The gaming industry has come a long way since the days of coin-operated arcade machines. With the advent of blockchain technology, a new frontier is emerging: Blockchain games, which have the potential to revolutionize game monetization and design.

In this post, we’ll explore the history of game monetization, examine the challenges and opportunities that blockchain games present to traditional monetization models, and delve into the world of non-fungible tokens (NFTs) as a transformative force in gaming.

Understanding Blockchain Games

At their core, blockchain games offer game developers a new type of technological infrastructure built on blockchain technology. While the potential of this technology to change the gaming industry is massive, Web3 gaming is still nascent and early adopters are still experimenting around which game design and monetization models will work and which will not.

But the core benefits of this technology are clear:

This post will focus on digital assets such as non-fungible tokens (NFTs) and how they’re transforming game monetization models.

A Brief History of Game Monetization

It’s important to understand that game monetization and design have always been intrinsically linked.

Arcade Games

In the “golden era” of arcade games in the 1980s, games employed a pay-per-play model—put a quarter in the slot to play exactly one round until the player loses. Gameplay for arcade games like Pac-Man and Donkey Kong was created around this game monetization structure. A single playthrough could last hours if players had the skill to continue progressing through an infinite number of progressively harder levels.

Gaming Console Era

When early gaming consoles hit the mainstream, games became pay once, play always. Players had to purchase both a console and the video game itself in order to play the game. Thus the video games themselves had to offer more at an increased price point—rather than small, continuous payments like in coin arcades, games such as Legend of Zelda, Pokemon, and Super Mario offered story-driven gameplay with tens of hours of content.

The Internet of Games

The Internet’s rise connected players globally via PCs they already owned. MMORPGs like World of Warcraft, Maplestory, and Runescape thrived, amassing thousands or millions of players in shared digital spaces. Monetization adapted to this change, with subscription models and status-driven cosmetics/items becoming key revenue drivers. Free-to-play games dominated by offering free access but require microtransactions for faster progress or social status signaling. Thus, the most successful monetization models optimized for repeatable, socially driven gameplay loops that encourage microtransactions or repeated subscription purchases.

Today, a novel form of gaming infrastructure is rising to prominence, signaling the next era of game innovation and offering newfound game monetization and game design structures.: blockchain games.

How To Monetize a Blockchain Game

Game monetization refers to the various ways in which a game developer or publisher earns revenue for their game. For example, Blizzard monetizes MMORPG game World of Warcraft by charging a monthly subscription fee, selling in-game assets such as mounts, and offering paid in-game services such as swapping races, changing usernames, and more. In contrast, Riot Games monetizes League of Legends mainly by selling in-game cosmetics to players.

In terms of design, most current blockchain games are very similar to traditional games. For example, Gods Unchained (one of the first Web3 games) and Hearthstone are both trading card games (TCGs) that play similarly from the perspective of the player. Upcoming Web3 extraction shooter Deadrop is heavily inspired by Escape from Tarkov, with similar gameplay throughout.

In theory, blockchain games and traditional games with similar gameplay elements should also have similar monetization models—and this is true for many game genres. For example, time-tested methods for mobile game monetization such as threat generation are likely to still work for mobile blockchain games. Subscription models would likely work for blockchain-enabled MMORPGs given sufficient demand.

But there are also instances where NFT technology clashes with traditional monetization models and methods: Namely, microtransaction-driven models such as lootboxes and cosmetics.

In-Game Purchases, Microtransactions, and Tokens

Microtransactions—or the purchase of virtual goods with small payments—have become a cornerstone of the free-to-play gaming ecosystem. Whether in the form of loot boxes, battle passes, or direct cash-to-virtual-good transactions, microtransactions are optimized to cater to both small- and large-volume consumers to varying degrees.

Microtransactions are often designed to distance purchase and reward to gamify transactions and encourage additional spending. For example, currency distancing, or the use of statically priced in-game currencies as a medium between purchase and reward, often forces players to deal with unwanted “leftover” currency, inspiring additional buying. Similarly, loot boxes encourage players to continuously purchase more and more loot boxes until they are satisfied with their result (when they finally receive a particular skin or item) by inducing a sense of sunk cost.

But what happens when the reward—the in-game items, cosmetics, or other assets that players are searching for when participating in microtransactions—become tokenized as NFTs?

