Huobi Blockchain Industry Special Report: Blockchain Games

This report is produced by Huobi Research; please cite “Huobi Blockchain Industry Special Report” for reference.

Abstract

Video game industry is one of the most lucrative internet-powered industries that saw the rise of Tencent, Blizzard Entertainment, and Steam. However, the traditional video game industry today is suffering from divisions caused by centralization, manifested in 1. the massive pressure on developers to improve player retention; 2. high negotiation power of distributors; 3. in-game assets ownership not belonged to the players; 4. the risk of galloping inflation; and 5. high sunk costs of players.

We believe that traditional game industry is a perfect target for blockchain integration, which could potentially result in mass adoption and popularization of blockchain technology. Blockchain Game will also become a crucial member of the Dapp ecosystem. Focusing on the problems with the current traditional video game industry, blockchain integration will revolutionize the game industry through 1. fair and trustworthy on-chain governance with proper incentive design; 2. self-distributing networks; 3. true ownership and trustless circulation of in-game virtual assets; 4. improved gameplay design and interactivity between virtual worlds; 5. rebuilding the in-game virtual economic system.

Currently, the “blockchain + game” industry could be mainly categorized into 1. blockchain infrastructures and developer tools; 2. blockchain-powered markets for in-game assets; 3. blockchain games; 4. blockchain-powered game distribution platforms and communities; and 5. other tools and services. We believe that the blockchain integration will start from infrastructure and developer tools to meet the requirement of traditional game publishers and allow more games to be deployed on-chain. The market will then see the emergence of multiple killer blockchain-powered games. With the increase in the activity in the blockchain games, blockchain-powered market for in-game assets will then receive massive attention due to the need for players to trade virtual assets, as well as the blockchain-powered game distribution platforms and communities. With the gradual development of the blockchain game industry, the peripheral tools and service providers will also receive stable development.

Regarding the future development of “blockchain + game” industry, we introduced three important questions to consider, namely 1. the necessity of native tokens; 2. ways to achieve blockchain integration; and 3. sustainable business models for blockchain games. Specifically, while native token allows for complicated business model designs, blockchain games with simple yet effective gameplay design could also thrive without issuing native tokens. At the same time, non-fungible tokens are crucial to the economic system design of blockchain games, as they improved the collectability, liquidity and scarcity of the in-game virtual assets.

In the future, core business model of blockchain game will center around transaction fee collections; the blockchain integration progress will start from on-chain management of ERC-721 assets and gradually to integration with traditional online games, especially classic online games.

With the continued development of blockchain games, we will expect 1. tokenization of physical board games through ERC-721; 2. blockchain-powered cloud game service with incentive design; 3. upgrade from traditional game consoles to “mining” consoles.

Chapter 1: Current Video Game Industry

Video games became a new form of entertainment after the popularization of personal computers. Since mid-20th Century, electronic gaming business has developed into a mature industry comprised of 6 core businesses including game engine, game developers, game distribution, hardware, eSports, and supporting software infrastructures. During its development, the core business model of video game industry has also evolved — from the earliest packed game software/hardware sales model, to the Game-as-a-service model, and eventually to the currently prevailing F2P(free to play) model.

As a crucial component of internet businesses, video game industry has attracted widespread attention from investors. However, despite all its developments, it seems like traditional video game industry today is suffering from serious problems caused by its centralization.

1.1 Division—A Serious Obstacle Challenging the Traditional Video Game Industry

Division Between Gamers and Developers

• Disadvantage of Centralization: Video Games at Developer’s Disposal

The balance of a video game plays a crucial role in improving gamers’ gaming experience. Without affecting the gameplay design, understandability and visibility are at the core of a video game’s balance design.

· A game design with good “understandability” means that the rules could be easily comprehended by players.

· A game design with good “visibility” means that the design is reflected in the gameplay in a way that is obvious and visible to the players.

However, although many video games today have intricate game balance design, the tuning process is not transparent to game players. Not only do the players cannot participate in the tuning and gaming design process, they also don’t own their gaming data, as they are stored on the game operator’s centralized server. As such, when the game operators changed the rules that destroyed the game balance, the gamers will the ones suffering. There are two major ways to address the disadvantages caused by centralization — “private server” and “forking”.

Private Servers:

Why do private servers exist? Gamers choose private servers usually when they do not agree with certain setups of the original game; it might because the game costs a lot of money to play, or the leveling process is too long, and etc. Private servers are essentially a bootleg version of the original game operated by parties other than the original game operator, thus setting up private servers requires the source code of the original game. What’s more, in order to attract players, the private server operators will often tune certain rules or change certain setups in the original game. The earliest account of private servers in China could be traced back to September, 2002, when The Legend of Mir 2 gamers rushed into private servers after the source code of the original game was accidentally leaked from its Italian server.

At the end of the day, however, these private servers are operated in a centralized nature. What’s more, due to the lack of maintenance of the private servers, gamers will often have to deal with unpleasant issues such as server downtime, server overload, and problems that are otherwise uncommon on the official server.

Forking:

Other than setting up private servers, gamers can also avoid the “centralized tyranny” by issuing a fork to the original game. As the game industry matures, the lifespan of individual games is also shrinking. There are many cases in which the original game operators went out of business — since the gaming data is usually stored in the centralized servers owned by the game operators the gamers will lose their accounts as well as their in-game virtual assets when the game operator decide to shut the server down.

Few games could survive an original server shutdown. At the end of 2016, Asheron’s Call’s developer Turbine announced the shutdown of all servers on January 31st, 2017. In order to keep the game alive, a contingent of code-savvy players arose to capture over 132 million data packages through emulator projects before the official shut down. An ambitious but daunting task that was never realized, the attempt to rebuild the virtual world could be regarded as an act of “forking”

• Massive Pressure on Developers to Improve Player Retention

First introduced to Blizzard’s World of Warcraft in 2003, “Instance” is now a common feature among popular MMORPGs. These instances are special areas in the gaming world where a group of players is able to interact with each other without interference from other players/parties. The worldwide success of World of Warcraft could be largely attributed to these instances, where gamers have to cooperate to defeat the “bosses”, such as Illidan Stormrage and Arthas Menethil.

However, in traditional games operated in centralized fashion, developers often run into problems in which newly-designed instances are cracked by gamers in a much shorter amount of time than previously expected. Although automatic difficulty adjustment mechanisms are introduced in most of instances setting today, it still can’t stop gamers quickly losing interests of and abandoning the game if the developer fails to provide timely updates.

What’s more, due to the massive pressure on developers to provide regular game updates, the update patches tend to lack substance, which would also cause more players to abandon the game. For example, despite frequent updates, World of Warcraft subscribers has been steadily decreasing since 2011.

