Are Crypto Video Games the Killer App for Metaverse?

The “metaverse” is often applied to virtual worlds in video games, but more accurately refers to a large-scale digitization of society.

Gamers make up the largest digitally native demographic today, which is translating into gamers as early crypto adopters. By extension, this translates into quick adoption of crypto games. Virtual worlds have been growing in popularity, but, with blockchain technology, are we seeing a bridge between the virtual and the real?

Play To Earn

Video games on the blockchain offer two monetizing incentives. The first is known as play to earn and operates on the principle that gamers earn token rewards as they progress in the game. This game structure comes on the back of the rising popularity of microtransactions in traditional video games.

Micro Transactions

Microtransactions are in-game purchases (such as armour, characters, jewellery, etc.) made by gamers within the virtual world of a game. This feature proved to be successful for traditional gaming. Given the digital value transfer advantages of crypto, using microtransactions in crypto games is a no-brainer.

In the traditional industry, these purchases don’t typically retain value outside of the game. Traditional games are also centralized, which means that if gamers lose their progress (or the company founders), then they also lose their rewards. With play to earn, the many hours spent playing a game can now be seen as an investment to be cashed out into real money.

NFT’s

The second incentive is the collection of NFT’s through participation in these games. NFT’s have seen a lot of growth in the 2021 bull market, and are well suited to crypto games. Similar to token rewards, gamers earn NFT’s for completing in-game tasks. Assuming that the popularity of a crypto game takes off, holders of the game’s crypto assets can see a multiplication in the value of the “work” they put into the game.

Crypto games do not currently match the high resolution, multifaceted gameplay of the traditional industry. But, given the incentives to earn an income, it is little wonder that their popularity has grown quickly. Crypto gaming’s current market cap is about USD $15 billion. What we are seeing is essentially a disruption of the $178 billion traditional video game market.

The Metaverse

You may have seen movies like The Matrix or Ready Player One that tell a story of humanity existing outside or parallel to the physical world. These stories all imply a metaverse where, one could say, at least 50% of human behavior is taking place digitally. Blockchain technology is key to making this a reality.

One could argue we are already living in a metaverse given the amount of digital communication we use today. However, this would not be accurate given the lack of interoperability amongst digital applications. For example, only recently has it become possible to send Bitcoin via twitter. But from Twitter to Facebook or Slack, no way.

Interoperability is one of the great challenges in crypto today. We can communicate amongst different blockchains, but the process is far from user friendly. Like the early days of the internet, it is going to take some time before we have a seamless experience on the blockchain.

Crypto games like Decentraland and The Sandbox have created virtual worlds where you can buy land, design your own games, and produce an income. This creates the sense of a metaverse, but these virtual worlds are siloed from each other. In a true metaverse, you (your character) should be able to move and transact amongst all the virtual worlds on the blockchain. In a true metaverse, you should also be able to buy your groceries or meet with your accountant, for example.

Gamers Ushering in the Metaverse

An interesting statistic shared by the founder of Op Crypto Capital claims that millennial gamers hold 55% of all crypto assets compared to just 5% of all millennials. This shows that gamers are much more likely to engage with the blockchain than the average person.

Another interesting aspect of crypto games is that they offer a direct use case for the average person to engage with the blockchain. Other than the early investor/adopter of crypto assets, this is still rare in crypto. Notable exceptions are VeChain’s application to supply chains and the use of Bitcoin as legal tender in El Salvador.

Crypto Gaming’s direct use case may explain some interesting price behavior amongst their tokens. The current largest crypto game, Axie Infinity, didn’t see much of a dip during the crypto slump we saw in the summer. This may be explained by the level of adoption and steady activity of gamers on Axie Infinity’s blockchain. This implies a potential decorrelation from Bitcoin for crypto games.

Is the MetaVerse Coming Soon?

Bitcoin has reached new all time highs, which has historically led to altcoins following suit. Crypto games have displayed immediate direct use cases, and a patronage of early crypto adopters. We could be seeing crypto games in a timely position to multiply this alt season.

And with compounding valuations comes wider adoption. Gamers are already a demographic who spend a large proportion of their time in the digital world. With crypto games, we are seeing incentives for gamers to transition to spending their time on the blockchain. We are likely at least a decade away from a true metaverse, but, with crypto video games, we may see an acceleration of its development.