Is The Future of Gaming Decentralized?

The advent of blockchain has opened up new opportunities for games developers, but what  is all the fuss about and what makes them different than existing game development? 

Perhaps, you have heard of CryptoKitties, NimiPet or Decentraland, or maybe this is the first time you are reading about it.  Either way, it is an opportunity you should be aware of, in case we see more companies adopting the blockchain for gaming.

Big Question

I have been following Decentraland recently (full disclosure: I own a small amount of the coins) and was discussing it in a recent interview, when the interviewer asked me "I don't get it, what value does it bring having it on the blockchain over a traditional centralized model?"

How's It Different?

It is different in two ways: Control and Profits

n a decentralized game, no single organization controls all the rules of the game and profits go to developers of the best content. A player votes with their time and money. 

When a game is built by a company, the company can control all the aspects of the game including who can play it, the features, the rules, and the profits.  Furthermore, the company can change any one or all of those aspects are their discretion.  That may sound fine to many people, since the company paid for the development, but it can negatively impact players that have "invested" in the game through time and initial or in-game purchases. As a player you either accept the changes or leave the game. 

A few years ago, I was playing a war game and the developers constantly changed the rules of the game by limiting operating areas and strategies, adjusting weapons performance and introducing new weapons.  Each change would cause an uproar in the community, but increased developer profitability, in that it cost the player more money and time just to stay even.  Those who have played any multi-player game know that you develop a sense of camaraderie with the other players and that makes it difficult to leave, so you stick around until it becomes more painful, experience or expense, to continue than to just quit.  

CryptoScientist University

Let me provide a more detailed example.  Lets imagine I decide that the game community would benefit from a virtual cryptocurrency university, so I purchase the "land" and start developing the features, rules, economy, courses and all other aspects that would benefit my students.  When I purchased the land, no controlling organization would tell my what I can or cannot build or how much I can charge.  It is all at my discretion.  All of the profits I am able able to generate through courses or advertising are paid to me for my effort.  Think about how this is different than the current revenue models on social platforms.  All the user data and profits are owned by one company, generating enormous profits for them. 

If my university is popular, I could even choose to issue my own currency that is used when you enter my area, but could also be exchanged when you leave for the "global" currency. 

Numerous Options

I have essentially created a virtual island and so have hundreds of other people, giving players choices of how they want to invest their time and money.  Some people may develop neighborhoods, resorts, nightclubs, shopping districts, amusement parks, other universities or whatever they can imagine. 

If my university is widely popular, perhaps a real world college would want to purchase it.  I can now sell it for any price that I choose and again the profit comes to me.  In games controlled by a single company, the terms and conditions  either limit or prohibits sales, so when you leave you also leave behind everything you purchased or earned along the way.  This changes the economic model from a monopoly to one of competition.  

Users

The question then becomes, if you can build your own popular university or whatever, why not just build the software you control, since that is what you are doing on your plot of land.  The answer is user base.  I would need to market to a niche audience or spend significant upfront investment to build hundreds of islands, hoping to attract and retain enough users to make a return.  The decentralized model distributes the development cost and risks, but attracts a larger user base because of the wide variety of offering within a single platform.

Limitation of Decentralization

The three overarching negatives, based on the current state of development are scalability, content distribution, and security/usability.

Scalability

Blockchain scalability has caused platform issues affecting all users.  When Cyptokitties was enormously popular, one selling for as much as $117,000 , the Ethereum blockchain experienced a six-fold increase in pending transaction, which impacted all owners of the currency, not just the gamers.  This caused concerns that serious business opportunities where being crowded out by the gamers.  

Decentralized Content Distribution

Content distribution through a P2P network has traditionally posed two primary issues: download speeds and availability.  . Both of these issues, could negatively affect the users and the overall popularity of the game.  As the technology continues to develop, it is expected that new solutions will solve these issues.

Easy to Use/Hard to Lose

In game wallets will need to be secure enough for gamers to hold private keys and authorize micropayments, yet easy enough for gamers, with a wide range of experiences, to understand and use. 

Wrap-Up

Decentralized games built on the blockchain could change the game development industry in tremendous ways by rewarding gamers for their effort and developers for their content, but for that to happen, strides will need to made to mitigate the limitations.  I think it wiil be an area to watch for new opportunities.  In a future post, I will analyze the impact of decentralized games on blockchain security.

Let me know what you think about decentralized games and their future in the comments below.

There Are No Free Refunds

Did you know that two Korean cryptocurrency exchanges where hacked this month. The more interesting reading, than the fact they were hacked, is the public comments on the articles.  

First, let me assure you, that in both cases, it was not Bitcoin that were hacked, as some "news agencies" reported, but the wallets held by the exchanges. Why does this matter? These exchanges are centralization points and when you amass anything of value in a central location it becomes target for hackers.  

