Overview of Blockchain-Based Gaming

November 27, 2023

Overview of Blockchain-Based Gaming

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Have you ever questioned whether it makes any sense to integrate blockchain components into a game? Or what the difference between terms like crypto-native, on-chain, web3, or web2.5 gaming is? 

Both of these questions are highly relevant for anyone looking to learn more about the space - whether you come from a traditional game development background or are a crypto-enthusiast looking to learn more about the intersection of gaming and blockchain. 

Throughout time, games have gone through multiple iterations largely driven by technology enabling new mediums of playing (arcade, console, internet, mobile…). While this has enabled new types of games to be built and entirely new categories to emerge, the shift is hard to forecast ahead of time. Tonk - a research and development house for on-chain gaming - describes these as Farmville Moments:

A Farmville Moment is that moment when the game development community collectively discovers the specific game design that is uniquely suited to a particular medium. It’s really important because until we reach our Farmville Moment, all other game design will be a skeuomorphic mismatch - Tonk

The proponents of blockchain-based gaming often speak of all the benefits one might get from the combination of games and blockchain, yet many traditional game developers look at the space with suspicion or straight-out dismiss it. This has led to a point where it’s difficult to communicate effectively between these two worlds. 

We believe that blockchain-based gaming will become a subcategory within the wider gaming space, rather than every game integrating blockchain elements. Yet, it’s an interesting space that’s trialing new ideas, so it’s worth being open-minded and trying to learn more about what it could bring to the table.

This post aims to bring some clarity to the debate and provide a framework to think about the different available solutions, the tradeoffs between them, and whether having blockchain components within games makes any sense.

Source: Stable Diffusion

Defining Terminology

Different terms get thrown around quite freely without any strict definitions, which can seem confusing. When speaking about the industry more broadly, we prefer to use the umbrella term blockchain-based gaming - defined as a game that integrates blockchain in any capacity. 

This umbrella term, however, contains a lot of nuance and subcategories as there are multiple ways for games to integrate blockchain components - ranging from simply selling in-game assets as NFTs to having the full game logic and state running on-chain. 

Existing Categories

Before we can think about the benefits of blockchain-based gaming and what the future might hold, it’s useful to take a look at what’s been explored so far:

In-game Assets On-chain (Web 2.0+ or 2.1 Games)

These are games that choose to build mostly on traditional rails and maintain the actual game logic and state off-chain but still bring some in-game assets on-chain as NFTs (for example characters, skins, or add-ons). The complexity of minting and buying/selling NFTs can be abstracted away from the end-user so that they don’t even necessarily know about the blockchain component. One example here is Shrapnel - an FPS game built on the Unreal Engine where the quality of gameplay is comparable to “traditional” games, but in-game assets are stored on-chain as NFTs on an Avalanche subnet.

Hybrid Logic and On-chain Infra (Web 2.5 Gaming)

The next step from only having in-game assets on-chain is to add some of the core logic and infrastructure on-chain, while still retaining off-chain components. Given that blockchains are still severely limited in both performance and SDK/tooling for developers, Web 2.5 gaming aims to get the best of both worlds - the benefits of blockchains (in-game assets as NFTs and trustless verifiability from syncing game state on-chain at regular intervals), while still achieving the performance players are used to by settling most of the game off-chain. An example of a game that fits this description is Sunflower Land - Not every action is on-chain, but you need to "save" your game state on-chain to carry over progress over time.

Fully On-chain Games (Web3 gaming)

In fully on-chain games, everything is settled on-chain - not just assets, but also all the core logic and game state. The underlying blockchain acts as the ultimate source of truth and settlement layer, rather than a centralized server. The definition that seems to have resonated the most was proposed by Brian (@gubsheep) - co-creator of the Dark Forest game:

  1. The source of truth for game data is the blockchain.
  2. The game logic and rules are implemented via smart contracts.
  3. The game is developed in accordance with open ecosystem principles.
  4. The game is client-agnostic.
  5. The game embraces real-world value digital assets.

Dark Forest (an MMO space exploration game) was the first game in this category to feature incomplete information. Newer titles include OPCraft (Minecraft-type game built on top of the OP Stack) and Primodium (a strategy and resource-management game where players build factories and pipelines).

