Web3 & Me
Web3 sucks, thanks for reading!
Kidding, kind of. Before every crypto head runs off and flames me on Twitter, stick around and maybe there will be a token drop you can profit off of before the post ends – imagine if Elon talks about it too? Okay, I will stop being facetious … I just couldn’t help it. But this is essentially my problem with web3, blockchain, and crypto – name your acronym or buzzword of choice. It is an incredibly misunderstood concept, with some bad actors, but has an underpinning revolutionary technology. On top of that, the barrier to entry for this ecosystem is so immense, because of the sheer knowledge needed to comprehend it on a meaningful level. Simply put, engaging with web3 is an onerous task at best. All that being said, I believe there is enormous value to be unlocked for developers and consumers if the technology is used appropriately. Today, we are going to dive deeper into what the hell web3 is and its relevance in the gaming industry. In particular, paying close attention to the current problems and how companies can add value by utilizing the tech in a better way.
Also, for clarity, when I use the word web3 I simply mean anything that uses blockchain technology or interacts with it (some people specifically mean the theory of the new web, which will be discussed below).
About Web3
So, what is web3? Well in a reductive sense, it is the umbrella or theory over which blockchain and cryptography were created. In essence, it is the thought that the internet and personal data should be decentralized, secure, transparent, anonymous, and owned by the individual. Blockchain technology allows this to happen – it is a distributed immutable ledger or database that utilizes nodes to record and validate transactions and information. Blockchain also has infrastructure layers (1,2,3, etc.) and different ways of enabling data storage and transfer. Cryptocurrency is built on top of these ‘chains’ (of which there are many now e.g., Bitcoin & Ethereum are the ones most people know) as a virtual currency. This is further broken down into coins, which are the native currency assets to the chain on which it runs, and tokens (fungible & non-fungible or NFTs) that represent digital assets for projects built on top of these chains. Anddd, I fell asleep while writing that paragraph.
To be clear this isn’t even .01% of the technical explanation of this ecosystem (didn’t even get around to smart contracts and wallets), let alone any information on the firms, history, markets, and intricacies involved with web3. This here is the fundamental problem with web3 and why there hasn’t been mass adoption – the information barrier to entry is so immensely high that the majority of people either choose not to interact with it at all, or simply give up and leave when they see their Dogecoin has dropped 50% in value. Do not even get me started on the jargon and acronyms: Defi / Dapps (anything D in front of it just means decentralized), ERC20/721/1155, DAO, ZK, PoW/PoS, and many more unique Scrabble combinations.
Web3 Made Simple
For those readers remaining, I am going to answer what all that meant in a simple way. Blockchain itself is just a technology that allows users to own their data and digital assets, as well as some other cool stuff – like having a say on how your data is used, acting as a completely anonymous user, seeing any transaction that takes place, and vote/participate on how companies should run or share revenue. Crypto is essentially just a product made possible by blockchain and is a measure of currency or asset ownership in this decentralized ecosystem. Tokens are similar as well but have more functionality in that they can ascribe ownership to virtually anything on these blockchains; and they aren’t only currency but can be art/profile pictures (Bored Ape Yacht Club), gaming assets (skins, avatars, etc.), music, and whatever you could think of. NFTs are non-fungible in the sense they can’t be duplicated and there is only one in existence. Also, everything on chain in theory can never be altered and will exist in perpetuity. That’s really all anybody needs to know. Again, what value does this really have for society and consumers?
The Problems
Many web3 companies are currently selling either an idea, the technology itself, or financial speculation (sometimes simply pyramid schemes). This might be an unfair representation, but very few companies are actually delivering a product that just uses blockchain technology to add value. I will admit that there are many great companies that have always delivered a solid service or are now pivoting and consolidating to do so. While crypto isn’t something that helps me that much, there are many countries and citizens that would benefit from virtual currencies or stablecoins not tied to their struggling/volatile fiat currency. I am also aware that there are purists in this system that want the world to fundamentally change by shifting consumer behavior all the way to the tenants of web3. It is my contention that the reason there are only ~15 million UAW (unique active wallets – think unique users) interacting with blockchain in a world of 8 billion people, is because creators in web3 do not understand how consumers behave or what they truly want. Revolutionary technology takes time to adapt and gain prevalence as waves of innovation take place and businesses/consumers learn how to engage with the new system. This was what happened during this first hype phase of web3 that burst around a year ago, where over $1 trillion of value was lost and millions of users left.
