On a daily basis, a rapidly increasing number of gamers log on and play their favourite games – leveling up, playing with friends and strangers around the world, and trading game skins in marketplaces.
However, despite continued growth in the gaming industry, new sources of revenues for big game development companies, and new features for consumers, independent developers and gamers remain mostly powerless and vulnerable. Current gaming skin marketplaces are inefficient, expensive, unfair and rife with scams.
3 main limitations need to be addressed to transform gaming skins trading. These include –
- a lack of liquidity based gaming marketplaces
- limited ability to trade between platforms, and
- issues of governance and regulation
The global gaming market
The global gaming industry is massive and on the rise. According to SuperData, the industry is expected to generate $119.2 billion in revenue in 2018. 88% of this revenue stems from digital games, which is dominated by the direct sale of virtual goods to gamers.
The success and popularity of virtual goods among gamers have resulted in a shift to free-to-play, microtransaction-based business models, giving gamers the ability to make purchases based on their unique needs.
Gaming virtual goods can take different forms depending on the game, but they typically exist in the form of keys and chests.
Gamers can achieve these consumables (keys & chests) by playing games and reaching milestones, or by buying them directly through the game. They can also be released to players randomly, based on probability. The keys are then used to unlock the chests, rewarding the gamer with a random in-game skin.
These skins allow gamers to customize their character and other in-game virtual goods to differentiate themselves from the rest of the crowd. This has proven successful for developers financially and provides an incentive to gamers who play for long periods of time.
Video game skins trading is big business
CS:GO, known as Counter-Strike: Global Offensive, is a first-person shooter developed by Valve Corporation and is regarded as one of the most popular esports games today. A significant part of the game’s success is centered around the gamer’s ability to stand out from the crowd by personalizing their items through virtual skins.
CS:GO has been the front-runner in the rise in popularity of virtual goods and has encouraged many developers to mimic their business model to create a unique experience for their gamers.
According to Eilers & Krejcik Gaming, a research firm focusing on the global gaming industry, over 3 million gamers wagered $2.3 billion worth of skins on outcomes of professional esports matches in 2015.
The prestige of having the only item in the game is worth tens of thousands of dollars. Depending on the rarity of an item, prices can range from a couple of cents to tens of thousands of dollars.
Real prices for gaming skins/ virtual goods from CS:GO:
Due to rarity and other factors, skins have become a virtual economy of their own. Gamers have started to recognize the economic value of their hard-earned items, and have resorted to various marketplaces to buy, sell, and exchange their virtual skin goods. However, the following factors have had a negative impact on both gamers and developers.
Value Corporation, operates a ‘Community Market’ trading platform for most of their popular games, including CS:GO. Although their Community Market acts as the official marketplace where gamers can facilitate trades with other people, gamers cannot cash out. Instead, participants in the platform have only limited use of their wallet to purchase other games on Value’s platform.
Based on the market prices of the example items shown above, it is logical to presume that gamers want the flexibility to buy, sell and trade their virtual goods in marketplaces where real value can be recognized. This is where blockchain technology can assist.
A blockchain- based marketplace enables transactions to be conducted in a peer-to-peer format while incentivizing sellers in the network with a monetary-based token. Tokens can either be used to purchase other items in the network or get withdrawn to various cryptocurrency exchanges to realize real economic value (USD, EURO etc.).
Current marketplaces such as Valve’s Community Market limit trading to other games outside of their platform. Gamers often switch games and platforms when they lose interest in a specific game, but they are often discouraged by the loss of investment they will incur in the process. This creates indirect pressure for gamers to switch or purchase additional virtual goods in the future.
Decentralized virtual good marketplaces enable the economic value of virtual goods to remain, compensate participants in the network with security features, and allow for more robust trade between different games.
Lack of governance, regulation, and security
Many third-party gaming skin marketplaces have been established to meet the liquidity demands of gamers. However, a lack of transparency and governance has resulted in the proliferation of scams.
Gamers who have resorted to platforms where they trade directly with others have been the subject of scams. Here are two scenarios –
Scenario 1 – Buyer-end Scam: Seller will send the virtual goods to the buyer, but not receive the funds in exchange.
Scenario 2 – Seller-end Scam: Buyer will send the funds in exchange for the virtual good(s), but will receive the wrong virtual goods or nothing.
A quick youtube search goes there’s a ton of case of players getting scammed on third-party sites.
A potential solution to mitigate these risks is to involve a third-party intermediary to ensure transactions of virtual goods, and funds are transferred fairly. However, third parties will lead to inefficiencies and transaction fees for users. See here, for example – Valve recently announced a wait time of 15 days before a trade goes through or a listing is live.
To solve this problem without involving a third party intermediary, a consensus-backed blockchain is needed. A blockchain-based, decentralized marketplace will allow transactions to be fast and efficient with gamers able to transact P2P without having to sacrifice security.
A decentralized ecosystem is the way forward
Current gaming skin marketplaces that trade virtual goods are inefficient and expensive. New blockchain- based solutions can benefit not only gamers but also developers.
Creating a global ecosystem where gamers can trade directly with other games in a secured platform provides an incentive and reason to purchase more virtual goods in the future. For developers, partnerships can be established to provide a commision-based incentive in the form of smart contracts. This creates an additional revenue stream for developers and advances the $50 billion virtual goods industry to new levels.
A decentralized ecosystem where gamers can safely exchange and trade their hard earned items for monetary value is the next step to unlock the true potential of gaming marketplaces.
Also published on Medium.