sell at discount.
The blockchain economy
The blockchain, or more specifically, proof of ownership, can fix this. Luckily, proving ownership is one of the things blockchain does really well, and is being used in multiple industries outside of video games.
To quickly review, blockchain became famous as the technology behind cryptocurrencies like Bitcoin and Ethereum. In short, it’s a decentralized ledger that records an action (in the case of Bitcoin, it’s a transaction). Once recorded, the record is encrypted and publicly accessible.
If the creation and sale of items — whether via the developer or the player — is what fuels the growth and balance of in-game economies, then proving the source of ownership for those items is essential to fighting fraud. The blockchain would act as the official record of the in-game economy. It would store information about which items were created, when they were created, who created them, and any transactions that occurred involving those items. Duping would be impossible, inflation wouldn’t occur (at least not due to fraud), and gamers wouldn’t be ripped off.
Blockchain is already starting to percolate through the gaming industry for these very reasons. CryptoKitties, perhaps one of the more famous (and adorable) examples, allows gamers to buy, sell, and trade digital cats. But unlike other collectible games, CryptoKitties allows players to track ownership of every cat on the blockchain, removing any concern that a player could be victim to the fraudulent sale or trade of these digital felines.
As games become more sophisticated in their rendering of real-world systems, they need to also become more knowledgeable about the risks involved. Historically, the gaming industry is always among the first to adopt new technologies. Blockchain should not be an exception.
Sam Kim is CEO and co-founder of KR8OS.