World of Warcraft subscribers

Division between Developers and Distributors

In a traditional video game industry, game developer creates a game, distributor makes a market for it, and publisher publish the game for the gamers to download. In this ecosystem, distributor and publishers have more negotiating power due to their direct access to the potential customers. For instance, Apple takes 40% revenue from app purchase, and Steam takes 30% revenue from game purchase. Under such harsh conditions, game developers often try to have their games represented by major distribution channels. However, major distributors, Steam for instance, are very strict when it comes to game listing**. Thus, video game developing has become a risky business with high risk and relatively low reward.**

Revenue distribution from video game sales

Division between Virtual and Reality: In-Game Virtual Asset Ownership

Normally, the in-game virtual assets do not belong to the gamers; rather, they are at disposal of the game operators. For the game operators, these in-game assets players fought day and night for are nothing more than a string of code.

For example, according to the Blizzard’s Ownership section of Blizzard End User License Agreement, “With the sole exception of the Licensors’ Games, Blizzard is the owner or licensee of all right, title, and interest in and to the Platform, including the Games that are produced and developed by Blizzard (“Blizzard Games”), Custom Games derived from a Blizzard Game, Accounts, and all of the features and components thereof.” Moreover, although the game operators encourage in-game purchases, exchanging in-game assets for money is strictly prohibited in most of the cases. According to the “Prohibited Commercial Uses” section of the Blizzard End User License Agreement, for example, Blizzard “strictly prohibits the gathering of in-game currency, items, or resources outside of the Platform or the Game(s).” However, due to the lucrative nature such trading activities, many online platforms still offer trading service for in-game digital assets, despite the “strict prohibitions.”

• Official Trading Platform for In-Game Virtual Assets

NetEase is one of the very first Chinese game developer/publisher to ever enter the overseas market. In order to address the rampant “illegal” virtual assets trading with regard to its popular online game Fantastic Westward Journey, NetEase introduced a feature in 2008 — the “Treasure House” — to provide official trading platforms for in-game assets between players, within the jurisdiction of NetEase. However, NetEase takes 5% transaction fee from all trades on the Treasure House platform, all of which will be paid for by the sellers. What’s more, when it comes to sellers withdrawing money to their bank accounts, there are many strict rules — such as daily withdraw limits — that created obstacles for the exchange between virtual assets and actual money.

How to trade on NetEase Treasure House

Steam Community Market is a real money auction service for buying/selling items related to Steam and Steam games, including Dota2 and CS: Go. Depending on the rarity of these in-game items, they can be traded for more than $1,000.

Most expensive Dota 2 items for sale on Steam Community Market However, Steam collects a “Steam Transaction Fee” of 5% from all trades, paid for by buyers. For trades involving in-game assets from Team Fortress 2, Dota 2 and CS: Go, a 10% fee is also collected by the game publisher. However, because all Community Market sales and purchases are completed using the “Steam Wallet”, sellers are not allowed to withdraw funds to their actual banking accounts. Due to this serious limitation, many people prefer to trade at unofficial online marketplaces. However, due to their “illegal” nature, this kind of trading is not protected and bears significant risks.

• Unofficial Virtual Asset Marketplace

With exception of the few official marketplaces, most trading platforms for in-game virtual assets today are unofficially operated by third-party service providers. Specifically, we will look at C5Game, IGXE, and 5173, the three most used trading platforms in China. C5Game is a popular online virtual in-game asset marketplace in China for items from popular Steam games such as CS:Go, Dota 2, and PlayerUnknown’s Battlegrounds. The Platform provides “bot trading service” powered by Steam API, where bot Steam accounts (operated by C5Game) will serve as intermediary and item depository during the trade to minimize the risk involved in unofficial trading. Since C5Game collects additional fee for bot trading, many buyers and sellers choose to trade directly with each other, which could be inconvenient sometimes. Similar to C5Game, IGXE also provides both the traditional direct customer-to-customer trading service and the premium “bot trading service”.

Description of trading services offered by IGXE

5173 is one of the oldest and largest online trading e-commerce platforms for in-game assets in China. 5173 offers trading for in-game currencies, items and resources for a variety of games on a number of different platforms, and the prices for the rarest and most-sought-after items can get sky high. According to the official stats released by 5173.com, it has counted 40 millions of registered users within a year of 2011, with its transaction volume of digital assets already reaching 7 billion yuan in 2010. Specifically, 5173 offers two trading services: consignment and secured transaction. For “consignment service”, a seller will give his/her account information to 5173, who will log onto the account on behalf of the seller and complete the trade with the buyer. For “secured transaction” service, the account information of the seller is not needed since 5173 will only act as a guarantor and facilitator of the trade. For each service, 5173 takes a portion as transaction fee from sellers.

Secured transaction service on 5173

However, due to the unofficial nature of these online platforms, buyers and sellers bear significant risks of having their account banned by the game publishers. In 2018, Steam banned C5game and IGXE trading accounts multiple times without any prior notice, resulting in significant loss of the gamers as well as the platform. For 5173, despite the substantial revenue generated every year, they have yet to be recognized by investors, evident in its failed attempt to IPO.

Regardless of their unofficial nature, these trading platforms/marketplaces for virtual assets are a crucial component of the video game ecosystem, as their very existence facilitated in-game to a certain extent.

Division within the Game: Galloping Inflation and Unprotected Rights

The “gaming world” is essentially a simplified and idealized version of the complicated world that we live in, which means that many real-world economic theories and rules should also apply to the virtual world. As such, the design of gaming tokens is a daunting task, just as designing the supply/demand of fiat currency in any major economy. Rather than having Central Bank to control the issuance of fiat currency, however, gaming tokens are usually acquired by game players by means like completing in-game missions and power-leveling — similar to the Proof-of-work mechanism of the blockchain technology. However, due to the unlimited supply of these in-game missions and monsters, gaming tokens have the tendency to depreciate as time passes. To make the matter worse, with the advent of power-leveling services and cheat-sellers, the economic balance in the virtual world is ultimately disrupted, contributing to gamers’ negative gaming experiences. Usually, game developers are aware of this, and they have come up with four ways to address this issue:

1. Banning unofficial secondary markets, only allowing players to trade with non-player characters. Seen in most single-player games with add-on multiplayer features, this feature greatly limits the interactivity and hence playability of a game.

2. Incorporating more in-game features that would require the consumption of in-game tokens (to discourage tokens-hoarding). However, this feature is usually not applicable to massively multiplayer online games.

3. Introducing other scarce, in-game items as store of value to diminish the importance of in-game tokens in the event that an inflation has already happened. However, this would result in lower vitality of the economic system.

4. Introducing features that would limit the trading of valuable in-game items, such as legendary weapons and armories in the case of World of Warcraft. Similar to 3), however, this would also result in lower vitality of the economic system.

However, they are only temporary solutions, since they don’t resolve the fundamental issue with the economic system in traditional online video games.

Division between Games: Isolated Virtual Worlds and High Sunk Cost

In traditional video game industry, a player has to register and manage many accounts for different games or platforms, which can become very inconvenient. Moreover, if a game publisher suddenly decides to shut down the game server, the players currently are unable to protect their virtual assets.

