Gaming is the Next Step in Mainstream Crypto Adoption
And Avalanche Subnets are Best Positioned to Power It
This article builds upon another article that I wrote. I highly recommend reading it first.
Game Thesis
I believe video games, specifically Web2.5¹ games, will onboard the next 100 million+ users to crypto over the next few years. Web2.5 games are video games where all code, servers, and data are off-chain, besides for tokens and NFTs. Game NFTs will greatly increase the need for DeFi. Lending in-game items will become a multi billion dollar market, as will collateralizing in-game items for loans.
Players don’t need to know that the game is using NFTs and tokens under the hood, at least not from the outset. Gamers shouldn’t need to know what a wallet is until after they’re engrossed in your game and can’t stop playing. Gamers won’t pay a ridiculous sum of money to start playing your game.
Games need to be on their own application specific chains for the best user and developer experience.
Application Specific Blockchains
Application specific blockchains (ASB) are the clearest path to scaling blockspace to onboard the next billion users. Chris Dixon of a16z said “I think blockspace is the best product to be selling in the 2020s”. Selling blockspace is exactly what blockchain platforms like Cosmos, Avalanche Subnets, Polygon Supernets, and StarkNet Layer 3s are doing.
These platforms are similar to Amazon Web Services, since they give developers easy to use software infrastructure tools, so they can focus on building their product.
Application specific blockchains allow for lower fees, fine tuned performance for the specific use case, transaction isolation, and greater developer control. Games aren’t the only applications where ASBs shine. Performance sensitive applications like Central Limit Order Books², private/corporate blockchains, and blockchains requiring Know Your Customer (KYC) all need ASBs.
Games are technical and hard
AAA games are marvels of software engineering. Computer graphics, physics simulation, and network programming (netcode) are some of the most challenging subsets of software engineering that are needed for game development. They are challenging because they require deep systems knowledge and countless optimizations. One needs to understand the entire stack, sometimes all the way down to the Network Interface Controller (NIC) level. It is not a field for the feint of heart.
Look at the fighting game community, and you’ll see endless complaints and games abandoned due to poor netcode. Game studios that have been around for decades still can’t get it right. I’m looking at you Nintendo.
Games vary wildly in what they need to optimize, but it remains clear that game studios want as much control over their software infrastructure as possible because of gamers’ performance and UX expectations. Games will always be challenging to build, because user expectations constantly increase with new titles that push the industry forward.
Blockchain properties that matter for games
Transactions per second (TPS) - How many operations can the blockchain perform per second? In Web2.5 games, an operation includes spending/trading tokens, trading gear, leveling up your character, picking up items an enemy dropped, etc. A single popular game will need 1000s of transactions per second.
Time to Finality (TTF) - How long does it take for my transactions to be stored on the blockchain forever? The main reason why Bitcoin is a poor currency is because its TTF is 1 hour. If you don’t wait 1 hour, your transaction could be removed from the blockchain, due to how Bitcoin’s consensus mechanisms work. Ethereum is on the order of minutes. Games want as close to 0 seconds TTF as possible and typically operate on the order of milliseconds. No gamer wants to pick up a sword only to have it vanish from their inventory 90 seconds later.
Free gas fees for users - When you kill a monster in World of Warcraft, items like in-game currency and gear drop for the player to pick up and use. Users will not pick the gear up if the fee is more expensive than the value of the gear. Ideally users don’t even know what gas or a transaction is. Free gas is the best user experience by a mile. Game developers should pay for gas, and make it up on marketplace take rates or other fees.
Strong financial incentives for validators - Game developers need to incentivize validators with gas fees, otherwise no one will run a validator node. This is a delicate balance, because it is at odds with keeping gas fees low for users.
Transaction Isolation / Sovereign Blockspace - A pre-product hype-driven monkey NFT on Ethereum is causing gas prices to spike 10x. Assume a game is also running on Ethereum. The game is unplayable during this period, and it is completely out of the game developer’s control. Another application with load spiking should not impact your application.
