Play-to-earn (P2E) gaming is a fast-growing sub-sector of the gaming industry that incorporates blockchain technology and digital tokens, enabling new business models for gaming studios and unique benefits for gamers.
Play-to-earn games are games that are built on the blockchain, or that use blockchain technology as part of their gaming mechanics. Among other things, this enables players to earn crypto tokens that can be transferred and traded on the open market.
Blockchain is typically used in several ways in play-to-earn gaming:
As a result of this use of blockchain technology, P2E games differ fundamentally from conventional games, and offer a number of benefits to gamers. The advantages arise from the fact that the blockchain is infrastructure that exists independently of the game itself, and is maintained by a large network of nodes and has no single points of failure.
The chief benefit this offers is meaningful ownership of tokens, whether these are NFTs or in-game currencies. The user is self-sovereign: they have complete control of their funds and inventory items, and do not need to trust a third party to hold or manage them. They can withdraw them to external wallets and send them to exchanges, without the permission of the game developers.
This is strikingly different to traditional games, where any objects or points are stored in a centralised database that is controlled by the gaming company. It is much like the difference between holding physical value like gold instead of fiat money, which can be debased by the central bank or frozen by commercial banks.
Additionally, P2E games may include further economic incentives and mechanics as part of their design. They often feature external, fair markets – built into the UX of the game but operating in a way that is provably and transparently independent of the game designers. For example, Axie Infinity’s built-in marketplace enables users to sell Axies directly to each other, without the company acting as a middleman.
Games may also offer staking, enabling players to lock tokens they have earned or purchased in a smart contract, and receive rewards similar to interest payments or dividends, that have been generated by economic activity within the game or otherwise allocated for payments. Samurai Legends enables users to stake SMG, one of the tokens in the play-to-earn ‘Samuraiverse’, to earn passive income.
P2E games may feature complex crypto-economic models that seek to reward different parties, and benefit all of the game’s various stakeholders – developers, players and token holders – in one way or another.
Throughout history, games – including board games, dice and card games – have often involved points and score keeping. These points are used to track progress and judge the winner of the game. When the first video games were created, it was very natural to include points systems to encourage competition and enable easy ranking of players.
For the earliest computer games, these points were simply temporary scores that demonstrated a player’s expertise. Sometimes those points would represent money, but the points themselves had no intrinsic value. They could not be spent, or transferred to other players; they were just a means of keeping score.
As time went on, though, more complex games were created with highly developed economies. MMOs changed the landscape for games. Instead of involving a single player, acting on their own, MMOs might have thousands or even millions of players interacting with each other. They typically feature not only in-game money, but objects of value, such as weapons, armour, spells, food, and various other items. Moreover, characters can be developed and grow in various characteristics, meaning an experienced player’s character is more powerful and likely to be more successful than a newcomer’s character.
Players might spend hundreds of hours engaging with a game, developing their character and collecting items. However, the nature of conventional games means that objects and characters cannot easily be transferred to other players or traded, as they would be in a real-world economy. The ‘value’ embodied in a character is essentially worthless if it cannot be sold, like a high-value poker chip that cannot be cashed out. Trading skins and other items on CS:GO, for example, requires third-party websites and is inherently insecure because it requires trust in those marketplaces.
Blockchain technology allows these valuable items to exist independently of the game, and of the gaming company’s servers. Instead of being a kind of worthless credit on a database, they can take the form of a token – an NFT for a special or rare item, or a cryptocurrency for in-game cash – that is owned and controlled exclusively by the player.
Using this technology, the first crypto games were created. CryptoKitties, one of the earliest blockchain games, used NFTs to represent collectible digital cats with unique features, which could be bred to create new rare cats – as well as being used as characters in various cat-themed games.
CryptoKitties was so popular when it launched in December 2017 that the level of activity from new users temporarily brought the Ethereum blockchain to a halt. While the game no longer enjoys this degree of popularity, many other games have incorporated NFTs and regular blockchain tokens to represent character and special items, as well as in-game cash. Perhaps the best-known of these is Axie Infinity, but there are many others – including Gods Unchained, Illuvium, Battle of Guardians, Samurai Legends, Block Brawlers, CryptoBlades, and many, many more.
By replacing the worthless points of Web2 games with blockchain tokens, players can receive real value in return for sinking their time and attention into these games – something that has revolutionised the gaming landscape.
There are several factors that have given rise to the P2E phenomenon, which has seen the number of games and players grow exponentially over the past two years.
The first is the rise of NFTs. While the first NFTs were created as early as 2014, they received relatively little attention until 2017, when projects such as CryptoPunks drew attention to their potential for trading digital art and led to standards for NFTs being formalised. Later that year, CryptoKitties saw new users explore new applications for NFT in their droves.