Fully on-chain games are sometimes dubbed Autonomous Worlds (AW) since they run on immutable blockchains, which can’t be shut down the same way as a centralized server. Hence these games are expected to live on for a long time (if not forever). Some people, however, view AW as being larger than just a game, including community governance over the rules of the game and no limitations on contributions or modding.


X-to-Earn is a general category of games that use crypto-economic incentives (in-game tokens or other assets) to onboard new players and incentivize existing players to stay active. Axie Infinity kicked off the trend with play-to-earn, but it later expanded to more general categories, such as the walk/run-to-earn game StepN. As the name suggests, the focus naturally tends towards earning an income rather than playing purely for fun or enjoyment.

Trading Card Games (TCG)

Trading card games on the blockchain are mostly based on collecting and selling NFTs (virtual cards), similar to traditional trading card games. Card trading is often supported by an evolving storyline, rather than a rich gameplay experience. Examples include Gods Unchained, Splinterlands, and Cross the Ages.


As the name suggests - GameFi focuses on making decentralized finance (DeFi) more fun, rather than bringing financial elements into games. One way to look at this category is simply as a gamified frontend for DeFi - while it might look like a game on the surface and the core logic & actions are settled on-chain, there is very limited (if any) actual gameplay. One example of this is DeFi Kingdoms.

A Framework To Think About The Space

So how should one differentiate between all the different subcategories within blockchain-based gaming?

Ultimately, we believe it boils down to computational guarantees - How much of the game state (assets, achievements…) and state transition function (rules, logic, player actions…) are guaranteed and settled on a blockchain? Or as framed by IOSG Ventures - what is the ultimate source of truth? 

This is not a binary choice of fully centralized server vs fully on-chain, but rather a spectrum:

Source: Eiger

For a complete overview of existing categories, another vertical is needed - namely whether the main focus is on the game-play (having fun) or the financial aspect (making money). Combining these two gives us a framework to think about the space and how different categories relate to each other:

Source: Eiger

Benefits of Blockchain-Based Gaming

Now that we have an understanding of the terminology, it’s time to deal with the real question - namely why anyone would want to develop games on the blockchain?

While the intersection of gaming and blockchains is still largely experimental and the full benefits aren’t quite clear (especially for fully on-chain games), we do believe that blockchains provide new affordances and innovations that wouldn’t be possible on traditional rails.

The key feature that blockchains enable is permissionless read/write and verifiable compute, which opens the door for new forms of interoperability and community engagement within games and game development. We think this is the largest benefit of having at least some component of the game on-chain (starting from in-game assets).

Verifiability (or provable fairness) and unstoppability are often raised as additional benefits. While they are less attractive in isolation, we think they are still worth highlighting:

Source: Eiger

The key benefit, interoperability, manifests itself in several different ways: 

  1. Ownership Records On-chain (closer to “true” ownership): Representing in-game assets as NFTs recorded on a ledger gives users more freedom on how to use them. As the ownership record and its read/write access are not owned by any single centralized party, the record lives on even if the game were to be shut down. This means that the asset could be utilized in creative ways, such as in forks of the original game or other games.
  2. Integrations To Existing Infrastructure (composability): Rather than building everything in-house, teams can leverage existing infrastructure. One good example of this is marketplaces: While they aren’t a new concept per se and players have been buying and selling in-game assets for a long time, trades have previously been facilitated either through grey markets or permissioned in-game marketplaces with limitations on users getting value out of the game (fiat withdrawals are either highly taxed or not possible at all).

    As in-game assets are recorded on-chain, either as fungible (ERC20) or non-fungible (NFTs) tokens, users can withdraw them from the game and buy/sell on existing exchanges and NFT marketplaces. This removes the need for grey markets and allows game developers to potentially capture a fee from trading volume through royalties.
  3. Game-to-Game Interoperability (permissionless read/write): Storing assets and game state on-chain means that one game can read the on-chain state from another game (or if the state is private, users can still prove the “ownership” of the state, for example, that they own a specific item or have achieved a certain level). This enables much easier interoperability between games without the need for any integration between the two parties or asking for permission. For example, you could give exclusive benefits to players who are above a certain level or own a specific item in another game.