I understand that crypto is new to most people, and the easy way to manage your coins is by leaving them on an exchange, but that is last thing you should do.

Think about it this way; would you put all your money into your physical wallet and ask a stranger to watch over it for you.  If you won't do that in the physical world, why would you do it in crypto?  

Right now, if you have crypto on an exchange, you need to either download a wallet or create a paper wallet and move your coins to it. The best solution is to create a hot wallet, one connected to the internet for your daily trades (similar to your carrying around cash in your purse or wallet) and a cold wallet, one not connected to the internet for the remainder of the coins. (If you want to learn more about wallets, see the "Cryptocurrency for Beginners" post). This means that most of your coins should be in a cold wallet. The cold wallet can be as simple as a paper wallet or if you want to spend a bit of money order a hardware wallet.  Either of them will provide you better security and reduce your risk of loss. Just don't lose the wallet or you will lose the coins associated with it.  

Now, on the point of this post and the comments I mentioned initially. People are stating that the problem with crypto is that it is not insured and unregulated, and therefore you cannot get a refund if your money is stolen, like you can in fiat (USD) based transaction. That is very true, but the fundamental point they either fail to realize or ignore, is where are those refunds coming from?

Is the bank, credit card issuer, merchant, company or government freely compensating you for the loss?  Answer is simple: NO. In 2017, over $16 billion dollars was lost due to fraud and identity theft in the US and we as consumers are paying for that loss in terms of higher prices, interest rates and taxes. Depending on your source, that number is expected to climb to over $30 billion in the next few years. 

Unlike crypto, where you are responsible for securing your coins and ultimately responsible should they be lost, we as consumers are paying for other mismanagement and poor security. You may not have lost any money in 2017 due to fraud, but you paid for the losses none the less.  You see those losses are just spread out across all of us. If company has limited downside risk of financial impact are they going to harden their systems to ensure that your money and information is safe?  

Maybe, but if you look closely at the numbers, it tends to indicates otherwise. In 2017, 1579 companies including 134 financial institutions lost 178 million records in the US, which means that over half of every man, women and child had their information stolem in one year.  

We need to stop thinking that are getting a "free" refund and hold the companies accountable for the losses. This is a difficult challenge when the burden of the losses can so easily be shifted to consumers.   

Is increased in regulation in crypto the answer? If all the increased regulation does is diversify the loss from one individual to society as a whole, I do not think that we should look to increased regulation. If regulation, somehow improves security, against the risk of loss in the first place, then it may be worth examining to protect the uninformed purchasers of crypto, but has that worked in other industries based on the prior statistics?  

The next time an exchange is hacked and people loose their crypto, remember that at least you were not responsible for covering the loss, after all you are already covering enough losses in your normal transactions.  

Final Point: keep your crypto safe, and spend time to move it off an exchange.   

Are We Entering the Age of Money Revolution?

What is the Cryptocurrency bubble? In this discussion I am going to examine technological revolutions and and the Age of Money or as it is often referred, Internet of Money.

Technology Bubbles

If you are not familiar with the book, "Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages" by Carlota Perez, I would recommend giving it a read.  In it she examines the last five successive technology revolutions in great detail.  It was written in 2002, so decentralized money (cryptocurrencies) is not addressed, but I think you can draw parallels to the current Age of Money revolution with the preceding ones.  Each of the respective revolutions redefined industries and infrastructure, and each of them generally lasted about 50 years.  Perez states that a revolutions will progress through the following three phases over the years: Phase 1: Installation Period, Phase 2: Turning Point, and lastly Phase 3: Deployment Period. In her model, all technology revolutions have two successive periods of growth, as shown below.

Last Revolution

Our last technological revolution was started in 1971 as the "Age of Information and Communications." 

In examining the Information revolution, the installation period ran from 1971 to roughly 2000, or approximately 29 years.  It was during this time we experienced a new fabric being laid on top of legacy business models.  The fabric, such as the global communications infrastructure, email, internet, dramatic reductions in the cost of hardware coupled exponential improvements in capacity and processing power, was either ignored as a fad or a bolt-on to businesses.  Consider the internet in 1994, the first browser was Mosaic.  It was basically links to pages of text, and people would look at it and say this is worthless.  Who would want click from link to link?  It took another four years of innovation and imagination by early entrepreneurs and technologist to start to see opportunities for completely new business opportunities.    During the end of the Installation period, there is a frenzy of capital investment, a bubble, and that is exactly what we experienced in the late 1990's.  We saw an enormous influx of capital and new models seeking to transform every industry, most of which ultimately failed, due to timing.  Remember Pets.com or Grocery Delivery, they were huge failures at the time, yet today those same models are flourishing.

Around 2000, we entered the turning point, which lasted approximately four years. A turning point is when the bubble burst and often accompanied by a recession.  The recession creates the opportunity for institutional restructuring and routing growth towards profitable paths. During the turning point, is when a recomposition of the whole system occurs including regulation, which enables the economy to start to grow again. 