Uptime - Blockchains shouldn’t have downtime. Diverse validator sets help with this. A centralized authority running all validators is bad for uptime.
Security (at the blockchain level) - Black hat hackers can’t drain user’s tokens and items.
Ease of development - Game developers shouldn’t have to roll their own chain. Distributed consensus is an insanely hard problem. Web2 developers almost never roll their own software infrastructure anymore and default to cloud providers. It will be the same for blockchains.
Virtual Machine Flexibility - Candy Crush doesn’t have the same strict performance requirements as Counter-Strike. Every blockchain virtual machine isn’t a good fit for games. Some developers will be fine with using out of the box virtual machines like the Ethereum Virtual Machine or Cosmos SDK. Others will roll their own.
Immutability - Vitalik Buterin’s impetus for creating Ethereum was because his favorite spell in World of Warcraft got nerfed. Once a transaction is in the blockchain, it is there forever.
Maximum Extracted Value³ (MEV) Resistant - MEV contributes a negative user experience. With MEV token swaps can get front run, along with many other tactics, which results in slippage and worse trade execution. Gamers shouldn’t worry about bots exploiting their in game trades. Application Specific Blockchains give developers many more tools to mitigate MEV.
Current blockchain landscape
Current Layer 1 blockchains are all missing Transaction Isolation / Sovereign Blockspace, and Virtual Machine Flexibility. Many L1s are also missing the Transactions per Second and/or Time To Finality needed for gaming. They aren’t included in the following table.
Ethereum and NEAR’s sharding helps mitigate Transaction Isolation, but does not solve it. Your application doesn’t need to worry about applications on other shards, but applications on your shard can still impact your gas fees and performance.
Avalanche Subnet supremacy
An Avalanche Subnet is the best place to build your Web2.5¹ game because they have all the properties necessary for an outstanding gaming experience and can function as Application Specific Blockchains, when properly configured. Developers don’t have to roll their own chain, and get consensus and security out of the box.
A subnet, or subnetwork, is a dynamic set of validators working together to achieve consensus on the state of a set of blockchains. AAA games like Ascenders and Shrapnel are currently building out their own Avalanche subnets.
Each subnet validator is required to stake 2000 AVAX along with the subnet’s native token, which the developer configures. The requirement to stake AVAX for each validator provides a reasonable floor of security. Each subnet validator must also validate transactions on the main Avalanche chain. Most developers chose their own token for gas on their subnet, but subnets can also have free gas.
Avalanche lets subnet developers use whichever virtual machine they desire or build their own. Modularity is king.
The biggest drawback of subnets is that there is no Inter-Blockchain Communication (IBC) protocol yet. This means that subnets need to bridge to one another, which is less secure than IBC. AvaLabs claims to be working on it, as is LayerZero.
Cosmos already has functioning IBC, but Cosmos’ out of the box Time To Finality is 7 seconds, which I believe is too long for crypto games. Cosmos appchain devs can tune custom VMs to reach ~1 second TTF, so Cosmos is also an interesting L1 to watch for gaming.
For a deeper technical dive on Avalanche read this article.
Conclusion
Multiplayer video games will onboard the next massive wave of users to crypto, whether they realize it’s built on crypto rails or not. Avalanche Subnets are the best place for game developers to build Web2.5 games, because they offer the best developer and user experience. Subnets will pave the way for fully on-chain Web3¹ games, which are not feasible at scale yet, but will be in a few years.
Web3 games are video games where all code, data, tokens, and NFTs exist solely on chain. They may be built on Layer 2 blockchains leveraging zero knowledge proof and can use Avalanche Subnets (or other blockchains) as their Layer 1. ZK virtual machines allow game devs to build directly on their own Layer 1s too, leveraging Avalanche Subnets or Cosmos AppChains.
Feel free to email me at jonwalch@gmail.com with questions.
Appendix
¹ Web2.5 games are video games where all code, servers, and data are off-chain, besides for tokens and NFTs. Web3 games are video games where all code, data, tokens, and NFTs exist solely on chain. See the article I wrote for Sophon Ventures below to go deeper:
