> For the complete documentation index, see [llms.txt](https://chainedx.gitbook.io/chainedx-protocol/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://chainedx.gitbook.io/chainedx-protocol/9.-chainedx-and-on-chain-gaming/background.md). # Background Traditional vs On-Chain Games Blockchain games first started in 2014 with the launch of Huntercoin to test the potential of integrating blockchain technology with games. Even though blockchain games promise to deliver benefits such as digital asset ownership, and community governance, the ecosystem for blockchain games barely scrapes the tip of the iceberg when compared to traditional games. For a sense of scale, Alien World, one of the most popular blockchain games, is less than 0.1% the size of Minecraft in terms of average monthly active users. That is around 1 player on Alien World to 932 players on Minecraft. Evidently, the adoption of blockchain technology is still in its infancy with fully on-chain games only accounting for about 5% of all blockchain games . To date, the traditional video game industry holds the largest gaming community and is a lucrative industry with market revenue expected to see a CAGR of 11.2% from 2023 to 2025 (2) . With the size of the blockchain gaming market expected to record a CAGR of 70.3% and cross US$22B by 2025 (3) , fully on-chain games being a subset of blockchain games are likely to see a similar growth trajectory.

Figure 1: Size of Traditional Video Game Market

**Source: Statista, Binance Research** However, there are exciting innovations happening in the space and we have seen a shift from the traditional gaming model towards what is known as “fully on-chain games”. Traditional games are games where the logic and game state are stored on a centralized, off-chain server. For context, blockchain games refers to games that leverage blockchain technology for its in-game assets, although game server and logic are off-chain and centralized. This exposes users to platform risk should the game shut down. However, in fully on-chain games, game logic and game state are all stored on-chain, existing forever as long as the underlying blockchain technology is still running. Game logic refers to the rules and mechanics that define how the game operates, such as transfers, movements, combat etc. Game state records the current status of the game and is updated regularly to reflect changes in the gaming environment such as when there is an action taken, change in ranks etc.

Figure 2: Game spectrum with increasing appetite for on-chain gaming

According to Brian Gu, founder of Dark Forest which is one of the earliest implementations of a fully on-chain game, a fully on-chain game should possess the following characteristics (4) : ◆ The source of truth lies in the blockchain which is used as a shared state for all game updates. ◆ Game logic and rules are implemented via smart contracts. ◆ Game is based on open ecosystem principles. ◆ Game is client agnostic. ◆ Games are interoperable with things we consider valuable. In this report, we will only examine the state of fully on-chain games and its potential to capture a meaningful share of the gaming industry. **Value Proposition** Fully on-chain games are desirable due to value propositions such as immutability and game permanence, composability and interoperability, true ownership of digital assets and community governance. **Immutability and Game Permanence** The move towards fully on-chain games aims to capture the fundamental benefits of blockchain technology: immutability and game permanence. In traditional gaming, if the gaming publisher goes bankrupt or sunsets the game, all assets of the game would disappear too. Nintendo’s closure of its eShop for example has put many traditional classic games now out of reach. Contrast it against a game that lies entirely on the blockchain, as long as the network continues to operate, the game will continue to exist. This offers a persistence guarantee that significantly derisks the invested resources spent by gamers in creating assets and driving the development of the gaming ecosystem. The cryptographic and transparent nature of blockchain also prevents game data from being tampered with.

