Video games that incorporate blockchain technology—called Web3 games—have gained popularity in Asia, but Western gamers are proving skeptical. Some experts think it’s only a matter of time before the new model of gaming takes root in the U.S., but it’s clear game developers will have to make some adjustments before the games will appeal to a U.S. audience.
Web3 games integrate a blockchain, or a digital database that stores information in multiple computer networks rather than one centralized location. Blockchain supports the ownership of cryptocurrencies and non-fungible tokens (NFTs). With this technology, players can buy, sell or trade their in-game assets like clothing and weaponry in marketplaces that exist outside the game, which gives their assets real-world, monetary value.
Blockchain-supported video games are intended to be more secure, more transparent and enable greater participation from consumers. With traditional video games, companies typically make all the development decisions and own all the content. In Web3 games, players can own game assets and virtual land through NFTs, and vote to make changes, so the interests of gamers can supersede the interests of the companies that designed them.
While Web3 has been called the future of the internet, crypto and NFTs have been besieged lately. Over a period of nine months last year, the monthly trading volume of NFTs decreased by 97 percent. In May, cryptocurrencies Terra and Luna collapsed and took half-a-trillion dollars of crypto market cap with them. While Western countries debate the value of Web3, blockchain gaming has already taken off in Asia, which has 1.47 billion gamers, or nearly half of the world’s video game players.
Some Web3 games include Axie Infinity, where 260,000 daily active users breed and battle digital pets; Splinterlands, a card trading game with 250,000 daily active users; and DeFi Land, a farming simulator. DeFi Land doesn’t have updated daily user statistics available.
Web3 Gaming in Asia
“All the big gaming companies (in Asia) are talking about Web3 and NFTs,” said investor Yat Siu, who co-founded Animoca Brands, a Hong Kong-based software and venture capital company who invests in Web3 games. Gamers in Asia are more willing to try playing with NFTs and play-to-earn models than those in the U.S., he said, which has jumpstarted the industry.
While North America earned the most revenue in 2022 across the whole Web3 market, the Asia Pacific region is projected to grow at the fastest rate leading to 2030, according to a report by Grand View Research. China has the biggest gaming market with 744 million players and $45.8 billion in game revenues last year, according to gaming research firm NewZoo. The U.S., Japan and South Korea follow.
But there are obstacles to widespread adoption in the U.S.
Many existing Web3 games require an influx of new users to generate value for existing customers, which isn’t a sustainable business model, said Francesco Di Ianni, gaming consultant at FTI Consulting. Many of them have mechanics similar to a pyramid scheme, which sparked distrust in the gaming community, he said. This makes it harder for future games to build an audience, he said.
Gamers want fun, engagement and a community. With Web3 games, they often have to jump through hoops to buy cryptocurrency and NFTs, and limiting the friction around using Web3 could attract more gamers, he said.
“Consumers don’t even need to be aware they’re playing a Web3 game, frankly,” Di Ianni said. “As a user, I shouldn’t be thinking about the technology. When I’m playing Call of Duty, I’m not thinking about the game engine. I’m playing the game.”
Unlike conventional games, the ability to earn money drives many Web3 gamers.
Axie Infinity, the digital pet battling game similar to Pokémon and backed by billionaire Mark Cuban, gained popularity in Southeast Asia and developing nations, especially the Philippines, during the Covid-19 pandemic. As workers lost their jobs and spent more time at home, they turned to the play-to-earn game. For eight months between 2021 and 2022, the game had more than 2 million monthly active players, with 40 percent coming from the Philippines last year.
But despite being one of the most played Web3 games to date and proving there was interest in Web3, few would call it a success. Some players earned cryptocurrency to support their families, but the game also left thousands in debt, because it required an upfront purchase of NFTs to participate. The cost to enter was $350 in October 2021, or 40 percent of a Filipino’s average monthly salary. Filipinos who played were earning less than the minimum wage on the game, according to a report from Naavik, a research and consulting firm.
The game is “deeply evil,” said Ed Zitron, former games journalist and CEO of a public relations company. Others, including Web3 company co-founder Michal Kubis, compared its business model to a Ponzi scheme because it relies on new players joining to enrich existing players. Sky Mavis, the game developer, acknowledged that “by design the Axie economy will be dependent on new entrants” in the game’s official whitepaper.
Adopting Web3 beyond Asia
“The ability to earn money from playing video games was a motivating factor behind a lot of gamers in Asia playing these titles,” Daniel Ahmad, research director at Niko Partners, a games market data company, said over email. It’s especially noticeable in emerging markets with lower average disposable incomes, like in the Philippines or China.
But Web3 gaming has largely been driven by a handful of investors and companies—not by consumer demand, said Tom Wijman, a games analyst at NewZoo, the gaming research company. The growth of Web3 gaming will need developers to focus more on gameplay.
“A lot of Web3 games are investment vehicles and not made for entertainment,” he said. The majority of gamers, and especially casual gamers, don’t care about what Web3 is or about making money. Gaming is about entertainment first, he said.
“Hardcore gamers don’t want to feel they’re being nickel and dimed,” said Jeffrey Kaloski, a media and entertainment consultant at L.E.K. Consulting. “They feel like studios and publishers are getting away from the essence of the video game and should be focused on making the best game possible.”
But there are certain challenges developers face when trying to make Web3 games fun. The blockchain technology makes it more difficult to build complex games, so many Web3 games are comparatively simple, Wijman said.
Web3 games also have a user acquisition problem, he said, in part because of the mistrust surrounding previous games. “Companies that are succeeding are relying on organic traffic” from building a good game, he said, especially within the casual gaming community. Gamers will likely gravitate towards the companies that they already know and the communities they are a part of, he said.