According to Article 22 of China’s Interim Measures for the Administration of Online Games, “for the virtual currency of online games which has not been used by an online game use and the purchased in-game services that were still effective, a refund shall be made to the user In the form of legal tenders or in any other form acceptable to the user according to the proportion at the time of purchase.” Essentially, it means that used virtual currencies and services will not be reimbursed when a game is terminated.

According to the regulation listed above, most game publishers will transfer the unused virtual currencies/credits into those of another game by the game publisher. As such, no actual money is involved in the refund process, and affected players are not properly compensated. On June 29, 2018, Tencent announced officially that it will shut down QQ Pets on September 15. According to the announcement, QQ pet players will receive refund (not in cash) for unused virtual money and “pink diamond” subscription service, which means that players will kiss goodbye to the fruits of their own labor without being compensated for their time and effort.

Tencent announced closure of QQ Pet and LD2

Chapter 2: Blockchain + Games

2.1 Video Games for Blockchain Popularization

At Huobi Research, we believe that blockchain technology will serve best in industries and business with the following features: ineffective communication channel, long value chain, low transparency, or/and lacks incentives. As such, we believe that a proper utilization of blockchain technology in the traditional video game industry will result in a mass adoption and popularization of blockchain technology.

• Gargantuan Market Size and Large Potential for Blockchain Integration

According to NewZoo, game industry was expected to generate $108.9 billion in revenue in 2017, averaging a compound annual growth rate of 6.2%. NewZoo attributed the recent impressive growth to the growth and success of the mobile game sector, as well as the rise of streaming and eSports that brought in new revenue models for the traditional video game industry. Asia-Pacific, namely China, Korea and Japan, is by far the largest region, accounting for 47% of the overall revenue generated in 2017. North America ranks as the second largest market, led by United States.

Worldwide video game industry revenue by year (Billion USD)

• 2 Billion Active Gamers Worldwide

According to NewZoo, there were 2.2 billion gamers worldwide in 2017, accounting for one-third of the global population. 47% gamers had experiences with in-game purchases. In 2017, gamers worldwide spent about 108.9 billion dollars on games, in which about 94.4 billion or 87% of the overall yearly revenue came from digital game revenues.

Top 20 regional game markets What’s more, gamers today are young and open to new experiences, which also makes the gaming industry a good target for blockchain integration.

• International and Viral Potential of Games

Video games are innately international; to some extent, games are “universal languages” that bring people with different backgrounds together, even if they don’t speak the same language. From classic games — such as Tetris, Bomberman and Super Mario — to modern blockchain games such as Cryptokitties, well designed games have already proved their potential for viral adoption.

2.2 Reconstruction: Redefining Games in the Age of Blockchain

Rather than fundamentally transforming gameplays or game designs, blockchain technology empowers traditional video games by empowering players and reconstructing the relationship between participants in the ecosystem. As such, blockchain technology can theoretically be applied to and empower all games.

Reconstructing the Relationship between Game Publishers and Players

• Blockchain Governance against Centralized Evil: Transparent, Fair and Trustworthy

A very important difference between blockchain games and traditional games is that the code and logic of blockchain games could be written in smart contracts and ran on blockchains. Launching a game on-chain helps to achieve transparency, data immutability, making games fair and trustworthy. At the same time, open source allows the gamers to run the game when there is “centralized tyranny”, or when game publishers decide to shut down the game due to financial reasons. Thus, blockchain technology greatly empowers the gamers against game publishers by providing possibilities for community governance.

However, since launching games on blockchain makes them susceptible to copying and thus make them less lucrative, traditional game publishers might be reluctant to embrace blockchain adoption**. As such, we believe that new blockchain-powered game publishers will revolutionize the industry and force the traditional game publishers to adopt and embrace blockchain technology.**

Focusing on improving and optimizing traditional video games, the “blockchainization” process will start from on-chain game currency issuance, to on-chain game asset management, smart contract storage and execution of core game logic, and eventually to running the entire game on blockchain. For traditional video game publishers, blockchain integration is a new direction worth exploring.

• Token Incentives and Community-Ran Games

A well-designed, outstanding game should achieve “autosynthesis”, meaning that it allows gamers to design gameplays that cater to their own likings. In traditional game industries, game publishers oftentimes fail to consistently provide quality update patches, resulting in significant gamers loss. There could be new ways for gameplay, new rules, and even new tokens issued in these new worlds. In such cases, players will never be bored from completing the same tasks over-and-over again — resulting in a high level of user engagement and keeping the gamers interested and engaged. In general, blockchain integration encourages user-generated contents and extend the life cycle of certain games struggling to keep their players.

Decentraland is a perfect example of how blockchain integration could achieve community governance and auto-synthesis. Similar to Oasis in the movie Ready Plyaer One, Decentraland is a virtual reality platform powered by Ethereum. In Decentraland, players can buy land with MANA, the original in-game token. Land purchased by players belongs to the players themselves and stored in the form of Non-Fungible Tokens. Players can also create 3D, virtual reality scenes in their purchased lands and interact with other players. XOM-8: Scrapyard Escape is a first-party game built for the Decentraland platform; in the future, players can access their lands on mobile devices, internet browsers and VR headsets.

Reconstructing Relationship Between Developers and Distributors

In the traditional mobile game industry, the quality of a mobile game typically depends on the gameplay design and development. However, the financial success of the game depends on the promotion and cover over distribution channels. Although the big distributors had access to a major portion of the gamers, there are still a considerable group of players with their individualized demand unsatisfied. However, developers with games that meet these specific demands are limited by their ability to connect with potential gamers.

In this context, the traffic-integrated SDK came into being. On the one hand, SDK docks a large number of small and medium-sized distributors, such as China’s AnySDK, Yishang SDK, and Easy-to-connect SDK that are connected to hundreds of Android and iOS apps. On the other hand, developers can save time and effort by using the traffic-integrated SDK, reducing unnecessary troubles caused by developers accessing from scattered channels.

However, traditional traffic-integrated SDKs are centralized in nature, and the service providers will take a significant cut from the game sales. Because small distributors do not have their own SDK and have to rely on large service providers, the mistrust issues are prevalent. With blockchain integration, a fully transparent, decentralized distribution interface could record and store user data without worrying about the risk of being falsified — thus resolving the trust issue between developers and distributors. The traceability of blockchain technology also makes it suitable for developers targeting small-sized subgroups, as it allows developers to design incentivize structure based on the analysis on its potential players. Thus, a blockchain integration could seamlessly benefit independent developers, small distribution channels, and users at the same time.

What’s more, blockchain integration might also result in a new decentralized distribution model for video games, such as the decentralized game distribution network Abyss and Referreum.

