Nonfungible token-based projects like Loot and The N Project have helped spike interest in the Metaverse to an all-time high, raising hopes again that blockchain will finally break through to the masses. Will it, or is history doomed to repeat itself? The problem is that the very things that capture the imagination of the public are the very same things that ultimately degrade the performance of the underlying platforms and raise barriers to entry higher than ever. In this article, I’ll explore the fundamental issues responsible for creating this dynamic with the goal of helping address these issues once and for all.
The fundamental problem is that legacy blockchain technology — specifically Ethereum — introduces massive barriers to entry that hinder the ability of the Metaverse to onboard new users. These issues are then exacerbated by the failure to allow users of the network to statically price their network usage.
Apes and penguins are pricey
The fees required to use popular NFT marketplaces can be an insidious problem because projects often foist these costs onto the user with often-unrealistic expectations of their profit-making potential. A quick look through Etherscan reveals the mind-numbingly high value of transaction fees paid per project. Projects like Bored Ape Yacht Club and Pudgy Penguins have had their users pay 106.7 and 111.4 Ether (ETH), respectively, to interact with their smart contract. Combined, users of these two projects have had to pay nearly $1 million in transaction fees alone!
Axie Infinity, truly NFT-based?
But here’s the thing: Those projects aren’t actually NFT-based games! In Axie Infinity, players can battle and breed little creatures which can then be sold or leased to other players precisely because they are implemented as NFTs. This is what makes Axie Infinity a great example of a game that is truly NFT-based. The problem is that, the more a game actually leverages NFTs and the benefits of a blockchain-based asset, the more ETH fees users have to pay.
Both the trading and breeding aspects of these games incur transaction fees on the Ethereum blockchain. Axie Infinity has paid over 15,000 ETH in transaction fees, which roughly equates to over $60,000,000! That’s money that the developers could have spent to improve their product but, more importantly, that’s money that users could have spent purchasing even more digital assets from both Axie Infinity and other game developers.
The catch-22 for new users and publishers
Many new users attracted by the NFT craze go right to a marketplace like OpenSea to list their own NFT. In an ideal world, this would be a fantastic opportunity to add another blockchain advocate to the ranks by delivering a fantastic user experience. Unfortunately, right now the transaction fee associated with simply listing an item for sale on OpenSea is around 0.1 ETH, or about $400. That’s not the kind of user experience that makes people think they are using some futuristic technology!
These absurd fees not only hurt new users attempting to find out what this blockchain craze is all about, but they also dissuade larger business entities from building on top of blockchain platforms. Why would big video game publishers build NFT interoperability into their video games if the end consumer of their product would have to pay upwards of around $100 in order to trade their in-game weapon skins. Surely, no consumer would be excited about in-game NFT assets that cost more to trade than the base game.
Even if a large video game publisher had aspirations to cover these blockchain transaction fees for their player base, these fees would still be prohibitively expensive and increase proportional to the game’s lifecycle. Effectively, this game publisher would be getting penalized as the replay value of their game increases! Given these shortcomings with the current transaction pricing of blockchains, it is no surprise that we have not seen video game developers and publishers alike jumping headfirst into the digitization of in-game assets using blockchain.
Clearly, there are substantial issues with current NFT-based games on legacy blockchains. In large part, this is due to their transaction pricing mechanism, which hinders new users’ adoption and dissuades video game publishers from implementing NFT assets into their game. Unfortunately, we are not close to seeing triple-A video game titles using blockchain to track ownership of in-game assets. It would simply be far too costly for consumers or publishers to bear the cost of transacting on a fee-based blockchain.
There is, however, hope. It is possible to eliminate fees from the user experience of a blockchain. The Steem blockchain (which famously forked into Hive to thwart the hostile takeover by Justin Sun) has been operating with a fee-less model since its inception in 2016. Splinterlands, one of the most successful blockchain-based games, has been leveraging the fee-less properties of Steem, and now Hive, to spectacular effect.
Related: Going feeless is the only way to enable blockchain adoption
The essence of the solution contained within those blockchains is the introduction of a token derivative or “property” that is consumed to “pay” for transaction fees, instead of something like Ethereum’s gas, and that can be “delegated” from one user (like a developer) to another user (like a player).
The use of a token derivative to cover the cost of transactions allows game developers to statically price their network usage over time. If this sounds a little confusing, don’t worry; I will explain.
Consider, for a moment, if Axie Infinity had been built on top of a fee-less blockchain that leverages such a token derivative as opposed to forcing users to spend down their balance. If this had been the case, the developers could have bought a given amount of the native currency proportional to the network bandwidth they would need for the game, and then delegated network resources to new users.
For starters, it would have allowed new users, who receive the delegated resources, to be able to swap their Axies and interact with in-game smart contracts for zero transaction fees. This would then allow for the game to naturally grow its player base, as players would not be deterred by the cost of playing the game. It would lower the barrier to entry, funneling more new players into the ecosystem and driving demand for in-game assets.
Such a fee structure could allow for game publishers and developers to pay a one-time fixed cost for consistent network usage. On Ethereum, you pay per transaction, which is a big — approximately $60,000,000 big, as of November 2021 — problem for games like Axie Infinity. Of course, what happens when the user runs out of the token derivative? Wouldn’t they be right back where they started? Well, not if it regenerates over time!
Related: Navigating the NFT minefield: It should be made easy for first-time buyers
Because we are talking about a property of a token, and not tokens themselves, it can be programmed in any way we want without significant economic consequences. The purpose of this property is not to exchange value, but to motivate network usage, and it can be designed accordingly. If we don’t want users to be forced into constantly buying more and more tokens, then all we need to do is have the token property regenerate over time, which would also give us the static pricing we’re looking for and theoretically unlimited transactions for the user! Consequently, a game like Axie Infinity would just need to make a one-time purchase and never have to pay — or have their player base pay — transaction fees ever again.
Resources could be continuously delegated from the publisher or developer directly to the active player or user base, giving players free smart contract interactions and essentially solving a $60,000,000 dollar inefficiency within the NFT gaming space.
The current fee-based transaction structure poses a direct threat to mass adoption. We at Koinos Group, in addition to creating the first consumer-friendly blockchain, are working towards a solution that would allow large organizations to better price the costs associated with adopting this cutting-edge technology.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Thomas Clement is a blockchain analyst at Koinos Group, a blockchain development company dedicated to helping people leverage blockchain to benefit humanity.
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