    This does not mean that in-game items in one game (for example a sword or a character) could be directly ported into another game! Interoperability is often confused with omniportability, but these are wildly different. While the latter might become technically possible in the future, it would require a lot of social coordination and agreement over common standards. 
  4. Leveraging Community To Build Supporting Infrastructure: Rather than the core team building everything, some parts (such as leaderboards or marketplaces for in-game assets) could be outsourced to third-party developers and community members. The more of a game that is recorded on-chain, the more can be done by the community in an open-source manner without requiring additional permission from the core team. 
  5. Expanding The Game (Permissionless Modding): Modding enables third-party developers to create content beyond what original game developers had in mind. It’s not a new phenomenon in itself and modding has even become a core part of the gameplay in many popular games such as Minecraft or Roblox. Not all games, however, support modding, and those that do often require creating a new server rather than contributing to existing ones. This creates fragmentation as each new server competes with existing ones for players.

    Increased composability, both across entities and narratives, enables more permissionless modding and expanding the game incrementally - leveraging the creativity of the community. 

How Do Different Stakeholders Benefit?

Another way to look at this is who stands to benefit from it and what the main benefit to each group of stakeholders is. We believe there are three groups to consider - players, game developers (core team), and the wider community.

Source: Eiger

Benefits To Players

The main benefit to players is having more control over their assets, with ownership recorded on-chain rather than on a centralized server. This gives players to option to buy/sell assets more easily and get value out of the game by using existing infrastructure and marketplaces, rather than having to rely on grey markets or paying a high tax to the game developers for converting in-game tokens into a fiat currency. 

This feeling of closer to “true” ownership alongside the psychological comfort of knowing that you can recoup some of the value on secondary markets (at least in theory), could encourage players to spend more on in-game assets. And even if the game shuts down - those assets could still be utilized elsewhere and at the very least remain as memorabilia or collector items for the owner. 

Benefits To Game Developers (Core Team)

The key benefit to the game developers is open-source game design, i.e. the ability to leverage the creativity and expertise of the players and the wider community to a much larger extent than before. This is a new way of designing games, where the original team focuses more on developing the core game while players and community members take care of the supporting infrastructure and game expansions (mods).

Besides leveraging the wisdom of the crowd, it also allows smaller teams with less funding to be able to compete. Rather than developing everything in-house, parts of the stack can be outsourced to the community, which can be incentivized through tokens, equity, or future revenue-split agreements. This is something that we’ve seen play out in the wider blockchain space with independent developers (or teams of developers) working on certain parts of the stack.

Benefits To Community

The wider community stands to benefit most from the increased ability to contribute to different aspects of the game experience (user-generated content (UGC) and expanding the game through mods or surrounding infrastructure) in addition to better terms to monetize their work. While there is often overlap between “players” and “community”, we believe that a new category of independent developers will emerge who are technically and culturally invested in a certain ecosystem, but don’t necessarily need to be players themselves. 

Increased composability combined with crypto-enabled payments enables more favorable terms to monetize the UGC. This is in contrast to the current model, where monetization of UGC is either non-existent or highly skewed towards the original game developers who take the majority of earnings (for example: Roblox takes >70% of the developer’s income). 

Frictions For Wider Adoption

So why hasn’t blockchain-based gaming taken off yet? Besides the lack of education and weak public sentiment around crypto, NFTs, and blockchain technology more widely - we think there are a few key frictions for adoption.

Source: Eiger

Firstly, there are technical challenges: While underlying technology and infrastructure keep evolving, there is no getting around the fact that developing games with blockchain components is still much more painful compared to traditional game development. Blockchains are limited in both their performance and memory, which constrains the types of games that can be built fully on-chain. For hybrid games that keep most of the logic and state off-chain, this is less of an issue, but even there the tooling is not as mature as what developers are used to.

Secondly, the poor user experience around self-custody wallets and key management are big frictions for onboarding new players. The tradeoff between UX and security within the wider wallet space is an issue that’s yet to be solved, despite the promise around account abstraction. To combat this, most hybrid games abstract away the complexity to the backend with integrated marketplaces and wallets within the game (in addition to the option for players to transfer in-game assets to their wallets outside the platform). For fully on-chain games, session keys (a player generates a temporary keypair stored locally and authorizes it to sign and validate game actions for a set period) or smart-wallet solutions can limit the number of times that players have to sign transactions, but this area still requires further development.

