Imagine if the time you spent gaming earned you money just like working a regular job.

Well, it might soon thanks to creative game developers and blockchain technology. But before we start talking about how a functioning real world economy will work in tomorrow’s videogames (and how you can make money from it), we need to take a brief look at how in-game economies work today.

Expect to learn

• How game developers can create real functioning economies with blockchain.
• What’s the important difference between fungible and non-fungible tokens?
• How gamers are decentralizing the ownership of digital assets in gaming.
• How gamers can make money by playing in the future.

The in-game marketplaces 

Online multiplayer games often have a marketplace where players can buy weapons and armor for their avatars using in-game currency. The rules on these different marketplaces vary a lot, but a rule of thumb most respected companies follow is that players should never have the option to use real money to buy the best gear. You know, to keep the game fair for everyone.

That is why in-game currency such as gold, rubies, coins or whatever your favorite game calls it, can often not be purchased directly with a credit card but has to be earned by playing the game. But game companies have to make real money somehow, so instead of selling in-game currency or that two handed sword that gives your avatar +16 strength and +17 stamina, they sell skins. 

Skins are visual modifications to a character’s looks or weapons. So basically a unique item model or animation, that makes your avatar look more awesome, but not stronger. Selling skins is big business, in fact, just gambling with skins for example through the infamous loot boxes is a market expected to generate 50 billion dollars by 2022, according to Jupiter Research. 

But buying skins for hard earned cash is not always good business for gamers. Why? Because unlike that cool physical pip boy replica you got from buying the special edition of Fallout 4 (and are – of course – now proudly displaying on your shelf), you never truly own your skins, as you are often not allowed to sell them again for real money. 

This is not fair to the gamer according to Mark Laursen, Founder & CEO of the Danish video game company Bright Star Studios.

“We feel like big game companies don’t always respect the players’ time. If you spend a lot of time grinding really cool skins, or if you have bought them with your own money, then those items should belong to you entirely. Today, if you try selling any of these items on a third party website and you get caught, then your account is banned and it’s like your time playing that game is wasted.”

 Bright Star Studios is using blockchain technology to change this model in their upcoming MMORPG Ember Sword. The aim is that the new model is both in favor of the gamer and the developer. How, we will get back to.

Virtual items–real world value

The reason game companies often don’t allow second-hand trading of skins is because they don’t make any money from it. It’s just far better business to sell new skins every time than to have an uncontrolled market where gamers sell skins second hand to each other. But using blockchain technology, developers can get around this problem and make sure they get a cut even on second hand sales.

“The solution we found is a whole new way of thinking about business in gaming. A game company doesn’t need to be the one selling the skins anymore to make money. Instead we can facilitate the marketplace where the transactions of the skins take place on the  blockchain. No matter where a cosmetic item is sold, the blockchain registers the transaction and charges a small fee which goes back to us,” says Chief of Marketing at Bright Star Studios, Sune Thorsen. 

Bright Star Studios are using smart contracts built on top of the Ethereum blockchain to accomplish this. But developers don’t necessarily need to be blockchain experts to integrate the technology in their games today because some companies have made it a business to help do just that.

Take the Singapore based company Enjin, for example. They have created blockchain Software Development Kits (SDKs) for popular game engines like Unity and Godot, which can be used to integrate a blockchain-based economy in a game without the need for the developers to write any blockchain code. This way, developers can more easily regulate third-party marketplaces and implement fees on peer-to-peer trades, which puts them in a position to automate profits each time their items are traded or transferred.

This is possible due to the way blockchain technology works. A blockchain is basically a  decentralised network of computers that keeps a long ledger of all transactions. In regards to game development, in-game items are connected to a token that exists on the blockchain. So when a skin changes hands, the blockchain registers that the connected token is being moved, no matter where the transaction takes place.

Fungible and non-fungible tokens

When we are talking blockchain and gaming, there are two important distinctions that everyone should be aware of: 

Fungible tokens are identical tokens – just like bitcoin or most other cryptocurrencies. They typically work as the in-game currency because it doesn’t matter which specific tokens you have, as long as you get the right amount of them.

