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Devin Finzer is the co-founder of OpenSea, a decentralized cryptographic resources market.
The following is an exclusive contribution to CoinDesk & # 39;s 2018 Year in review.
Games often serve as experimental terrain for new technologies.
Since the launch of CryptoKitties – a digital game for cat breeding built on ethereum – about a year ago, the games provided a digital native playground to the first users to experience the unique benefits of open protocols. Currently, most of the first things per transaction volume are games.
While there is a lot of initial excitement in the blockchain gaming space, there is a fair skepticism. Tony Sheng's post about why Fortnite probably will not embrace the blockchain at any time has sparked a big discussion about how technology radically changes the economies at stake.
Inside, his post claims that incumbents in the gaming industry will probably not embrace blockchain because true digital scarcity breaks their existing business models. His post dives deep into the economic incentives that make games close their economy.
I quirky with some of these, but I agree with the high-level conclusion that:
"If the games carry cryptography to the masses, they will have different business models".
Blockchain represents a shift in the fundamental business model: from value extraction to closed ecosystems evaluate the acquisition in open ecosystems. The problem is that while incumbents have figured out how to extract value in closed ecosystems (restrictive monetary policies, locks on transfers, taxes, etc.), new entrants still need to understand how to gain value in open ecosystems.
This post aims to explore potential business models for an open gaming ecosystem. We will start by exploring the existing business models for the first blockchain games.
Tearing off the signal from the noise
The bull running in the crypt made it difficult for weeds to sound in the sub-sector of technology games. The price increase has created a community in which the first to adopt rich ethers have begun to engage in the first person.
Enter CryptoKitties: a game of digital breeding of cats and the first blockchain oriented experience of the mainstream. CryptoKitties was incredibly exciting for the tech community (including myself).
The fact that you "really possessed your kittens" and that I could have ETH turning them up has triggered a viral loop and culminated in the infamous 2017 kitten bubble. At the height, cats were selling for hundreds of thousands of dollars to head.
Noise: vertically integrated digital scarcity
It's worth giving a closer look at CryptoKitties.
Since there was a small gaming infrastructure on ethereum, CryptoKitties built everything on its own. They had their own website, their own art works, their own on-chain breeding mechanics and their own market.
At the time of the launch, CryptoKitties was completely vertically integrated game that used smart contracts as a database. CryptoKitties' business model was actually very traditional: they sold kittens of generation 0 and suffered a cut of 3.75% each time a cat was sold or had been generated.
As many critics have later pointed out, the CryptoKitties could have achieved the same game on the centralized infrastructure. They may have provided the Exactly the same user experience on their website (they could even take ether if they wanted to preserve the painful UX) and simply store the kittens in an SQL database.
A non-crypto-knowable user would not know the difference.
The experience of CryptoKitties is what I will call "vertically integrated digital scarcity" and is probably a reason why none of the CryptoKitties clones had any traction. For traditional users, they were just hard-to-use games.
The signal: unbundling
I would say that the real signal with CryptoKitties is beyond the initial user experience: it was always so light separation of the game.
The logical level for CryptoKitties now existed on an intelligent contract whose address and source code were visible to the public and could be called by anyone with an ethereum address. Now any ethereum developer could build a "level two experience" so primitive on top of the game.
Do you want to write a robot that cuts underrated kittens? There is an open API for this. Do you want to write a kitty explorer site to allow users to browse recent sales? View events on the smart contract.
These experiences did not have to be complex. In fact, the first experience of level two was simply the existence of Etherscan, the intelligent explorer of contracts, from which almost all users of ethereum have grown. Techie expert users could go to Etherscan and read directly from the CryptoKitty smart contract to inspect their kittens.
A new level two experience was KittyHats, an ERC20 token set that allowed you to accessorize your kittens. In theory, KittyHats has increased the value of individual kitties because now there was another thing you could do with them – but it was difficult to measure this impact and the experience was relatively isolated (it required the download of a 'chrome extension and access to a separate website).
Perhaps – the CryptoKitties team embraced KittyHats more fully by showing their accessories "natively" on the CryptoKitties website – KittyHats could have pioneered the first two-tier business model.
The marketplaces were another level 2 experience. I co-founded OpenSea with the idea that a generic level of two experiences in trading games could contribute.
But it is worth noting that OpenSea failed to capture or provide significant value to the CryptoKitties ecosystem. At the time, it simply did not provide enough additional liquidity to be interesting.
The problem with layer two is that it is simply super immature, and you need to squint to see it at work. It is not clear how much value CryptoKitties has acquired from the experiences of the second level and it is not clear how the experiences of level two can acquire value.
Nevertheless, I believe that ignoring the second level and simply focusing on "true digital scarcity" or "real property" is lacking in the forest for the trees. The second level is what unit digital scarcity and real property.
In the same way that the vibrant ecosystem of exchanges and consumer experiences around bitcoin, ether and ERC20 has brought liquidity to resources, the ecosystem created by two level experiences will be what stimulates excitement and consumer confidence in digitally scarce resources.
What could work
In this new world of open protocols, what business models could work?
Incentives to build two level experiences
One can be an addictive layer of a game experience, designed from the start with shared incentives to build level two experiences. Decentraland is probably the most ambitious attempt in this model. The Decentraland team is building an ecosystem of games and attempts to gain value from this ecosystem through the appreciation of the MANA token.
The reason why this might be interesting is that the experiences of the second level could fundamentally shift the economy of a game. A game has typically been limited to the public for which the creators have specialized.
Games like Roblox and Second Life expand these audiences through user-generated content and in-game programming languages, but they are still limited to what can be built in a closed environment. The games are occasionally associated to create level 2 experiences, but are highly coordinated and allowed.
As an example of how this could take place, take EVE Online, a multi-player online space role-playing game. EVE Online has many features of a blockchain game. Notoriously, the game runs entirely on a single server, which is never tampered with (a bit like a blockchain), so the free-market economy reigns and often causes drama.
But the number of people who want to play space simulation is not one high, so the public is always limited. Now, imagine EVE Online but built on an open protocol. Third-party developers who have no connection with the game could build mining shipments, strange magical planets, secondary markets that facilitate barter, all tied to the original economy.
The audience of the game could expand exponentially: purely financial traders could enter the ecosystem, as well as occasional players who only enjoy a specific level two experience that separates themselves from the gaming economy. original.
Why can third-party developers get together to build the game? If there is A) enough of a network effect around the original game, B) a simple way to connect their experience, and C) a method to capture the value in the second level, this would be a breeze.
Because it may not work
A valid criticism is that all this is too difficult on the existing technology. This argument is difficult to counter; timing is always very difficult. However, it could happen faster than we think.
For one thing, blockchain bootstraps off of the existing internet infrastructure. With large front = end libraries, mature backdates and B2D services galore, it's easier than ever to implement traditional web applications to power centralized decentralized / centralized hybrids.
Furthermore, blockchain is mainly based on software innovation (which tends to move much faster than hardware).
It is probably a perfect environment for small ship owners to experience. It will be exciting to see the developments in the coming year that push the space forward.
Have an opinion of 2018? CoinDesk is looking for proposals for our 2018 under consideration. News via e-mail [at] coindesk.com to learn how to be involved.
Arcade image through Shutterstock
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