Reconstructing the Relationship between Virtual and Reality

In the traditional video games, players do not actually “own” their in-game virtual assets, and their assets are constantly threatened with depreciation due to game publisher’s ability to print more money at will. At the same time, virtual assets today have low liquidity, and trading on unofficial marketplaces/platforms bear significant risks. blockchain games, however, solved this discrepancy with Non-Fungible Token design, allowing users to store, manage, control their own assets on the decentralized blockchain network. Blockchain integration makes in-game virtual assets more valuable, liquid, and worth collecting, thus opening up the era of digital collectibles. Trading in-game virtual assets on the blockchain could also be implemented by smart contracts for frictionless peer-to-peer transactions in a trusted environment, where all transaction history could be accessed by anyone on the blockchain,

At present, while there are many proposals for NFT asset standards, only ERC-721 standard was officially confirmed and finalized. ERC-721 is a new ETH-based standard proposed in September 2017 by Dieter Shirley, the technical director of Axiom Zen, the company behind Cryptokitties. Cryptokitties is also the first decentralized game adopting the ERC-721 standard.

ERC-721 token standard is one for “Non-Fungible Tokens”, which simply means that each token is unique. Unlike traditional homogeneous — “fungible” — tokens (such as ERC-20 standard), each ERC-721 token has a unique token ID. As such, partial ownership is not allowed as in other fungible token standards, and the “balance” of an ERC-721 address only refers to the number of ERC-721 tokens owned by that address.

Officially confirmed by the Ethereum community in June 22, 2017, ERC-721 token standard defines a set a of behaviors and events that the token contract can do, including the movement, ownership, and information about non-fungible items such as in-game weapons, skins, and characters, where each token is completely unique and non-interchangeable with other tokens. The uniqueness of ERC-721 tokens allows virtual assets to be stored, collected and traded through blockchain, maximizing the value of in-game virtual assets and bridging the gap between the analog and digital world.

Shown in the image below, according to rarebits.io, there were overall 3947 items sold in CryptoKitties in 7 days, with trading volume totaling around 100 ETH. Based on these numbers, the app generates around $200,000 in monthly volume, similar to that of the AAA mobile games. The fact that CryptoKitties has been running for almost a year, with its monthly volume once peaking over $15,000,0000, demonstrated the huge potential of the ERC-721 token standard.

Reconstructing the relationship between games

Due to the interoperability feature of the blockchain technology, an asset could be used across different blockchains. For example, the kitties (represented by ERC-721 non-fungible tokens) in Cryptokitties could be modified and simultaneously used in other games. As games become interoperable and connected, blockchain also serves as a library with information available for access by anyone at any time, leading the new era of user-generated contents.

For example, Crypto Cuddles is a kitty battle game built on Ethereum and around the Cryptokitties ecosystem. players have to purchase kitties on Cryptokitties first in order to battle against other kitties in Crypto Cuddles. Similarly, Etheremon is a crypto-collectible game that users can discover, buy, sell, train, evolve, and battle against other monsters. Etheremon’s recent integration with Decentraland makes the game far more immersive and memorable.

Reconstructing the Economic System within Games

Blockchain technology could facilitate the reconstruction of a given game’s virtual economic system. With the help of blockchain, designing in-game virtual economic system moves beyond the simple numerical planning to a construction of a token ecosystem; simply put, blockchain technology allows for the construction of a trustworthy, friendly, and open in-game token system, resulting in a paradigm shift of the video game industry.

• A Friendly Token Design

Traditionally, in-game virtual economic systems are isolated from each other — game developers build an isolated virtual world and levies “admission fees” and “user fees” to generate revenue. However, due to the impossibility of converting virtual assets into other virtual assets or real-world assets, players can hardly benefit or profit from the virtual assets they own, as they serve similar functions as “karma points”.

In blockchain games, however, token systems could be one that is open and has external interactions with other virtual or real-world economic systems. The original tokens issued by the blockchain games could be exchanged into other major cryptocurrencies. As such, the interconnected token system together forms an open “foreign exchange” system similar to that in the real world, which allows for interaction and exchange in value.

• Limited Issuance of Tokens

Traditional video games have already applied the concept of mining — “farming” — into their economic system, as it in the original sense means to kill monsters or complete tasks for the express purpose of earning in-game currencies or obtaining items. However, because there is unlimited issuance of monsters and tasks — “tokens” — in traditional video games, there will always be money printed in this virtual ecosystem. As such, players do not have access to information such as total circulation of in-game tokens — making the token market extremely opaque.

The native tokens of blockchain games are managed on-chain, thereby creating a consensus regarding the condition and size of the macroeconomic system.

• Paradigm Shift of Game Evaluation Model

Game Publishers today often have a hard time satisfying both “playability” and game balance; “How to make playing games an enjoyable experience for all players, while avoiding the aggregation of wealth in a small number of super-players that will destroy the game balance” is a question game publishers always have to answer.

However, because premium players — ones who spend a considerable amount of money in given games — are more important than free players due to their potential ability to generate massive revenue, video games and game publishers today are judged by their ability to profit, rather than the ability to benefit the players. Due to blockchain’s community-driven nature, blockchain integration will result in a paradigm shift of evaluation standards for video games and game publishers.

With the help of blockchain technology and token issuance, developers can design a healthy, self-sustainable economic system that allows for collaboration and competition between players, one that will provide enjoyable gaming experience similarly across free and premium players. At the end of the day, the value of a blockchain game will be reflected in its native token price; rather than revenues generated, blockchain games in the future will be valued by its network effect as well as the value created in the ecosystem. This is to say, the community-driven in-game economic system will result in a paradigm shift of the game evaluation model.

The recently launched Neoworld is the epitome of blockchain game and community-driven economic ecosystem. In Neoworld, players collaborate to create a 3D virtual world on blockchain. Players can use NASH, the native Neoworld token, to purchase in-game assets, such as land, buildings, or content/service offered by other players. The land player are virtual assets stored on the blockchain, with its ownership belongs to the players. Players with land can build buildings to offer services and generate revenue, while players without land could also receive reward by working for players through working for the service providers and land owners, with the rewards coming from the mining pool. Under this game design, the relationship between players are collaborative instead of competitive, facilitating a healthy development of the virtual ecosystem.

A portion of the land auction sales and construction are charged by the game developers for the goes to the game developer cost as transaction fee to support game operation and the continued development of the ecosystem. As such, the value of Neoworld relies on the network effect, or prosperity, of the economic ecosystem.

