Play to Earn Games - Crypto's First Compelling Use Case

The idea sounds ridiculous on its face. How can you earn money while playing a game?

Web3 Enabled

Most of my exposure so far into web3 has been confronted with a similar feeling. Each time I see a new DeFi app I think, "ok that's neat, why can't we do this with traditional finance?" Many artists are making a ton of money from selling NFTs of their creations - but why couldn't they do so in the traditional financial system? The effect is the same: there's an artist looking for initial capital so that they have the capacity to make more art.

So while web3 embodied most of the buzzwords that I enjoy (decentralization, creator economy, etc.), I was still missing the use case that was made possible only via web3 and not our traditional technology choices. Until I learned about Play to Earn games.

The key innovation brought on by blockchains is digital ownership. This is less interesting in the case of jpeg NFTs because one person's digital ownership of the jpeg does not exclude another's usage of it. The digital ownership of the jpeg means little more than a social status signal to others that "hey I bought this".

Games though are different. You need digital assets to even participate in the ecosystem. Most games are designed so that you need either rare or expensive (in terms of time) ones to participate in an elite ecosystem (playoffs, tournaments, etc.). That time is valuable. Why spend thousands of hours growing your level 100 Charizard, or crafting the perfect Mage deck, when you could just spend money to be competitive now. That's play to earn.

There's a whole industry of games developing where players could earn money playing a game by trading the time they invested in the game. And it's only beginning.

Play to Earn in the Past

Fortnite raked in over $5 billion in 2020. But the game is free to play. How do they make money? All through digital assets - skins and custom accessories you could add to your in game player with no competitive advantage.

Think about this for a second. The Fortnite market cap is at over $5 billion all while the main stakeholders see none of that value. Players don't actually own the digital assets. At any point, Epic Games the creator of Fortnite, could go into their database and delete their records and poof, you as a player have no more assets. Not only that, the digital goods you buy in Fortnite could only be used in Fortnite. You as a player cannot take them into other ecosystems for use in other games or platforms.

While traditional games have no way to actually back the assets you acquire with real-world value, there are already markets that develop for them. Twitch streamers could make 6 or 7 figures sharing their gameplay knowledge with their audience. People hire Hearthstone coaches to up the level of play. There are people who mine gold on World of Warcraft for others and could get paid to do it. All of these are done through unofficial channels and are incredibly risky because at the end of the day you don't actually have digital ownership.

Play to Earn Today

The Ethereum blockchain has brought true digital ownership. You could mint an NFT that says you have a Pokemon or a trading card, and the game company behind it couldn't take it away. The value then lies around the ecosystem of players that develop around the assets. The gaming company could literally disappear, and it would be possible for the players to build a new or similar game based on the distribution of existing assets.

The most popular play-to-earn game in the industry today is Axie Infinity clocking in at around an $8.7 billion market cap at the time of this article. The game is particularly popular in the Philippines who up until recently saw their income far above the minimum wage. This is only the beginning. Large gaming studios like Ubisoft are starting to take notice and looking to get in on the action.

Recently, I've started playing Gods Unchained, which is really just a Play to Earn knock off of Hearthstone, a game I used to play for many years. All those hours I've put into Hearthstone are now useless, I can't cash them out at all to reinvest elsewhere. Now if I ever decide to stop playing Gods Unchained (and I likely will), I could cash out whatever assets I own into to pour into my next venture.

This whole industry has my mind racing of what implications this has for other industries. What other ideas are uniquely enabled by true digital ownership? My hunch is that the best way to find out is to build a play to earn game myself...