Mentioned in this article Teams: Fnatic, Splyce

2018 saw the cryptocurrency hype fall away significantly from the start of the year when the Bitcoin speculation bubble peaked at over $19K USD. But as speculation subsides with Bitcoin now worth one-fifth of that peak, the push to find opportunities in the space that deliver real value is still underway.

Esports has seen a lot of attention from blockchain developers – one hot tech sector chasing wins in another fast-growing sector. It’s still very early days, and it’s hard to know if any ‘winners’ are out there right now waiting to achieve critical mass, or whether the truly “game-changing” blockchain product doesn’t exist yet.

There’s potential out there, but there are significant challenges that pit the concept of trusted and distributed third-party transaction systems against companies that currently see great success through control of their own ecosystems.

If you’re eager to get up to speed, below is a primer on everything you need to know to grasp how blockchain technology is having an impact on the esports industry.

Blockchain Basics

The fundamentals of blockchain technology turned ten years old at the end of 2018, when the original concept was put forward shortly before the very first application of the technology was introduced—the cryptocurrency Bitcoin.

The basic idea is the creation of a trusted, decentralized ledger, with no central control authority and full transparency of all transactions that take place. When one transaction takes place, the information is attached to the block of information that came before it, creating a literal chain of digital ‘blocks’ with transaction information that is verified by the distributed software and recorded across the entire system.

The architecture solves the basic issue of all things digital being easily duplicated and reused. Once a transaction occurs on a given blockchain, that transaction is immutably documented and securely encrypted on the so it cannot occur again. Apart from being a viable system for financial transactions it also works well with digital ‘items’ to have clearly defined scarcity attached. An item on a blockchain can be verifiably unique, as well as offer a way to track a chain of ownership as an item is traded back and forth.

The term cryptocurrency is essentially the layer of tradeable tokens on top of any given blockchain that defines what transactions are worth. Each block carries with it information about who is taking part in the transaction and the token value being exchanged. It’s important to note that not every blockchain hosts or requires a cryptocurrency, but any cryptocurrency is based on a blockchain.

Some cryptocurrencies are built upon existing blockchain platforms. For example, Ethereum has become a widely used platform for building other cryptocurrency services, having been designed as an application platform from the outset. Using a blockchain as a platform in this way, a new cryptocurrency can have a completely unique name for its tokens even though it has been built upon another.

With these concepts in mind, let’s explore some of the ways blockchain developers are looking to bring these platforms into esports.

Credit: SLIVER.tv

Loyalty/Incentive Schemes

This model offers rewards based on participation or viewership. Participants can earn tokens by signing up to the relevant service, then either running a browser plug-in or watching an esport through a particular website to earn loyalty tokens.

In 2018, cryptocurrency Incent partnered with Gfinity Australia to deliver an incentive scheme for fans to earn INCNT tokens while they watched the competition through a special website. China’s Tencent Games also announced a partnership with SLIVER.tv to allow streamers to earn Theta tokens while playing Ring of Elysium, and use these tokens through the same platform to buy exclusive in-game items.

In these types of schemes, once tokens are earned they can be redeemed through related digital marketplaces (some could offer digital items, while others might allow the use of tokens to apply discounts to real-world partner retailers), or traded with other users.

The difference between a traditional points scheme and a blockchain points scheme is that the tokens are part of a cryptocurrency and carry a potential for value that can be used with anyone who accepts such tokens. They can even be sold and converted to other cryptocurrencies, or all the way back into a traditional currency.

So instead of earning points that can only be used inside one given company’s platform, these schemes aim to extend value far beyond the game space to create something more attractive for participants. Should any given loyalty or incentive cryptocurrency build presence across multiple games and streaming platforms the value to users grows much larger, which in turn may increase the impact on growing viewing times and therefore, ultimately, revenue.

Credit: WAX

Game Item Trading

Instead of only allowing players to buy and sell items through in-game or platform-specific vendors and auction houses, a blockchain-based item system could allow players to trade weapons, cards, skins, or even characters on a more open market that could convert game items into real value.

If a game offered support for such a system, a player could gain a greater sense of ownership over things they earn in-game, and the wider market would decide what such items are worth in their currency of choice.

In this context, there is another kind of blockchain token – a non-fungible token, or NFT. Whereas one Bitcoin can be sliced into smaller decimal units and traded as currency, NFTs represent whole units of information that cannot be divided and traded as smaller units. And this works perfectly for trading virtual property such as digital cards or items.

Each token in an NFT focused blockchain will vary in value based on what it represents and the supply and demand related to it. Some may be common items with low trading values, others highly coveted rare or unique items.

Blockchain trading platform WAX for example emerged as a virtual item trading platform as part of the OPSkins system that formerly traded CS:GO item skins before Valve revoked its ability to do so. Interestingly, OPSkins continued to trade in virtual items that were based on the same tradition of knife and gun skins, but had no game they were tied into.