2.3 How Far are We from the AAA Blockchain Games?

Although blockchain integration will benefit the tradition video game industry from many aspects, there hasn’t been massive adoption of blockchain technology in the industry. Specifically, we believe that there are currently five major obstacles that hindered the blockchain integration in the video game industry:

• Low User Activity/ Crypto Wallet Required/ High Cost/ High Entry Barrier/Complicated Private Key Storage and Management

Currently, most of the Blockchain games were built in the form of Dapps on Ethereum**. While many could be accessed from web browsers, they require cryptocurrency wallets such as MetaMask. Due to the gas design of Ethereum, players will have to pay considerable ETH as gas consumption during transactions. Even for EOS that seemingly avoided the use of gas, players still have to pay for bandwidth, CPU, and RAM as they are limited resources on EOS. Creating an EOS address is also rather complicated.** Moreover, asymmetric encryption of blockchain technology required users to properly manage and store their private keys. Once lost, the address as well as the virtual assets cannot be retrieved. Because public blockchain infrastructures are not interoperable, blockchain users will have to simultaneously manage many private keys, greatly increasing the difficulty and risk involved in playing Blockchain games.

According to State of the Dapps, although there are currently about 1,700 Dapps on the market, they only averaged around 7,000 DAU, with the most active Dapps being decentralized exchanges. Although blockchain games are the second largest Dapps category, they are still far from competing against the traditional AAA games with million concurrent users. Take one of the most successful blockchain game CryptoKitties for example, although DAU peaked at about 14,000 when it first came out, the activity rapidly declined to very low level.

CryptoKitties users and volume comparison

• Early Stage of Blockchain Integration, Most Games are Primitive

We believe the blockchain integration will happen on two fronts, one on the integration with traditional video games, the other on the development of purely blockchain-powered games. At present, the integration with traditional video games is still at the early stage of on-chain token issuance, asset management and game logic operation. Most blockchain games bear simple and primitive gameplay design.

On-chain token issuance is relatively easy to achieve; it could be done with connecting to a Cryptocurrency wallet so that the worthless “points” can become valuable assets stored in the form of tokens which can be liquidated. A typical example is the Candy.One platform, which introduced many traditional simple Chinese arcade games. Through these games, players can earn in-game points that can be exchanged for Candy, the native token, and eventually exchanged for actual money. Enjin also launched its own Enjin SDK and collaborated with Unity3D, the world’s largest game development engine, to provide game developers with SDK to store in-game virtual assets in Enjin wallets.

On-chain operation of game logic simply means having the game executed by smart contracts, and plug into the main contract, which is relatively complicated. What’s more, if the game design is too complicated, it may lead to unnecessary cost due to the gas design in major blockchain infrastructures, not to mention the difficulty to run large game smoothly with limited resources and expensive fees. Most importantly, when the written in the blockchain, it means that they are vulnerable to copycatting, which most developers will be concerned. Currently, most blockchain games have few built-in smart contracts, ranging from a few to dozens, mainly for running core game logic, such as breading in CryptoKitties.

In fact, most blockchain games are completely blockchain-powered rather than the blockchain integration with traditional video games. Without the necessary experience and foundation, the blockchain games today bears rather primitive gameplay design. To players accustomed to the AAA games offered by major centralized game developers, blockchain games today can hardly be appealing. As such, blockchain game players and hardcore video gamers are two different groups of people. According to stats from Huobi Research, currently Ethereum-powered blockchain games are mainly concerned with primitive gameplays, such as simulation, simple strategy, casual, and lottery, led by collection games.

• Limited by Infrastructure: Current Blockchain Infrastructure Cannot Meet the Requirements of AAA Games Due to High Latency

Low-to-no latency is a prerequisite for a smooth game experience for most AAA online multiplayer games. Traditionally, online games on specially designed servers built by game publishers; for popular games, game publishers might choose to operate multiple servers to break the players up**. Still, MMORPG servers have to be able to afford more than 10,000 players at the same time and process tens of thousands of requests and interactions every second.** Due to the low TPS and long confirmation time of current blockchain infrastructures like Bitcoin, Ethereum and EOS, it is impossible to expect blockchain games today to become as intricate in design and massive in scale as the MMORPGs we see today. Instead, blockchain integration today is possible for games with less interactions and low latency requirements, such as Hearthstone and Magic: The Gathering.

• Blockchain Games Filled with Speculators; No Sustainable User Retention Method

Blockchain games have the potential advantage of transparent, and higher asset liquidity. However, although these features are not intuitive to the players, the game experience of blockchain games are still not comparable to the traditional online games. In order to attract users, blockchain games usually explicitly or implicitly market itself as ones that will help the players make money, thus attracting a large number of speculators. Usually, the players make money from latecomers — bears resemblance of a Ponzi scheme. When the hype dies down and no users joining, the game will collapse instantly because it was swallowed up and overdrawn by speculation.

PoWH (and other related games) is a perfect example of speculative games. The game allows players to buy and sell tokens with ETH with a 10% transaction fee. The transaction fee will be distributed to players according the proportion of the tokens held by the players to the overall tokens — a blockchain-powered Ponzi scheme. After the game become popular, many copycat games quickly followed, but none of them could compare to the original PoWH game; most of the copycat games went died down after a few days and the transaction volume and DAU dropped sharply to almost 0. The reason is that, the hype of these games is driven by greed and speculation, and these games have no sustainable method for user retainment**. An outstanding game should be fun to play and have a healthy supporting game community.** Blockchain games still have a long way to go before their playability could be compared to traditional online games.

Chapter 3. Current Blockchain Game Industry

3.1 Current Blockchain Game Ecosystem

Currently, the “blockchain + game” industry could be mainly divided into 1. Blockchain infrastructures and developer tools; 2. Blockchain-powered markets for in-game assets; 3. Blockchain games; 4. Blockchain-powered game distribution platforms and communities; and 5. Other tools and services. We believe that the blockchain integration will start from with infrastructure and developer tools, meeting the requirement of traditional game publishers and allowing more games to be deployed on-chain. The market will then thrive at the time that sees the emergence of multiple killer blockchain-powered games. With the increase in the activity in the blockchain games, blockchain-powered market for in-game assets will then receive massive attention due to the need to trade virtual assets, as well as the blockchain-powered game distribution platforms and communities. With the gradual development of the blockchain game industry, the peripheral tools and service providers will also receive stable development.

• Blockchain Infrastructures and Developer Tools

Cocos-BCX: An end-to-end solution for blockchain game development. Cocos-BCX provides a complete blockchain game development component, called SDK, which is integrated into Cocos-BCX runtime. With this technique, developers can deploy games via SDK, and moreover, asset customization ‘the Smiths’ and the conversion and exchange of Non-fungible game tokens can be achieved. Meanwhile, the team of Cocos-BCX develops a game public chain based on DPoS consensus mechanism. This chain extends the block size of general Graphene blockchain network, and on-chain custom data structure is added on this chain to ensure that the underlying performance can support the games.

Egretia: Similar to Cocos-BCX, the team of Egretia also develops its own game public chain and adopts DPoS consensus mechanism to maintain the performance of underlying layer. Meanwhile, blockchain functions on Egretia’s public chain is modularized and integrated into the Egretia engine, which contribute to developers connecting games and games’ virtual assets to blockchain (including Egretia’s own public chain, Eth, and Eos). Egretia will build up gaming distribution platform, virtual asset trading platform, and advertising platform base on its native token ‘Egreten’.