However, a lengthy downturn for the crypto markets saw enthusiasm dampened. It wasn’t until 2020 that interest was reignited. The coronavirus pandemic saw millions of people sent home from work and stuck indoors, looking for new activities and with disposable cash from government handouts and furlough payments. With vast amounts of new money being printed by central banks, crypto suddenly looked like a good opportunity – with bitcoin’s potential as an inflation hedge being advocated by entrepreneurs like Microstrategy’s Michael Saylor. All classes of crypto soared.
P2E games gained a particular boost among certain demographics. With employment opportunities limited during the pandemic, more and more people spent their spare time at home playing video games. For many, this was simply a recreational activity. But some found they were able to earn from their gaming. In fact for a short time, in some low-income countries (notably the Philippines), P2E gaming enabled people to earn significantly more than they would in conventional employment.
All of this drew new attention to P2E, and with the flood of new users came investment by major gaming companies, who saw the potential of this new blockchain-powered form of gaming. 2021 saw $4 billion in P2E investment from venture capital. In just Q1 of 2022, $2.5 billion poured into the sector, including $600 million from a16z (Andreessen Horowitz). Big gaming companies like Animoca and Epic Games also made significant moves into the blockchain space.
Even before P2E took off, gaming was a huge and rapidly-growing industry. Worth $120 billion in 2017, by 2021 it was worth over $200 billion and is forecast to top $320 billion by 2026. COVID lockdowns have helped drive the growth in gaming, with users increasingly treating gaming as a social activity that is actually good for their mental health, when they would otherwise have been isolated.
Even before COVID, a growing number of people were earning enough from their gaming to treat it as a full-time career. P2E gaming has enabled more people to gain an income from what was previously a recreational activity. P2E also offers ways for ordinary users to join and compete in tournaments, and win prizes for doing well.
For gaming companies, P2E offers new business models. Instead of charging $10 or $20 for a game download – which might be too much for many users – they can distribute them for free and monetise their titles in different ways. For example, they may charge a commission on every in-game transaction, or royalties on NFT sales, or small fees for bridging funds into and out of the ecosystem.
Finally, exploring crypto and adopting P2E mechanics positions gaming companies as forward-thinking, and gives their users new ways to engage and have a sense of ownership in successful games.
P2E games are integral to the metaverse, which can be thought of as the next generation of the internet: a social online experience powered by decentralised technologies and immersive graphics.
Metaverses are open online worlds in which users can interact with each other, work, chat, play games, and many other activities. The line between P2E games and metaverses is blurred; complex P2E games are effectively metaverses in their own right.
Even when they are not metaverses themselves, the NFTs and currencies of P2E games can be incorporated into the user’s metaverse experience. NFTs from P2E games can be displayed as avatars, used as access passes to services, and traded within the metaverse. In some cases, a themed metaverse may incorporate multiple games using the same characters, currencies and objects – the Samuraiverse of the Samurai Legends project, which will feature a number of games such as Samurai Rising, being a good example.
One of the strengths of metaverses is that they are open, permissionless systems. This means anyone can build games using any existing building blocks, while adding their own pieces if necessary. Characters and objects from one or more popular games can be integrated into new games, with the only limits being the developers’ imagination.
P2E gaming is an exciting new branch of the blockchain sector, and one which holds considerable promise for the gaming industry. The possibility of tokenising in-game items and currencies, to allow holders to trustlessly own and trade them, has enormous potential.
One of the areas that still requires research and fine tuning is the token economics (tokenomics) of P2E games. Some P2E games have made the mistake of paying out too many tokens, with the result that they become inflationary and the business model is unsustainable. The highest-paying games tend to get ‘farmed’ by users, who are interested in harvesting value from them rather than enjoying them for their own sake.
One noteworthy variant of P2E is Play and Earn (P&E), pioneered by Inventuna Games. P&E games enable players to own their characters and other in-game items – which they can sell on to other players if they want – but this is a side benefit rather than a core feature of the game. First-generation P2E games often operate as a form of universal basic income (UBI), which can end up debasing the in-game currency. P&E games give users more options to recoup the time and effort they have sunk into the game by selling their NFTs, but avoid the problems of users ‘grinding’ to receive a daily allocation of tokens. In short, P2E gamers play in order to earn; P&E gamers play for enjoyment, and earn as a bonus.
P2E gaming as a sector is barely five years old, with gamers and gaming companies only waking up to its true potential in the last two years. What will be the next developments in this fast-moving space, as the world recovers from the pandemic and falls into the next recession? There is just a chance that P2E holds the piece of the puzzle, offering solutions for earning and monetising time that have never existed before – all while doing something users enjoy.