Figure 3: On-Chain games will continue to exist as long as the blockchain lasts

Composability and Interoperability One of the greatest benefits of on-chain gaming is permissionless composability given to gamers and developers. **Instead of operating within siloed environments controlled by most traditional game publishers, on-chain games allow users to take the code, items, assets from one application and use them in another.** The desire to create new content is not unique to on-chain games. Modding has long been a key component in web2 games, with players showing a key desire to improve upon existing game concepts. According to Mod.io (5) , the popularity of user-generated content (“UGC”) games is expected to grow exponentially and is predicted to consume $1 for every $10 spent in video games by 2025. With games like LoL, DoTA, and PUBG having their games built on modded versions of other games, it is apparent that modding is an attractive and important element in games. Roblox, one of the largest community-driven gaming platforms, has hosted more than 40 million user-generated games(6) and also recorded a 20% YoY growth in daily active users (DAUs) (7) . Other well known players include Epic which has also launched its own Unreal Editor for Fortnite (UEFN) earlier this year with a promise to share 40% of revenue (8) with creators who contribute to content creation. However, modding in traditional games faces some limitations. In Minecraft for example, users that mod the game have to create a new server which fragments the ecosystem further since modded versions introduce new barriers to entry and are not interoperable with other modded games. The case for composable modding is well-backed and fully on-chain games are able to unleash the potential of the creator-content-player flywheel, enabling players to mod the game without fragmenting game economy and generate strong network effects for the platform. Under the concept of an “Autonomous World”, ecosystems governed by their own set of rules are interoperable, allowing creators and gamers to seamlessly interact across different game environments. Gaming experiences are also set to be more immersive and everlasting in such environments.

Figure 4: Composability in On-Chain Games

A notable example of a composable, fully on-chain game is Realms.World: Eternum. Developed by BibliothecaDAO, Eternum aims to be the foundational infrastructure layer upon which people are able to build and extend the ecosystem. The layer also comes bundled with an early SDK, along with initial game systems, allowing for maximum expansion. **True User Ownership of Digital Assets** Vitalik Buterin, founder of Ethereum, once remarked that the developers of Wars of Warcraft weakened his character against his will (9) , which exposed him to the whims of centralized services. Evidently, assets in traditional, centralized games are never truly owned by the players themselves. Despite that, the desire and appeal of asset ownership within the game economy is evident in traditional games. For example, Counter Strike skins which are tradable outside of the game witnessed one rare skin being sold for a whopping US$160,000 in March 2023. World of Warcraft (“WoW”) gold was also valued at 7x (10) Venezuela’s bolivares which led to a clamp down by Blizzard that negatively impacted players’ experience. A permissionless, fully on-chain game that uses NFTs to transfer ownership rights to gamers can foster more robust interaction among players. This is due to a deeper sentimental attachment to assets that are under the gamers' full control, effectively reducing the risk of censorship. **Community Governance** The introduction of in-game governance tokens to provide gamers with governance rights, places the future development of the game in the hands of engaged players. Through the formation of DAOs or gaming guilds, it ensures a transparent, frictionless, self governance by a global community powered by blockchain technology that eliminates the reliance on rent-extracting middlemen. This could foster a more close knit community, improve retention rate and lower the cost of acquisition. One notable case is Star Atlas DAO which empowers gamers with stakes in the development of the game. Using a voting escrow model in which POLIS tokens are staked in exchange for voting power, this model hands the development of the game to the most convicted community members. The Star Atlas community has demonstrated vested interest in the game, introducing various tools and features to expand the ecosystem alongside the core game developer which include: **◆ Redspatula’s Star Atlas Ships Pricing Tool:** data aggregator on Atlas ships **◆ The Hologram News Network:** news site dedicated to the Star Atlas’s ecosystem ◆ Galactic Dash: Dashboard focusing on Star Atlas ships, politics and economics ◆ Atlas Theory: Video content creation dedicated to Star Atlas In order to build a self-sustaining, community-driven governance model, the developer has laid out a framework consisting of the DAO, Star Atlas Constitution, Star Atlas Council and the Foundation. Eventually, after evidence of success, the developer also plans to transfer the Emergency Override Authority that is used to protect the DAO and community, into the hands of the DAO (11) . --- # Agent Instructions This documentation is published with GitBook. GitBook is the documentation platform designed so that both humans and AI agents can read, navigate, and reason over technical content effectively. Learn more at gitbook.com. ## Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter: ``` GET https://chainedx.gitbook.io/chainedx-protocol/9.-chainedx-and-on-chain-gaming/background.md?ask= ``` The question should be specific, self-contained, and written in natural language. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.