Laya One: The Laya One system also contains ‘blockchain gaming development component’ and ‘self-developed gaming public chain’, of which the Laya chain contains two parts: DPoS infrastructure and distributed trusted node (the operating environment of the game logic and adopting PoW mechanism). Meanwhile, Laya One provides users with a blockchain game terminal as an interface for users to access the Laya platform games, communities, and the virtual asset trading platform. In addition, in order to support game developers, game developers can conduct crowdfunding based on the Laya One platform.

Loom Network: Different from the way of building a self-developed game public chain, Loom Network adopts Layer 2 scaling solution to improve the performance of public chain, which supports highly-frequency interactive game Dapps. On the one hand, Loom Network provides developers with blockchain game SDK, which allows developers to deploy a customizable consensus mechanism Ethereum sidechain for their Dapps**,** called ‘DappChain’. Also, with the help of “Plasma Cash” technology, the virtual assets stored on the sidechain and mainchain can be securely transferred. On the other hand, Loom Network also deploys a DPOS Ethereum sidechain to support developers to deploy Dapps on the chain. Thus, Loom Network is dubbed ‘EOS + Ethereum’.

• Distribution Solution for Blockchain Games

Enjin: Enjin provides developers with an SDK toolkit that is compatible with many engine plug-ins such as Unity3D, Minecraft, Unturned, and Unreal. Moreover, developers can add ‘Enjin Coin’, the native token in the Enjin ecosystem, to the game distribution system for the secure convenient payment gateway. Smart contract can create virtual assets in the game via ‘Enjin Coin’. Meanwhile, in order to promote the circulation of virtual assets in the Enjin ecosystem, Enjin has launched an exclusive smart wallet and a virtual asset trading market for users.

• Virtual Asset Creation and Management Modules

Fan Bits: Fan Bits is a platform for users (mainly creators, artists, musicians, etc.) to design and create NFT assets themselves. It can turn ideas into collectible cryptographic assets and store them on the Ethereum blockchain. The corresponding encrypted collections can be sold to fans through the Fan Bits platform. After deducting certain fee from Fan Bits, the rest of the money will be given to the creator, and also part of money for the transaction between the fans will be given to the creator.

Mokens: Mokens is developed by Nick Mudge. Similar to Fan Bits, it is also a platform for independently designing and distributing NFT assets. The NFT assets issued by users are called Moken, which has a unique Moken ID (Moken1, Moken2, and so on), and they are stored on Ethereum blockchain. The Moken meets the ERC 721 standard. The released Moken assets can be reused in Dapps or traded in the virtual asset market.

0xcert: 0xcert is a blockchain open source protocol providing a complete set of solutions and tools for the creation, validation, verification, transfer and management of NFT-type assets. Based on 0xcert, virtual assets and physical assets can be converted into NFT assets on the blockchain, called Xcert, which is compliant with the ERC721 standard. Oxcert facilitates developers to create Dapps based on NFT assets.

ZeppelinoS: ZeppelinOS is an open source project of Zeppelin company. ZeppelinOS provides developers with a complete set of on-chain upgrade projects and the Dapp development based on EVM and Ewasm. ZeppelinOS allows for the creation of ERC-721 standard assets.

• Emerging Virtual Asset Marketplaces

OpenSea: OpenSea was founded in January 2018, Silicon Valley, USA. OpenSea is committed to building a comprehensive peer-to-peer market for encrypted collections, and it has received seed round investments from institutions such as Y Combinator and Coinbase. At present, 37 blockchain games have joined in the Opensea. Users can browse and trade nearly 1 million blockchain encrypted collections (some links from other third-party trading platforms or official trading markets). Since the launch of Opensea, more than 600 transactions have been completed in the internal platform (excluding External links), with a total transaction volume of approximately 500 ETH.

RareBits: RareBits was founded in July 2017, Silicon Valley, USA. RareBits is a free peer-to-peer encrypted collection market, and it received round-A financing from Spark Capital, First Round Capital and the Twitch founders: Emmet Shear and Justin Kan. At present, there are 20 blockchain games in RareBits. Users can browse and trade nearly 850,000 blockchain encrypted collections on the blockchain (some links from other third-party trading platforms or official trading markets).

GAEX: GAEX is a blockchain gaming asset circulation and service platform, which is created by the Bit.Game team. The GAEX is dedicated to grow with users and communities. The platform is divided into three sections: Bit.Game Game Exchange (GAEX), Bit.Game Solution (Game Asset Distribution Service), and Bit.Game Platform (Game Developer Support Service). The native Token in the Bit.Game system is “BGX”. In order to encourage users to participate in the gaming ecosystem and to achieve a win-win situation for partners, Bit.Game initiated the concept of “game is mining”. Users can mine the tokens in the Bit.Game, which is interfacing the mining SDK.

Hash Future: Hash Future was established in January 2018. As a platform and bridge linking the physical and digital world, HashFuture aims to solve the problem of digital assets property rights issues and cross-chain asset transfer. HashFuture develops a brand-new three-dimensional, one-stop, digital assets affirmation and circulation platform on blockchain, using the structure of ‘protocol layer — technical layer — application layer’.

• Blockchain Integration with Traditional Virtual Asset Trading Platforms

GameFlip: GameFlip is founded in 2014, and its headquartered is located in Silicon Valley. It initially makes profits from the game items and game peripherals C2C selling and purchases. It supports PC and iOS and Android. The platform has more than 2 million registered users and 500,000 monthly active users. In November 2017, the blockchain transformation began. It would like to become a decentralized prop trading system in the support of the blockchain technology, and the exclusive Token “FLIP” is introduced.

DMarket: DMarket (DMC) was established in January 2017. DMarket is a virtual goods trading market based on blockchain and smart contracts. It was founded by Volodymyr Panchenko, who is the founder of Skins.cash, a global game accessories trading platform. The crowdfunding was completed in August 2017. This project is supported by many institutions, including Pantera Capital and Unity Technologies. At present, the website mainly supports the trading of virtual items in the traditional game CS:GO and DOTA2.

• Blockchain Games

Virtual Pets: Taking CryptoKitties as the typical example, it is the first phenomenal game Dapp, and it is also the longest lifecycle game. It has been in operation since November 2017, and it still has a running account of around 200 ETHs, measuring as nearly 100,000 US dollars. The game Dapp, which includes the development and synthesis design, all involves features of attribute growth and combination, reproduction, generation and drop. For example, in Cryptofighters, users can use cards to play against, and then they gain experience. In addition, new cards will be created in the battle of specific cards. Additionally, CryptoKitties can be used for breeding, and Etheremon can be used to train monster pets. The more training, the value of the monster pet is greater.