Non-fungible tokens (NFT) on the other hand are unique. If we go back to Ember Sword, then each skin in the game is connected to a Non-Fungible Token that exists somewhere on the blockchain as a uniquely identifiable piece of code. Do you remember the story of the virtual CryptoKitties that suddenly exploded in value? Well these kitties are all digital skins in the form of non-fungible tokens, and they have shown to be a very promising investment for some collectors. 

Anton Backman, a venture partner at  Play Ventures, believes that ownership of cosmetic in-game items will play an increasingly important role going forward. 

“With NFT’s you’re introducing a certain scarcity aspect to skins, while also opening them up for interplay with other products and services built on open protocols, such as the emerging suite of DeFi products on Ethereum. For the gamer generation, I think this is going to be the equivalent of collecting art, while also being a more efficient way to combine your income from playing games with your other sources of income,” he says.

Play Ventures recently made a 700.000 US$ pre-seed investment in Bright Star Studios alongside another VC firm Galaxy Interactive. However, the blockchain aspect wasn’t the main reason for the investment. Because besides having a real world functioning economy, a good game first and foremost needs to be fun in order to succeed. 

“In my opinion, a good game with a restricted economy will likely always triumph over a subpar game with an open economy. But if you have two games that are somewhat equally fun, then the one giving more freedom in terms of player ownership might be more likely to conquer, if the gameplay experience really benefits from an open economy. It’s always interesting for us gaming investors to find these novel mechanics and designs that will keep the players playing a game for years to come. I think the possibility of earning a side income from playing games you really love, is a very strong retentive mechanism,” he says.

Playing Ember Sword, you can earn real money in two ways. You can win skins either by playing the game or buying them from other players. Or you can invest in in-game real estate. To shed some light on how supply and demand affect prices of in-game items, let’s look at a known incident in the gaming community.

The Fortnite Incident

When Fortnite first came out, fans had the opportunity to buy a skin that made you look like a skeleton. Epic Games, the company behind Fortnite, stopped selling the popular skin after some time, and then demand for it exploded. It was a status symbol to have the skin, simply because you couldn’t buy it anymore. 

So naturally, the skin quickly became worth real money to some people. Fans started selling entire accounts illegally, because Epic Games didn’t allow second hand trading in their shop. In response Epic Games re-released the skin in the Fortnite Shop, which was a big disappointment to those who already owned the skeleton suit. With a click of a button, it lost all its value.

“It’s not fair to players, if they invest their money in a cosmetic item, that the game developers can just push a button and create 10.000 more making the player’s investment worthless. We as developers have to ensure the player that we won’t ruin their item’s value in order to create a quick sale ourselves,” says Sune Thorsen from Bright Star Studios.  

Because each skin in Ember Sword is connected to a Non-fungible token, not even the developers can create more of the same skin once they have all been distributed. They can create skins that look like the originals, but players will always be able to tell them apart.

Market potential

Like the value of some CryptoKitties has exploded, there is no limit for what items, in-game real estate or skins can be worth in blockchain based games like Ember Sword. In saying this however the principle behind setting the in-game items market free has been done before without blockchain.

For example in the free to play MMORPG Entropia Universe, where in-game realestate has been sold for 635.000 dollars. But there is an important difference in investing in cosmetic items in conventional games like Entropia and blockchain based games like Ember Sword. 

It all comes down proving that assets are demonstrably scarce. In games like Entropia, the developers can in theory just press a button and make more copies of an asset that has already been sold. Which would kind of suck, if you just paid more than half a million dollars for what you thought was a unique piece of virtual real estate…

One thing is sure, developers can use blockchain to create revenue for themselves and the player by creating freedom of ownership of in-game items. And yes, you can probably earn money obtaining these items in the future playing your favorite game.

But one thing we have yet to find out: How large will this new virtual economy grow?

Jeppe Mølgaard is a journalist in the world of research, technology and business with a special interest in blockchain and startups.