Credit: Fuel Games

OPSkins and its WAX blockchain trading platform has started to popularize concepts of VGO and vIRL trading – virtual items and virtual trading of real-world items, respectively. A recent partnership with Fnatic delivered giveaways of everything from digital stickers to vIRL giveaways like team merchandise and custom Nikes.

The platform hopes to convince game makers to start supporting the skins found on its blockchain, separating items from games. For a player, that could mean if one game closes, the skins you have purchased would still be usable in other games in the future.

Meanwhile, developer Fuel Games has designed an entire digital card game, Gods Unchained, to be sold and traded based on the Ethereum blockchain. There are also many games based on tradeable items that already exist based entirely on Ethereum.

Crowdfunding

While there are existing crowdfunding platforms, a blockchain platform aims to add a more direct contractual alignment with those who invest money into it. The act of owning tokens in this context is very similar to owning shares. It’s also a way to attempt to raise funds in a far less regulated fashion than through traditional financing channels.

During a funding campaign, an organization or team would state how they will deliver a return on the investment. This could be paying dividends to investors, or providing special access to a team, or offering rewards or exclusive items, much like crowdfunding campaigns you’d find on sites like Kickstarter.

Credit: VGO

Wefunder is one prominent blockchain-based funding platform, which claims over $78M has been invested through its platform over five years. Another is Globatalent, a new platform targeting the sports and esports industries with its blockchain funding system. It is still in early development but did announce a partnership with Splyce in June 2018.

Trusted Payments

Perhaps the most direct idea is to use cryptocurrencies as a means to deliver more trust around payments to players, teams, and tournaments.

A smart contract is used to hold relevant payment values, and at the appropriate time release funds to the right people based on tournament results. This system works a lot like an escrow service, essentially verifying that the money is available before the event takes place and then ensuring the payment is delivered correctly.

One question here might be – why not just use an existing escrow service? Such services often carry fees and potential delays in verification checks and release of funds. A blockchain system could reduce the costs involved as well as provide fund transfers in close to real-time.

FirstBlood.io and ChallengeMe.GG are tournament platforms that highlight the use of blockchain for controlling payments to make users more confident that prize money will be distributed quickly and fairly.

Credit: Globaltalent

Of course, in order to truly build ‘trust’ around a payment exchange platform, the platform itself needs to be trusted.

Trust vs. Critical Mass

As much as a blockchain platform is based on a system built around secured, trusted transactions, any given blockchain application is only worth what its users decide it is worth. Without a critical mass of users, and regular usage, it won’t find long-term sustainability. In turn, any sign of poor performance becomes a warning to potential users.

In essence, while blockchain puts a layer of trust into the performance of transactions, end users still need to feel confident that any given application is worth their effort to sign up and participate. Potential users need to clearly see tangible value on offer and ease of opportunity to convert earned tokens into something they desire.

In the context of loyalty, users would need to see better value and opportunity than existing systems like Twitch Drops. People trust Twitch and the developers with this scheme, which means there isn’t a problem to be solved by a third-party blockchain.

The same goes for any given company choosing to support one particular blockchain platform over another. There are a lot of candidates out there offering their pitch on why their token is the best one to support. And in the last 12 months, a lot of tokens have gone out of business because they could not get enough users to choose them over the competition.

No one partnership will top the scales, but if we see two or three different platforms (owned by independent parent entities) converge their support toward one cryptocurrency or blockchain for a particular solution, the tipping point might be close at hand.

Credit: FirstBlood

Who Will Give Up Control?

A common thread in many applications pitched towards esports is the concept of giving more value back to fans and players, and giving them more freedom to use currencies and items across more than one game. But for this to take root it would require successful game developers to give up their own control over their internal transaction systems.

This is the greatest hurdle for bringing blockchain platforms into esports. To gain traction as a currency platform within game environments, someone has to be willing to give over the control they currently possess to allow the market to open up toward an independent platform.

Would a Valve , an Epic , or an Activision Blizzard give up control over their in-game items or currencies? Or will a new player arrive that offers blockchain integration in such a way that its success is something others want a piece of, and will trigger adoption of their platform for access to its special features – whether loyalty, items, or payments?

A blockchain platform could offer a small fee per transaction to a company when items are traded through the support they provide. But for any given game developer, the trade-off would be the need to support tokens and exchanged cryptocurrency value that was generated and used elsewhere.

Convincing large developers, with big existing player communities, to give up control is no small task. With this in mind, it seems like cryptocurrency integration with esports will keep knocking on the door for years to come. We may see certain platforms offer clever ideas when they don’t require widespread adoption, delivered in ways that make it easy for users or fans to participate.

But blockchains aren’t going away anytime soon either. The fundamental concept is here to stay, and from here it’s simply a question of how it finds its ideal integrations into our everyday digital worlds.