Virtual Asset Trading and Auction: The auction and trading of game assets are the core business of these projects. The subject matter of the transaction can be anything, including the country, the land, and the celebrity. This part of the assets is a form of ERC721 non-standard assets. Each asset is unique. The typical game is CryptoCountries. The nature of this type of auction-driven game is communication flower, which requires players to buy at a higher price. As a result, the ecosystem can be sustainable. The profit model of the game is relatively simple, that is the platform charging transaction fees.

Treasure Chests: Part of the RPG game like EtherOnline incorporates the chest opened, a gameplay of the traditional mobile game. The player can spend a certain ETH to open the treasure chest and get the game equipment randomly. The treasure chest is a smart contract event. The equipment opened by the treasure chest can be synthesized and upgraded. Players compete by wearing equipment, which will encourage players to spend more ETH. The other model is the smart-contracted game of quiz and gambling and some card games.

Dividends: This type of gameplay could be traced back to EtherGoo, an independent game on Ethereum. In the game, every day, players will receive dividends based on the amount of game tokens, Goo, that they hold. Players can get dividend from the 10% of ETHs that the player recharges into the game smart contract every day. With the encouragement of this mechanism, new players will join in the game, and they will work hard to get more Goo. Goo can be produced by the player’s own lab or by plunder. The fund-gaming games like PoWH3D and Fomo3D also adopt a similar dividend mechanism. The game player’s income depends entirely on the ETH that the player inputs.

Sandbox World Creation: This type of gameplay is very similar to the traditional games such as the “Virtual world”, “The second life” and “MineCraft”, which gives users and players more freedom to play. Users can build various buildings and operate different business. Unlike the previous games, this type of gameplay often has its own native Token, and it is used to motivate the entire community to build a virtual world together. Furthermore, this token is used to be payment and consuming tools in the virtual world.

• Blockchain-Powered Game Distribution Platforms and Communities

Refereum: Refereum is committed to creating a win-win environment for game anchors, gamers, game developers (studios) through blockchain, smart contracts and Token incentives. The platform has deep cooperation with game engine Unity, game live platform Twitch, and game voice platform Discord. The team has related backgrounds such as Unity, Zynga, Ubisoft and so on.

Abyss: Abyss is committed to build a multi-layered game referral incentive system and to become the mainstream platform for future game distribution (mainly MMO games and blockchain games). Abyss allows players and developers to earn tokens from gaming-social spending and other players’ spending. Abyss is also the first blockchain project to use the DAICO model for financing.

Morange Network: Morange Network is founded in May 2015. Morange Network was originally a game operation service provider, and later it constructs a trusted distributed traffic platform based on blockchain technology. Morange Network acquired the angel wheel financing from the universal blockchain in April 2017.

• Other Tools and Services

MetaMask: MetaMask is a web browser plugin, which is compatible with Google Chrome, Opera, and Firefox. MetaMask allows users to open and run Dapp on the browser through the Web3 JavaScript API (It allows Dapp to communicate with the blockchain).

Toshi: Toshi is a mobile Ether Dapp browse, and it also has the wallet and social functions. Toshi uses a variety of open protocols, including Whisper Systems’ Signal protocol for end-to-end encrypted chat, Ethereum network for transmission of value, SOFA protocol for driving Dapp (this protocal will use the Web3 JavaScript API in the future), and the uPort Identity Protocol to store user profiles (coming soon).

Trust Wallet: TrustWallet is a mobile wallet that combines the functionality of Dapp browser. The wallet supports the ERC20 and ERC223 Tokens of the Ethereum network. The Dapp browser can be used to interact with any Dapps. Trust Wallet puts the reviewed Dapps into its Dapp market and allows users to use Dapps directly through the Dapp market.

Token Pocket: Token Pocket is a mobile multi-chain wallet that supports EOS, Ethereum, Ink, Wellcome and other underlying public chains. Token Pocket provides EOS memory trading, EOS mortgage and other functions. Its client has a Dapp store. Token Pocket provides developers with the Dapp js SDK.

ImToken: mToken is a mobile multi-chain wallet that supports Ethereum and Bitcoin. ImToken contains multiple Dapps, and with the link on imToken, users can use the services provided by the Dapps. imToken is compatible with the Web3 JavaScript API, and it provides developers with a comprehensive imToken SDK documentation.

Tenzorum: Tenzorum is a distributed key management tool and protocol that provides users with one-stop interaction with different brands of Dapps. It eliminates the need for repeated authentication and for simultaneous management of multiple account private keys. At the same time, Tenzorum uses private key storage technology to store and find the private key.

DappRadar: DappRadar is a comprehensive Dapp information and data website that provides users with data and rankings of various Dapp active users, transaction volume, and the balance of smart contract address. Developers can upload their own Dapp to the website, and DappRadar also offers a paid-listing service.

DappReview: DappReview is the first Dapp navigation website and evaluation platform in China, which provides users with various Dapp data and analysis, including the number of active users, transaction volume, number of transactions, etc. It provides developers with Dapp promotion, user data insight, and consulting services of designing a game Dapp.

Non-Fungible: Non-Fungible.com is a data summary and search website for the NFT Dapp project. Its interface design is match with the blockchain browser. Currently, it only supports five gaming dapps: CryptoKitties, CryptoPunks, Decentraland, EtherBots, and Etheremon.

State of the Dapps: Similar to DappRadar, State of the Dapps is a Dapp information and data integration website. It provides users with data of a variety of Dapps, active users, transaction volume, number of transaction and other data. Furthermore, it provides Dapp list. The website also provides Dapp promotion services for developers.

Chapter 4. Future of Blockchain Integration

4.1 3 Questions for the Development of Blockchain Games

Huobi Research believes that there are three major issues need to be addressed before blockchain games can achieve mass adoption. Below are the questions and our answers for them.

Q1:Is Native Token A Must?

Blockchain games today can be categorized into those with native token (such as MANA in Decentraland and NASH in NeoWorld), and those without. Most games don’t have native token design, rather they use the base-layer token for in-game currency. In general, we believe it depends on the design concept of the blockchain games.

ž Blockchain games can user native token as foundation to build player communities; at the same time, native token allows for more complicated business models designs, creating a win-win situation across players and developers. As such, similar to game publishers, token holders will also have incentive in participating management and maintenance of the game.

ž Blockchain games without native token design have a limited selection for gameplay and business model designs. As such, they are suitable for simple but effective gameplay designs, such as the breeding, collecting and selling of virtual pets. What’s more, a blockchain-powered, community-driven ecosystem is hard to achieve without a native token design

Q2: How to Achieve Blockchain Integration?

With the proper token design, blockchain integration could result in a self-sustaining ecosystem where developers, publishers and gamers share common interests. Specifically, they manifest in three forms:

（1）Incentive Mechanisms: Proof-of-Work and Proof-of-Stake in Blockchain Games

• Proof-of-Work in Blockchain Games

Online games are a great place for PoW mechanism integration, since level, online status, rewards and achievements are already different forms of “PoW”. Blockchain integrations means that players will receive tokens or other non-fungible token assets for playing the blockchain games. AT the same time, the PoW mechanism made it possible to break the barriers of previously isolated in-game economic systems.