How Businesses Can Capitalize on Web3
As we enter the next phase, companies need to understand some fundamental business rules:
You do not change consumer behavior overnight – you meet them halfway: Convincing everyone to leave their shackles behind and enter into a world with security, ownership, anonymity, and the like is a great idea. Yet, the web2 world is convenient, engaging, has excellent user experience, and is most of all easy to understand and use. Web3 is pretty much the opposite of this. So, instead of jumping straight to the finish line, find a way to integrate your product with current UI/UX and markets, so it’s not a massive shock to consumers. Onboard them with a “web2.5” experience – similar products and services, but with blockchain technology obfuscated on the back-end that enhances value for the consumer. Once they understand the benefits of blockchain and learn to use it in a simplified format, making the jump to an idealized web3 universe is much more feasible.
Sell a product, not a technology: Look, go ask anyone right now if they can explain what web2 is or even how their iPhone works. A common response is, “Something something, server chip tech energy?” You have a large portion of web3 firms selling the tech and asking their users to learn it by themselves without giving them an actual product. This would be analogous to Henry Ford selling the combustion engine to people and saying, “This is the future of transportation!” Do what Ford did, use the tech to build a car. People do not need an engine; they need to get somewhere faster and in a more reliable way.
Understand what consumers actually care about: Do people give a crap that their data is being sold by Meta and Google? Some sure, but as I interviewed over 200 people now on this – I have heard a resounding 15 hell yes’s, 47 sort of’s, and 103 not really’s (the remainder flipped me off or asked why I was in their living room). The point is, while blockchain can do many things, focus on the pain consumers truly feel and then use the tech to eliminate the problem or fulfill the need.
Focus on an industry for a beachhead market: If you want to show consumers the value of a new technology, you must onboard users to show them the utility. I am biased here, but this is where gaming comes in – it is the perfect vertical as a launchpad to show how blockchain can revolutionize distribution, monetization, and enhance ownership and value for everyone involved.
Gaming
Finally, on to gaming. Here are some quick facts for context: 3.2ish billion gamers, 15 million unique ID’s interacting with blockchains, 800,000 web3 gamers, very few games on web3, and I’d argue that almost all of web3 games are not fun and focus on unsustainable P2E (Play to earn) models. Stark by all accounts. Yet, even with blockchain-focused investing dropping over 5x since 2022 Q1, there was still over $2 billion raised by early-stage blockchain startups – with well over 50% of that capital focused on web3 gaming. This is because firms see the value of blockchain for gaming specifically. Gaming is the advent of virtual worlds and virtual currencies. They live and breathe complicated in-game market systems, engage with digital assets, and adapt to new technology quickly. Beyond this, there was nearly $100 billion in digital asset sales (for example - avatars, skins, and loot boxes) for gaming last year. A CS: GO knife skin can sell for over $100,000 and is purely cosmetic. If technology that enabled digital asset ownership had any application, it would be within gaming.
Why aren’t there any great games on web3, why aren’t developers all jumping onto the chain, and why aren’t gamers playing on web3? The reasons are similar to those listed earlier with other web3 firms, but there are also some industry-specific considerations. For one, there is an entire ecosystem already built currently within web2: platforms with millions of users like Roblox, iOS/android app stores, console exclusives, publishing on Steam, solidified distribution/monetization models, or even server and latency stability. There is very little incentive from game studios with an established market to go to web3 with over a billion fewer potential customers. Also, there are intellectual property (IP) concerns, where blockchain inherently eliminates the walled garden and developers have little control over their assets and economy. Since many of the talented devs haven’t jumped over and there isn’t an established market or business model on web3, you have many first-time devs creating sub-par games that fail to deliver a fun experience – which is what gamers really care about. On the gamer side, as we have discussed in length now, there aren’t fun games, they don’t know where to go to play web3 games, and it is too complicated to interact with web3.