We believe the technical and UX-related challenges will be solved over the coming years as the intersection of gaming and blockchains attracts more funding and gains developer mind-share. The larger problems that remain are around social coordination and designing new monetization models that work within blockchain-based gaming and allow game publishers to capture value. Similar to how mobile gaming was a small niche until the freemium model became popular - we believe that fully on-chain gaming will initially be driven by individual game developers and smaller indie publishers, rather than the big AAA studios.

As the model around game development changes towards embracing a more open-source culture and leveraging the community, existing game developers might face difficulties adapting to these changes. The old model of controlling the whole process is in stark contrast and existing players might have a hard time adapting due to cultural inertia. This cultural inertia and existing processes might mean that new generation games and the first big hit games integrating blockchain components are built by completely new game studios.

Guidelines For Picking Your Technology Stack

If you’ve been intrigued so far, below are a few more things worth considering before you start building the next hit game on the blockchain:

Settlement Layer 

While traditional games use centralized servers, blockchain-based games utilize the blockchain as their settlement layer (partially or fully). Choosing the right settlement layer for your needs is important, as these differ both by capability, supporting ecosystem, and available developer toolkits. A few things for developers to consider here are:

Available SDK and Developer Tooling

Game engines offer tools and frameworks used for developing and designing games, which make the lives of game developers significantly easier. Unity and Unreal are most widely used in traditional game development, but building games on the blockchain is more complex as the available tooling is less mature. However, more options are starting to emerge.

For games that want to mint in-game assets as NFT and have supporting on-chain infrastructure, there are several teams offering SDKs and other developer tooling to help make the blockchain integration as smooth as possible - both as generic solutions (work across multiple blockchains) or blockchain-specific solutions. The tables below represent a non-comprehensive overview.

For the development of fully on-chain games, the four main game engines are MUD, Dojo, Keystone, and Argus. Other teams not in the table below include Paima Engine and Proof of Play

Source: IOSG Ventures

Does The Game Require Privacy? 

There are some full-information games (such as chess) where it doesn’t matter that information is posted transparently on the blockchain, but most games are partial-information games that require some level of privacy. While zero-knowledge proofs (ZKPs) and commit-reveal schemes can generally be used for secrets that someone knows (such as the player), it’s currently really hard to achieve a fully private global state on blockchains for secrets that no one knows.

We are, however, seeing improvements in cryptography through research and development within ZKPs, fully homomorphic encryption (FHE), and multi-party computation (MPC). Any achievement that makes these cheaper and more efficient to use in the context of blockchains directly benefits on-chain gaming as well. The rise of “programmable privacy” blockchains is an important first step in the direction of general-purpose privacy for blockchains, but to achieve a global private state we are likely to require a combination of all three (ZKP, FHE, and MPC). 

Hardware-based solutions (TEE/SGX) are more practical for now, but in the long term, we prefer the software-enabled route due to more flexibility. For further reading about privacy in game development, see this series by Tonk.

Source: Tonk 

In-Game Assets and Economic Incentives

While launching a native token and/or governance token can be tempting to drive interest as well as get some liquidity for early contributors, ultimately the choice should come down to whether there is an inherent need for it in the game or not.  

While economic incentives are powerful to onboard new players, it’s not sustainable as we’ve seen with the many attempts at X-to-Earn. In addition, the risk of exploitation and unnecessary financialization can distract from the original game. Our recommendation would be to focus more on designing a game that’s fun to play, and less on cryptoeconomic engineering.

Parting Thoughts

Games are low-stakes, high-requirement applications, which makes them perfect for testing the limits of what blockchains are capable of and pushing innovation.

Blockchain-based gaming will likely gain developer mind-share and adoption over the coming years, but we don’t believe all games will move on-chain. Instead, blockchain-based gaming will likely become a new subcategory with its unique benefits and downsides, similar to how mobile gaming emerged with the rise of smartphones.

Today most of the development is happening in the hybrid space, i.e. games that utilize both on-chain and off-chain components. Directionally it seems that we are going towards having more and more of the core gameplay on-chain as developer tooling and on-chain infrastructure keep improving. However, the road ahead is long and we still need orders of magnitude in performance improvements of the underlying blockchains to enable more complex games to exist fully on-chain.

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