Like the gig economy, crypto gambling is sold with a promise of convenience and wealth. In practice, it is deeply abusive

Video games increasingly incorporate blockchains, the decentralized databases that underpin cryptocurrencies, as well as NFTs and other “digital assets.” New games are emerging expressly to support blockchain technology, while traditional games are being updated to incorporate blockchains.

As of October 2021, “crypto gaming” accounted for more than half of blockchain activity in that quarter. Meanwhile, a Treasury investigation has led consumer groups to call for regulation in the crypto market.

Crypto evangelists say blockchains are the future of gaming, and crypto gaming ushers in “Web3” – the so-called next iteration of the internet based on blockchain technology. How true are these promises?

How video games use blockchains

The advent of crypto gambling roughly coincides with the rise of the Ethereum blockchain, launched in 2015.

Ethereum emerged as a platform for building and hosting decentralized applications (applications designed to run on a blockchain, rather than a single-owner computer network), as well as ownership of digital assets within of these apps.

Video games have a history of sophisticated virtual economies. Games such as World of Warcraft and EVE Online – where items are bought and sold for virtual currencies – have become a popular test case for these Ethereum features.

World of Warcraft players can use in-game currency to trade items such as mounts, weapons, pets, and armor, and can convert them back to fiat.

The promise to “keep value”

A common pattern in crypto games is to include two types of crypto tokens. One is a governance token, which typically allows players to have a say in the governance of a game and, in some cases, a share of its revenue. The other is a utility token, which is used to perform certain in-game actions.

Gaming assets (such as a sword or an e-sports trading card) can also take the form of non-fungible tokens (NFTs), with each unique token being represented on the blockchain.

It is common for NFTs and governance tokens to also serve as speculative assets that can be bought and sold on crypto exchanges or NFTs. But one can wonder if they have a fundamental value. Many gambling chips are volatile at best and worthless at worst.

Still, proponents of the crypto game are trying to sell it as the future. Take crypto venture capitalist and Reddit co-founder Alexis Ohanian, who claims that crypto gambling will allow players to “really earn value” by accumulating assets that have some value in traditional or “fiat” currency.

Essentially, he’s saying that people would no longer need to “waste time” gambling for recreation. Crypto gambling proponents often don’t understand why one can play games for no other reason than to have fun or relax (or a myriad of other motivations).

In the crypto gambling vision, gambling becomes the act of searching for “valuable” tokens and expanding the game to a 24/7 market that pushes players to constantly seek profit. This commodification of all activity is the very thing that has turned so many people away from crypto gambling, and crypto more broadly.

The notion of value retention is also framed in terms of better paid developers and audiences to create and play games. On game distribution platforms such as Phantasma, developers deposit a given amount of the platform’s cryptocurrency in exchange for hosting their game.

But it’s hard to see how this differs from the current model, where distributors charge a flat fee. In fact, hosting in exchange for cryptocurrency is arguably more problematic considering that token prices are prone to volatility.

Read more: The stoush of Apple, Google and Fortnite is a classic case of how far big tech will go to retain power

Some people, including Web3 lawyer Greg Isenberg, believe that blockchain-enabled games could redistribute some of the revenue generated by game companies to gamers.

Players create value for these companies through practices such as “modding” (which refers to modifications and other in-game activities), and even by contributing to a game’s culture.

Isenberg and others argue that blockchains would provide a reliable record of player contributions and therefore help establish a basis for compensation.

play to win

An increasingly common argument in blockchain game projects is “if the tokens have value, then the game itself can become a form of work”. Players can “play to win” (commonly referred to as “P2E”).

The best-known example is Axie Infinity, a Pokemon-style game where playing yields tokens that (at least at one point) had a high monetary value.

Read more: Microsoft buys Activision Blizzard: With the video game industry under new management, what will change?

In a podcast about P2E gaming (hosted by the venture capital fund Andreesen Horowitz, which has invested heavily in it), Gabby Dizon, co-founder of a P2E gaming guild, claimed that P2E was a “means of escape economic hardship.

Like the gig economy, P2E promises convenience, flexibility, and prosperity in an age of widespread impoverishment. Like the gig economy, it is deeply exploitative in practice.

As recently reported, Axie and other similar companies have a setup where players have to purchase an expensive NFT before they can even start playing and participating in the P2E model.

A popular business tactic among some wealthy investors is to rent out their Axies (which are tied to NFTs) and take a cut of the money earned by players, many of whom come from developing countries like the Philippines. The result? All but the best players end up earning less than minimum wage.

Industry Responses

Some traditional game developers have embraced blockchains. Last year, French gaming giant Ubisoft launched its own crypto gaming platform called Quartz.

Others were reluctant. Major retailers, including Valve, have rejected blockchains, while Epic Games have embraced them under strict conditions.

Many indie game developers have pushed back, claiming that blockchains (and especially NFTs) are scams that have a disastrous environmental impact and exacerbate the negative effects of capitalism.

A crash in the crypto market earlier this month saw most crypto gambling tokens drop in value. Yet this has not deterred fervent investment.

More importantly, the ups and downs of the crypto market do not affect the fundamental issues of the crypto gaming value proposition.

While blockchains and Web3 are seen as an investment opportunity by big tech companies and investment funds, ordinary people continue to get their money scammed.

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