Story Time
I played MMOs for many years growing up, and if you know anything about this genre of games, you spend thousands of hours in this virtual world grinding, collecting gear, building up the power of your character, and creating a community to raid and interact with the world. There are even extensive in-game marketplaces that act like a fully functional capitalistic system. Eventually, I got busy (insert – wanted a girlfriend) and couldn’t play games like World of Warcraft anymore. I felt a bit empty when I left, not because I felt I wasted my time (though this happens with many gamers), but because everything I completed in those games was stuck in that game, owned by the developers, and had zero value outside of the game. What if you had the exact same game, and the only differences were that you owned those digital assets that you bought or earned, had complete knowledge of item scarcity and every marketplace transaction, and could take those assets to play in a different game? That would have tremendous value for every gamer. Even consumers that could care less about web3 values would be happy if they could leave their game of choice and use their favorite assets from another game, or just sell their avatar or account for $1000. Blockchain technology, specifically using NFTs to ascribe ownership to digital assets, makes this possible. It is a direct upgrade in user experience for every gamer when done correctly.
Solution
So, what about developers? Wouldn’t this impact their bottom line as they would struggle with containing IP, or enforcing revenue share for publishing? Possibly, which is why many developers and publishers have chosen to stay away from web3 or truly promote the upside to consumers. Look at it another way though and you see the benefits for vendors and creators. First, let’s say Activision decides to exclusively release Call of Duty in web3 and consumers realize the massive upside I just explained – as a competitor you might be screwed because consumers would be demanding asset ownership from you. Beyond the negative externality, there are 3 potential upsides that could actually be a net positive for you as a developer.
The first is that there are currently secondary or black markets where people already sell cosmetics and accounts that you cannot monetize, and as you are forced to ban accounts - you lose money and customers. By utilizing blockchain technology and smart contracts you can actually implement royalties into the secondary sale of an asset, ideally in a non-predatory fashion, that allows you to profit every time an asset is sold. This is a massive source of income that also benefits consumers.
By opening up your IP and allowing other developers to have access to APIs/SDKs and promoting interoperability of your assets – you now have access to every gamer. Perhaps 100 million people play 2D platformer games, if those assets could be used in shooters, role-playing games, or any other genre then you are driving massive traffic and expanding your user base immensely.
Finally, it allows you to be more creative and truly benefit your players. Adding value to the player’s experience has never lost a game studio money or popularity. Even if your competitors aren’t offering digital asset ownership, why shouldn’t you? Because if it’s done correctly, people will come to play your game and be more loyal to even traditional monetization methods that can be intertwined with web3 products. Instead of having to focus on advertising, marketing, or forced player retention through planned obsolescence – you can create the next generation of innovative worlds and games only possible using blockchain.
Final Thoughts
I ragged on web3 a lot here, and that wasn’t my primary intention. It’s because I actually love the potential of what blockchain technology can do for the world. Specifically, as a gamer, I see the potential to enhance user experience and deliver value beyond entertainment. I am just frustrated with how poorly the technology has been used and how difficult it is to actually understand or engage with the web3 ecosystem. If I wasn’t passionate, I wouldn’t say anything.
If you all want more thoughts on web3 gaming or dummy tutorials related to the firms, tech, and interoperability – let me know. Stay tuned for some big news soon, a cool look into UGC platforms, and an interview with an outstanding early-stage startup in two weeks. Subscribe, hit the bell button, like, tell your mom to tell her friends, and get Iceberg Thoughts tattooed on your first-born child – thanks talk soon.
-Brian Romain