There's no denying the dominance of video games in today's entertainment industry is significant. According to recent estimates, the global video game industry should surpass the $400 billion mark before 2030, compared to $169 billion for the global film industry.
However, there are questions about how this industry will adapt to Web3. While blockchain-based games have yet to go mainstream, more people are curious about the crypto rewards they offer. There are even a few AAA gaming studios investing in Web3 technologies like NFTs (non-fungible tokens).
But how do play-to-earn crypto games work, and can they shape the future of the gaming industry?
A brief history of video gaming revenue models
To understand the innovation of play-to-earn (P2E) incentives, let’s understand previous revenue models in the traditional gaming industry.
Consumer video games gained prominence in the 1970s with the growth of arcades. Since the tech behind games was still in its infancy, early titles like Pac-Man required large stand-up units in a fixed space. Gamers had to pay a small fee every time they wanted to use an arcade game, which is why this model is known as "pay-to-play."
Companies like Atari challenged this model when they introduced home gaming consoles. More affordable consoles led gaming studios to create physical cartridges and sell them at retail stores. Now, instead of paying microtransactions to play a game, consumers would purchase a cartridge once for a higher price.
Although video game consoles are still around, they’ve lost their dominant position in the video game market. As smartphones, desktops, and cloud computing became more prevalent, gaming studios began offering direct-to-consumer (D2C) content via downloads or app stores.
In addition to cutting manufacturing costs, the digital revolution introduced new revenue streams for game studios. Interestingly, in the early 2000s, more prominent game studios began using the free-to-play (F2P) business model. As the name suggests, F2P games allowed gamers to start playing without charging an entry fee. Instead of relying on an initial purchase or subscriptions, F2P games largely generate revenue from in-game purchases. For instance, many games charge microtransactions for VIP game experiences, in-game items, or downloadable content (DLC).
What are play-to-earn crypto games?
The P2E model differs from prior revenue strategies because it rewards customers for participation with tradeable crypto assets. Rather than focusing on extracting the maximum value from players, P2E games seek to incentivize gamers by offering crypto rewards. These rewards are usually paid in NFTs or an in-game currency.
Simply put, in-game currency is represented by cryptocurrency and in-game items are represented by NFTs. Because of this, the in-game currency and items inherit all the properties of cryptocurrencies and NFTs.
P2E crypto games are built on blockchains like Ethereum (ETH) and require players to connect their crypto wallets. Gamers can find P2E titles on both desktop and mobile settings. Some P2E games are F2P, while others require gamers to make an initial investment to start playing. For example, people who want to play the Pokémon-style game "Axie Infinity" first need to buy three Axie NFTs.
While in-game rewards aren't necessarily new, P2E games are distinct because players can quickly transfer their winnings into the crypto market. The decentralization of blockchain technology gives players the freedom to transfer their digital assets anywhere they want. It also creates more transparency and a far more liquid market.
Additionally, since NFTs grant gamers ownership rights, they open unique passive income options for players. For instance, metaverse platforms like The Sandbox allow people to buy LAND NFTs and rent them out.
Examples of play-to-earn crypto games
P2E games are available in countless genres ranging from role-playing and strategy to racing and first-person shooter. While new P2E games are launching daily, here are a few that have gained prominence in the crypto space:
1. Axie Infinity
Created in 2018 by Sky Mavis, Axie Infinity is the poster child of P2E games.
Players on Axie Infinity use animated NFT monsters called Axies to fight other players for token rewards. Gamers can use the game's Smooth Love Potion (SLP) tokens to breed more Axie NFTs or cash out in a crypto exchange. The game also has governance tokens called AXS tokens that gamers can use to vote on proposals.
As of 2021, Axie Infinity is on an Ethereum sidechain called Ronin. At the time of the switch to the Ronin sidechain, "Axie Infinity" had average NFT trading volumes of $2 billion and 2.5 million active monthly players. After a series of funding rounds in 2021, investors valued Sky Mavis at $3 billion.
2. Gods Unchained
Gods Unchained is an F2P blockchain game similar to card games like "Magic: The Gathering." Players on Gods Unchained use NFT cards to play against others in tournaments. Gamers have the chance to win more NFT cards or Ethereum-based GODS tokens.
The studio Immutable X is responsible for the Gods Unchained franchise. Similar to Polygon, Immutable X is an Ethereum sidechain that offers fast transactions and low gas fees.