Blockchain games reduce market frictions by disbanding the market control that game developers and publishers have over in-game assets. While this can lead to reduced control over microtransaction design, it also enables the direct distribution and sale of in-game assets to users’ wallets, reducing reliance on dominant platforms and marketplaces such as Steam and Apple, which often take a 30% cut due to their control over user acquisition and game publishing.

But by relinquishing control over in-game asset supply, game developers and publishers can expose themselves to a new world of NFT monetization opportunities. Specifically, perpetual royalties.

Monetizing In-Game NFTs With Royalties

At its core, NFT monetization is simple: Sell NFTs directly or give them away for free. After selling or distributing the NFTs to players, it’s possible to enforce royalties at the marketplace level so that game developers can continuously earn revenue every time an NFT is transacted.

This simple change fundamentally alters the incentive structure between game publishers and players. In a traditional microtransaction-driven game, players are continuously pushed to make repeat purchases, and this is often done by adding unwanted friction to the gaming experience. In an NFT game that primarily generates revenue through primary sales and secondary sale royalties, there is no such incentive to enforce limitations on the player.

Rather, games will begin to optimize for transaction activity and how many times an NFT switches hands. With higher-priced NFTs, royalties are also higher—a win-win for developer and player alike.

NFT Implementations Within Games

Developers have a range of options when it comes to their NFT implementation, from tokenizing all in-game assets as NFTs to solely implementing a select number of rare and important cosmetics or assets as NFTs.

Common and easily acquirable items such as basic weapons, clothing, cosmetics, and more generally cost more to create as NFTs than through centralized databases, but this cost can potentially be covered by royalties even if they’re not often demanded. Rare item NFTs may be naturally higher in price since they are difficult to acquire and often require an abundance of resources just to attain—leading to high royalties when they’re transacted. However, if an item is too expensive and hard to attain, it may reduce the potential for it to be transacted. For example, a Rolls Royce is likely to be bought, sold, and traded less than a Toyota Corolla.

It’s important to weigh the cost of creating a ubiquitous NFT-powered game with the increased technical burden of implementing a hybrid solution that seamlessly integrates both NFTs and non-NFTs with respect to trading, crafting, and more.

While there is no perfect answer to which in-game assets should or should not be NFTs, it’s important to understand that the right balance for optimizing NFT-based royalties lays in between these two extremes. It’s also important to gain insight into each game’s player base and its behavior to inform better monetization designs.

NFT Utility

Given the wide range of game genres, there’s no one-size-fits-all monetization solution, as monetization models differ wildly between games. For example, progression-based games offer players the ability to purchase gameplay advantages in various forms. But this model is impossible to implement within CS:GO or League of Legends, where players are pitted against each other in games of pure skill, making cosmetics the main revenue driver.

However, a helpful concept for NFT monetization, regardless of game genre, is NFT utility, or the “usefulness” of a specific in-game NFT to the player. Some examples of NFT utility include:

Understanding the various utility types of in-game NFTs can help inform monetization models, and different utility types can be readily combined into a single NFT. For example, a governance NFT could be sold to art designers, who then get a say in the design direction of cosmetic skins. Due to their creative input, these art designers could theoretically earn a portion of the revenue made from the skin NFT sales—adding a form of financial utility.

Intellectual Property (IP) Expansion and Creator Empowerment

The success of games such as Minecraft, Roblox, and Fortnite have proven that creator empowerment can be a powerful tool. By providing a creative outlet for players to build their own games and digital worlds using the likeness and IP of an underlying game, games can create new ecosystems that drastically expand player bases.

This is a monetization model that is uniquely suited to blockchains and their enforceable royalty models. Any game that has a robust player base and community can use this monetization model and combine it with in-game NFTs, which can provide a variety of rights and utility to NFT owners. For example, blockchain games could sell NFTs that provide access to their creator portal and automatically enforce royalties on transactions in the game, split between the independent creator and the game developer.

Conclusion

Blockchain technology and NFTs present a wealth of opportunities for game monetization.

NFTs have the potential to realign player and developer incentives and give players more control and ownership of the games they play while enabling developers to experiment with new monetization levers that could expand the design space for the games they create. As the blockchain gaming landscape continues to evolve, we can expect to see innovative monetization strategies and game designs that capitalize on the unique benefits of this emerging technology.

Read more: https://blog.chain.link/game-monetization-blockchain/