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The video game industry is enjoying massive growth, valued at over $162 billion today and expected to surge to $295 billion worldwide over the next five years. Mobile gaming, once dismissed by the hardcore gaming crowd as a passing fad, has been a significant driver of the industry’s growth in recent years, with more than 2.5 billion mobile players globally in 2020. The total number of mobile gamers has even eclipsed more traditional venues like console gaming (800 million players in 2020) and PC gaming (1.3 billion players in 2020).

Bitcoin has been on a wild ride this year. At the start of 2021, the price was around $29,000, which skyrocketed to all-time highs over $63,000 in mid-April. Then, high-profile comments by Elon Musk kicked off a crash that has since seen the price drop down to around $43,000. Despite the recent drop, Bitcoin is still trading nearly 150% above its January 2021 levels, and investments in blockchain are increasing exponentially year-over-year. This has inevitably given way to a renewed interest in blockchain, the distributed ledger technology underpinning cryptocurrency, and some game developers looking to incorporate the technology into their offerings.

NFTs go from curiosity to mainstream

CryptoKitties was the world’s first quasi-mainstream introduction to the world of NFTs, or nonfungible tokens. These are unique, collectable digital assets that no one can copy and that live permanently on the blockchain. The Ethereum-based game launched in 2017, enabling users to collect, sell, and breed digital cats (including “Dragon,” a CryptoKitty that sold in September 2018 for 600 Ether, or $172,000 at the time. That’s over $1.4 million at today’s prices.)

Although CryptoKitties is approaching its fourth birthday, the market has not slowed down, with 50,000 generations of kitties having been bred and more than $30,000 in transactions still occurring on the platform every single day.

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The viral popularity of CryptoKitties meant that we could no longer ignore digital assets in gaming, and game developers are including the functionality in their products and tokenize in-game digital assets.

“You have 2.6 billion people that play video games, and thousands of studios that all have digital assets and digital IP. Within video gaming, tokenization is a 40-year-old concept. The founders of Blockchain Capital had great success trading digital assets in Second Life. They then used that experience to identify value in a brand new digital currency, Bitcoin, and invested heavily into it,” says Josh Chapman, the managing partner of esports and video gaming venture firm Konvoy Ventures.

The decentralization of gaming

Until recently, gaming has been a largely centralized activity, with all data, assets, and in-game currency typically confined to the game from which it originated, and with all ownership of such items retained by the developers. The addition of blockchain could see a decentralized gaming future where items won or purchased in one game could be transferable and used in another, putting real-world value on digital in-game assets.

“Some of these in-game assets can cost thousands of dollars each based on scarcity,” said Craig Russo, Polyient Games’ director of innovation. “It’s pegging your sword or gun to the blockchain, allowing you to own it and take it out of the game and sell it on the open market for a profit. People can’t do that now.”

The current centralized nature of video gaming also means players don’t actually own the in-game items they’ve earned; if they stop playing a particular game, or if a game’s servers are compromised or shuttered by its developers, anything they’ve collected while playing is lost forever. We saw this play out earlier this year when a massive fire in France destroyed approximately 30 servers connected to the hugely popular MMORPG (massively multiplayer online role-playing game) Rust. As a result of the incident, thousands of players lost their saved data, which wasn’t backed up offsite.

The destruction of Rust’s servers helped make the case for more decentralized, blockchain-based gaming models, where external circumstances won’t cause gamers to lose their hard-earned progress or in-game items. As the digital economy has matured, these items have a real-world value, sometimes in the tens of thousands of dollars range or more.

“People spend a lot of money in games. When they quit a game, that money is gone. Your investment is gone. It doesn’t mean anything,” said Gabe Leydon, the former CEO of Machine Zone. “So if people are willing to spend that kind of money in something where if they stopped logging in, it has no value. What happens when, if they stop logging in, they sell what they bought. It will change the whole nature of video games. It won’t be spending anymore. It will be investing. So it totally changes everything.”

Old-school names are making moves into blockchain and NFTs

Cryptocurrency’s historical pattern of boom-and-bust inevitably directs any conversation about the technology towards questioning whether it’s here to stay, but in a potential signal of longevity, established gaming brands with name recognition and generations of fans have begun planting their flag in the nascent space.

Taito, the storied Japanese video game company known for classics like Space Invaders and Bubble Bobble, recently partnered with Next Gaming and Celer Network to bring its old-school arcade puzzler Bust-A-Move to the blockchain, where esports competitors can face off in competitions with real money at stake.

Atari, one of the true pioneers of home console video gaming, just announced its foray into the world of NFTs with the creation of an entire division dedicated to blockchain, dubbed simply Atari Blockchain. The company says in a news release the division is intended “to focus on the immense possibilities of crypto and blockchain enabled games.” The company also launched its own Atari Token, which will be used for buying digital goods within its Atari VCS console, within Atari games on the blockchain, and within third-party games or applications like opeansea.io, Sandbox, or Decentraland. The company says it will be continually evaluating opportunities in blockchain gaming, NFTs, and blockchain-based online worlds.

PlayStation maker Sony has been working on The Six Dragons, a long-anticipated RPG set for release later this year on the PlayStation 5. It features over a billion randomly generated dungeons and more than 300 items that players can trade, sell, or keep to strengthen their in-game characters. The game’s item trading and crafting takes place on the Ethereum blockchain, making it one of the first releases by a mainstreaming games platform to incorporate NFTs.

“What makes this experience unique is that almost all items in the game are decentralized, using the power of innovative blockchain technology. That means players truly own their game assets as they can freely trade them with other players, sell them for real-world value, and use them across different game universes,” reads The Six Dragons website.

Yat Siu, the chairman of Animoca Brands (the parent company of gaming studios including The Sandbox, Nway, and Quidd), says the gaming industry’s move into NFTs and blockchain represents a seismic shift in the concept of digital ownership, and that gamers no longer want to miss out on potentially lucrative opportunities the technology offers.

“If you can play for something that is valuable to you, then why would you choose to play in a game where there is no value,” he said. “We are not saying traditional games will go away. But we do believe in this thesis that it’s better for the player to play in an environment when you have some ownership.”

A banker turned entrepreneur, Mik Mironov is a founder of Rbl Labs, a blockchain gaming studio; and a CEO at LOCGame, a blockchain-based NFT game and collectibles with recognizable characters from the crypto universe locgame.io

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