Sorare is another successful F2P Ethereum-based NFT card game. However, instead of focusing on mythology, this title is all about fantasy sports.
Specifically, Sorare encourages pro soccer fans to create their dream team with NFT cards and compete in tournaments. Sorare tracks athlete stats from real-world soccer matches to determine who wins crypto prizes.
4. The Sandbox
The Sandbox is an F2P blockchain game similar to open-world titles like Minecraft. Owned by the studio Animoca Brands, The Sandbox allows players to develop a virtual property, complete quests, or experience various live events with their voxel avatars. Throughout their adventures, gamers can earn Ethereum-based SAND tokens or NFTs.
Along with The Sandbox, Decentraland is one of the most talked-about open-world P2E blockchain games on the Ethereum blockchain. This F2P 3D game was launched in 2017 and is one of the largest projects in the metaverse niche.
Like The Sandbox, anyone can buy and develop virtual real estate in Decentraland by purchasing LAND NFTs. Companies and celebrities have already created unique experiences in Decentraland, including casinos and fashion shows.
In addition to LAND NFTs, Decentraland offers MANA token rewards.
6. Alien Worlds
Alien Worlds is a space-themed F2P P2E game available on Ethereum, the BNB Smart Chain, and WAX. When gamers start their Alien Worlds adventure, they receive a shovel to mine the game's cryptocurrency Trilium (TLM) on various planets.
As gamers gain more experience, they can upgrade their equipment with other NFTs and potentially become landowners. There are also minion and weapon NFTs that gamers can use to compete against each other.
Play-to-earn crypto games: What the critics say
Getting paid to play video games may seem like a home run, but it has drawn criticism from the gaming community. Here are a few concerns that people new to P2E should review before playing games to earn crypto:
- Ponzi-like economics: Many games such as Axie Infinity have incentive structures such that entrants are required to keep the economy running. This creates Ponzi-like economics where once new players stop entering the game and people lose a significant amount of money. Many games aren’t good enough to attract individuals without the monetary reward, so they’re at high risk of collapsing as a Ponzi. To retain users, games must be enough to attract them by themselves.
- Risk of cyberattacks: As with many other aspects of Web3, people are concerned about hacks in the P2E space. Notably, Axie Infinity made headlines in 2022 when North Korean hackers stole $620 million from the game's Ronin sidechain. Many people who used Axie Infinity as a form of passive income saw their rewards disappear within minutes.
- Scams and rugpulls: Along with hacks, there are many scams in the P2E space. For example, Squid Game modeled itself on the popular Netflix series and encouraged investors to buy SQUID tokens. Soon after releasing SQUID in 2021, the developers ran off with approximately $3 million in user funds.
- Outdated UI/UX: Blockchain games have yet to match the ease and quality of traditional gameplay. Since Web3 gamers need to use a wallet, there's a steeper learning curve for players unfamiliar with crypto.
- Crypto volatility invalidates rewards: P2E tokens aren't immune to the fluctuations in the crypto market. Gamers may make good returns during a bull market, but all their earnings can get wiped away during a crypto winter.
- Creates "blank-to-earn" incentives structure: Some gamers are concerned the P2E model is creating a new structure that focuses too much on earnings mechanics rather than fun gaming experiences. For example, the Stepn app on Solana incentivizes people to play-to-move by offering the GMT token for walking. Some critics aren't keen to see this incentive structure enter all their favorite games, apps, and activities.
How to get started with play-to-earn games
While it can be tempting to earn crypto rewards for playing games, remember that there are many scams in the P2E space. Always look for P2E games with a large community, strong history, and transparent leaders for the best odds of success. It helps to review the top P2E and metaverse projects on reputable coin aggregator sites like CoinMarketCap.
To start interacting with a P2E platform, you'll need a wallet that's compatible with your chosen game. You'll also need to deposit the native crypto on your chosen blockchain to pay transaction fees.
Once you've downloaded your crypto wallet, you should be able to connect it to a P2E platform and start playing. You can store all the crypto and NFTs you collect in your crypto wallet.
Although free crypto games have challenges, they might add extra value to the gaming experience. As more studios explore NFT games and crypto rewards, P2E will likely start appearing in more titles.
Similar to high-quality P2E games, Worldcoin aims to encourage more people to interact with Web3. Using our Orb technology, we're on a mission to give free crypto to everyone on the planet. For more information, subscribe to our blog.