To hear Roger Walco explain it, many of the blockchain gaming studios that got involved in initial coin offerings (ICOs) did so as a last resort.
“They don’t want to have a publicly traded coin,” says Walco, vice president at Enjin, a blockchain-based game developer. “What most developers really want is to raise funds.”
IAO: A New Model
The economics of video games have largely shifted from consumers buying games outright to making in-app purchases for items or collectibles used while playing. While those in-game purchases now add up to over $100 billion a year globally, developers – small studios in particular – still struggle to raise the money needed to get their games to market in the first place.
Most game developers don’t want to deal with external exchanges and regulatory pressures. They just want to raise money and reward their investors.
Independent developers traditionally resorted to crowdsourcing startup funding through sites like Kickstarter. With the advent of blockchain-based games, some crypto-focused developers turned to ICOs to raise money. In return, investors received blockchain tokens that could be bought or sold on cryptocurrency exchanges.
But most game developers don’t want to deal with external exchanges and regulatory pressures, Walco says. They just want to raise money and reward their investors with collectible items or virtual currencies that can be used while playing their games, such as rare trading cards or ersatz in-game cash used to “buy” items needed to progress in the game.
Enter the initial asset offering, or IAO.
Like a Kickstarter campaign, people provide funds to developers in return for in-game currency or tradeable items. Unlike Kickstarter, IAO assets (in-game tools or collectible items, not cryptocurrency) are provided directly to users on the blockchain, where the users, not the developer, maintain permanent ownership and control of them. When users have ownership of collectible game items on a blockchain, they can more easily buy and sell them for real money. Those items also could conceivably maintain their value even if the developer shuts down the game.
The blockchain game “War of Crypto” launched an IAO using Enjin’s platform in July, selling 1,500 virtual crystals at an average price of $35. Each crystal gave its purchaser a chance of winning the rarest of the playing cards and decorative “skins” used in the game, including a one-of-a-kind card expected to become a collector’s item. Since then, 10 gaming companies have joined Enjin’s early adopter program, and more are on the way, according to Walco.
A New Standard
The idea of putting game items on the blockchain isn’t new. The oft-discussed CryptoKitties are arguably an overused example of one-of-a-kind virtual items represented on the blockchain as assets that can be bought or sold with cryptocurrency. Enjin’s platform, however, isn’t using the ERC-721 standard that drives the transaction of many of today’s one-of-a-kind, or nonfungible, assets on the Ethereum network. Instead, it’s using its proposed ERC-1155 standard, which handles multiple types of tokens that can represent both fungible assets, such as in-game money or supplies that aren’t unique, and nonfungible assets, such as the one-of-a-kind tradable items collectors clamor for.
Proposed by Enjin co-founder Witek Radomski, ERC-1155 offers a number of benefits. Within gaming, ERC-1155’s flexibility means that a game’s entire built-in economy can be represented in one smart contract. That allows multiple transactions to be handled on the blockchain at once, instead of one item per smart contract as is common for nonfungible tokens today.
Beyond gaming, ERC-1155 could conceivably simplify the complexity of token-for-token exchanges such as atomic swaps, which currently require multiple steps due to the challenges involved with transactions involving different types of tokens. And it allows in-game currencies that weren’t created through the ICO process to be converted into fully tradable ERC-20 assets if developers choose to do so, according to Walco.
Enjin’s platform plugs into Unity, a graphics engine used in half the world’s video games. It includes tools that allow game developers and others to easily create their own tokens for collectibles or tradeable items, the blockchain wallet for users, and software known as blockchain explorers that simplifies the process of tracking blockchain transactions. The result, Walco says, is an integrated system.
“It creates a complete PayPal-like ecosystem,” he says. “It’s more than coder friendly, but people friendly.”
Walco envisions Enjin’s platform being used in real-world promotions by retailers, in which customers would scan QR codes and receive tradable blockchain assets. By tracking assets from creation throughout their life, the technology could also have applications in other sectors, such as media, where they could track who has access to a licensed piece of content such as a movie or song, or industry, where real-world parts or products could be tracked by their blockchain tokens.