• Proof-of-Stake in Blockchain Games

Blockchain games could also utilize PoS mechanism design to make gamers a crucial member in the decision-making process, where players can vote with their tokens owned to approve and reject development proposals. Players could also receive dividends from the game according to the portion of tokens owned. As there is currently voting for token-listing in cryptocurrency exchanges, there might be voting for game-listing in the future.

（2）Non-Fungible Token Assets as the Key to In-Game Economic System Design

In-game assets are the key to blockchain games. As such, it is crucial for the virtual economic system to increase the collectability and scarcity of the in-game virtual assets. As such, cards, items and characters in blockchain games should be stored on blockchain in the form of unique non-fungible tokens, where the peer-to-peer nature and multi-signature feature of blockchain allows for a trustless environment for asset trading and maximized the value of virtual assets. At the same time, players will also be benefited as they no longer have to trade on unofficial online marketplaces that bears significant risks.

When virtual assets become exchangeable and valuable, game developers can choose to raise necessary fund for development through virtual assets pre-sales.

（3）Encourage User-Generated Contents

User-generated contents covers a wide range of activities, including creating sub-worlds (like RPG maps in Warcraft series), writing game reviews, sharing games, designing gears, characters according to the SDK toolkits offered by the game developers. As the users contributed to the ecosystem by generating such contents, they should be properly rewarded; in the future, game developers should design proper and viable incentive mechanisms and token systems in order to facilitate the healthy development of the gamer communities and game ecosystems.

Q3: Discovering Sustainable Business Models for Blockchain Games (or Blockchain Integration with Traditional Games)

From the primitive “Pay-to-Play” business model (represented by The Legend of Mir 2), to “Free-to-Play” model (represented by Zhengtu), blockchain integration could result in the creation of a brand new “Play-to-Earn” business model that allows for exchange of value between the virtual and analog world and frictionless exchange of value. Through this process, game publishers gradually evolved from generating revenue through subscription sales, to generating through item sales, and eventually through transaction fees. In the age of blockchain integration, players could even create virtual assets on their own, which could be exchanged for virtual and real assets, where developers and publishers could also benefit from transaction fees.

In the future, there will be an explode in the number of games offering ERC-721 standard token assets, another significant progress after the invention of ERC-20. It would be achieved on two fronts: one on the circulation and appreciation of the ERC-721 assets of a given blockchain game, and in the form of authorizations to the use of intellectual properties.

4.2 Future Trends in Blockchain Game Design

• Tokenizing Board Games with ERC-721

Originated in Germany and usually created with paper materials and exquisite models, board games are a type of face-to-face game that emphasizes on communication between players. The immotile nature of board game restricted the playing, carrying and promotion of this game. With the help of the blockchain and the Internet of things (IoT) RFID, board games can be ran on blockchain in the form of ERC-721 tokens to write the related attributes and data of the board game material into the blockchain, and establish the ownership and uniqueness, so that the board game can be transformed from an “offline game” to the “online + offline”.

Board games obtains liquidity after tokenization, allowing for ownership transfer (even across Dapps); The ownership of the board game is established through the blockchain, the asset will not fall into the hands of others even if the physical object is lost. In addition, blockchain can protect the copyright of board games, and to a certain extent prevent piracy. For example, the manufacturer can set a cap on the available number of physical games on the blockchain according to their releasing amount. When copyright is protected, board games have attributes of collectibles, greatly enhancing its value. PlayTable is a blockchain-powered smart game tablet that can enables the interaction between the tablet game and blockchain developed by the Silicon Valley startup company Blok.Party. With the help of the RFID (radio-frequency identification) tags, PlayTable recognizes the unique attributes recorded on the blockchain of the physical chessboards or card games, such as the level, the user activity, on the blockchain. In theory, any physical object can be tokenized and tracked by utilizing RFID technology.

Specifically, the players can use bare hands or smart phone to control the action of roles on the screen of the console. PlayTable supports at most 8 players at the same time and is strongly interactive. Currently, more than 20 games has already deployed on the Playtable platform, including Battlegrids, Catan, Monopoly, and Texas Hold’em.

• Blockchain-Powered Cloud Game Service with Incentive Design

Cloud games are achieved through the utilization of cloud computing technology, where games are ran on remote servers without needing to download and install games or to consider terminal configurations; internet connection is the only requirement to running games that require high processing speed. Specifically, the cloud game is achieved through storing, executing, rendering of data all on a remote server. The keys to cloud game platform operation are network speed and the server quality.

Onlive and Gaikai are the earliest companies focused on cloud gaming plaforms. Onlive sells a gaming console that can be connected to mobile phones, personal computers and TVs, while Gaikai does not require the purchase of any consoles. In order to ensure high network speed and low latency, Onlive and Gaikai deployed a large number of high-quality servers (essentially one for every player, each with a separate CPU and GPU). The two cloud game platforms generate revenue mostly through subscriptions, but due to high cost associated with server and broadband deployment, the cloud game platform service providers can barely generate profit. Later, Sony and Nvidia have launched their own online cloud game platforms: PS Now and GeForce, but both faced problems of high cost and low revenue.

The introduction of blockchain technology is expected to change the awkward predicament of cloud game platforms and utilize the concept of distribution to distribute the cost of game operation to nodes (miners) and reward them with tokens for their work.

• “Mining Console”; Blockchain Upgrade of Traditional Game Hardware

Traditional console manufacturer such as Nintendo, Sony, and Microsoft today sell consoles at relatively low prices (Xbox one and PlayStation 4 for $499 and $399, respectively, but with hardware costs of $388 and $339. When considering R&D, hardware is almost unprofitable, or even losing money). Through occupying the market with low-price consoles, the console manufacturers then generate revenue through royalties collected from game developers. What’s more, console manufacturers strictly control game quality to ensure the game’s market performance. For example, Nintendo’s used to produce their game disks in such a way that the number of copies made could be strictly controlled. In addition, the console manufacturers will also acquire high-quality game developers and studios to further their control of the vertical. However, this resulted in a centralized and monopolized video game industry where console manufacturers have unrivaled negotiating powers.

We believe that in blockchain integration will completely evolve the current business model of the video game industry from selling consoles to selling “miners”, where players could receive rewards in the form of tokens through playing blockchain games, made possible by the SDK provided by console manufacturers. Game time and in-game contributions could serve as measures to determined rewards received by individual players.

Unlike traditional video game consoles, “miner” of blockchain games are operated in an open and decentralized nature, where game publishers could pay a certain fee to have their game available for the console gamers. With the lure of token rewards, outstanding games will receive more attention, playing time and user ratings. The players also benefited by receiving token rewards through gameplay.