In roughly 2004, we entered the Deployment Period.  The deployment period is when the economy is rewoven and reshaped by the modernizing power of the paradigm, and the full potential of wealth is unleashed.  The last 14 years have radically changed how we communicate, purchased goods and services, build communities, and receive information. 

Next Revolution

The information revolution has lasted for 47 years, which begs the question, what is the next revolution?  Will it be the Age of Intelligence or perhaps the Age of Money?  

I think it will be the Age of Money, and then the Age of Intelligence.  When you examine how we perform financial transactions, other than a few new bolt-ons (web, mobile, remote deposit, electronic bill pay) from the last revolution, how we bank is unchanged, how we purchase a house is unchanged, how we transact is unchanged, how we transfer money overseas is unchanged, how we finance ventures is unchanged, and micropayments are impossible. 

If you have an account a two different institutions, can you easily, quickly and cheaply transfer money between them?  For most people the answer is no,  Not to even mention all the costs that are built into the system.  You may or may not readily see them, but make no mistake that you are paying them either directly or indirectly in the cost of goods and services.

Granted, in the US we have one of the best systems in existence, but step outside of the US and you have people without access to financial services, and wealth destruction through hyperinflation, devaluation, and civil disruption.    

Age of Money

The first decentralized peer to peer electronic cash  or cryptocurrency, Bitcoin, was launched in Jan 2009.  Using the model developed by Perez, we are clearly still in the earliest portion of the installation phase. If the end of this period is signaled by a recession, we are no where close to the bubble of frenzied investment.  Less than 0.3% of the worlds population owns cryptocurrencies, and the whole ecosystem has a market capitalization (~$300B) less than one-third of any company near the top of the Fortune 100 list (~900B). 

What you hear in the news is primarily noise. It is people who do not understand it or who can see the potential disruptive power of it to the global financial system and are afraid of it.  The one benefit from all the news, is global awareness.  People who may never heard of cryptocurrency, when it was mainly in the realm of the technologists, are now at least aware of its existence.  With awareness comes interest, and interest leads to more people working on the solutions, increased investment, and ultimately broad based innovation.    It is still too early to pick any winners, most will be nothing more than pets.com, a good idea long before its time.  

The Internet of Money, as it is frequently referred, has the potential to empower billions of people across the globe by providing them the ability access, transact, store, and manage their money, on their terms, for low or no cost, and in near real-time. 

The change isn't coming today, tomorrow, or next year, but it is coming. Welcome to the Age of Money.

Easy to Use & Hard to Lose

When I started exploring Bitcoin in 2012, my biggest concern was and still is to this day usability and key security.  It was positioned by passionate enthusiast as the global decentralized currency of the future, but unless you were technically savvy, it was very difficult to use and secure.  For mass adoption, that had to change.  

As a former banker and now consultant, when I review innovations in cryptocurrency, I evaluate them not just on their technical merits but also whether the average person can understand and use it. I am not saying they need to fully understand the technology to use it, but they need to understand it enough to trust it and transact with it.  Unfortunately, most of what I read is about wonderful innovations that very few people will be able to understand and use.  If we want create a global alternative to fiat currency or some new utility token, we need to find solutions that will appeal to the widest audience possible.  The means that it must be easy to use and hard to lose.  As fun as it is to build new blockchain and distributed ledger architectures, radical new consensus protocols, or Zk-Snarks for privacy, we are falling short in producing anything that the average person can use.  Take a glance at any Discord coin group and you will quickly see all the ways we have failed and yet we wonder why our cool new inventions are not being used.  I saw this in early days and I still see it today, almost 6 years later.  

When you look at most currency teams and what do you see?  I see a significant number of developers, a few cryptographers, and maybe a couple of "business" people responsible for marketing.  I think this is continuing evidence of the build it and they will come mentality that is all too prevalent, but is no longer viable due the increased competition from new coins.

Who is responsible for thinking about how the coin will be used in the real world?  How will people transact with it?    How do we ensure that even the average consumer can reasonably secure it from loss or theft? These are not easy questions to answer and may require us to rethink wallet design and key management.  I believe we can develop new solutions to these problems, if we just put as much effort into solving them as we do into creating innovative coins. 

In my opinion, any cryptocurrency that can solve this dilemma stands to gather significant mind and market share. The crypto space is large and growing fast, so If I missed a coin that has solved these challenges, please let me know in the comments below.  I would love to take a look at it.

Cryptocurrency for Beginners

After speaking at several events this year, I have consistently heard feedback that people want and need a very basic overview of cryptocurrency.  This video is intended to provide that overview.  I tried to avoid being too technical, when possible, and just stuck with basics.  I will post more detailed video's in the future that go into certain topics more in-depth.  I hope you enjoy it and learn a bit along the way.