Nov 2022#web3#GameFi#Opinion

Between Web2 and Web3,And a bit of GameFi. Part 1.

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Authors

Roman Troskin

Roman Troskin

Director, Strategy

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12 min

Concerning patterns

The world is constantly changing. Some changes seem insignificant, but change everything beyond recognition, and the loudly announced "revolutions" turn out to be nothing more than a splash. We can only look at trends or tendencies and the reasons why they arose. Revolutionary changes brought by blockchain require new ideas and cardinal rethinking of the approach, but it always helps to take a cautious glance at the past. Many mistakes can be avoided by knowing the last revolution's hopes, dreams, and failures. In this article, I will share my vision of how we got to where we are, and in the next article, we will discuss the opportunities and challenges we will all go through and form the preconditions for the next change.

About Web2

The definition of web2 originated in 2002-2003 by Tim O'Reilly, an open-source enthusiast. Tim was struggling with Amazon, which in 2000 was trying to patent the one-click shopping technology. Bezos and O'Reilly found common ground, lobbying for joint ideas in Washington for patent law, but that's a whole other story. We are interested in the definition itself and its origins. 

The methodology of Web2 systems is that the more people use them, the better they become.

This statement looks idealistic when you look at it as a TikTok and YouTube user, but you have to understand the time in which it was proposed. The definition emerged to disassociate itself from the bad and outdated world of the dotcoms, after their collapse, to show potential investors and the public that the internet had changed and become better. So this approach worked. Google, Tencent, and Qualcomm held their first IPOs in 2004.

The emergence of web2 created the conditions for the appearance of new tools, such as: 

  • Podcasting
  • Blogging
  • Tags
  • Curating with RSS
  • Social bookmarking
  • Social Networks
  • Social Media
  • Wikis
  • Web content voting: review or ranking sites. 

These tools required technology adoption and expansion by new users, creating self-sustaining systems of audience inflow and engagement. 

Worth noting that Amazon had commenting and reviewing capabilities since its inception in 1995, making it a pioneer in web2 — almost a decade before the definition itself. In 2002 Amazon opened up its API to third-party developers.

Main idea

The necessity to involve users in creating a new world of technology and information accessibility where everyone "gets better" arose also due to Internet stagnation. At the time, there were only a few creators and the adoption was going on at a slow pace. Web1 came to the dot-com crash with ~600 million users who could be engaged and then monetized, and at the same time disposing of the accumulated technical and financial capabilities of large companies that had emerged long before the Internet.

Centralized Internet accumulated enough new contradictions to allow terabytes of content from users to synthesize a new web pattern, initially aiming for more involvement and attachment. Drawing parallels, current web3 development, and NFT trends are also in limbo, as evidenced by the collapse of the NFT market.

So what was going on in game development during this turbulent time?

Competition in the console and handheld game systems market was gaining momentum, and it was an amazing time for PC games. As technology proliferated, adapted Gaming started with the centralization around the big companies, which gave a giant boost in a difficult, incomprehensible field for most people, but at a certain stage, stalled development, too. 

Suddenly, in 1999 came Counter-Strike, which changed the market significantly. Although it was a product of two independent programmers, created as a mod for Half-Life, it was not an accident out of nowhere but just one of the trends that started in the era of Wolfenstein and Doom. 

Eventually, game developers realized the potential of mods and user-generated content, in general, to add value to their games and began to encourage their creation. Some examples of this approach included tools like the Unreal Engine, which allowed you to create your games on a pre-made engine, importing 3ds max scenes to use as character models. 

With the spread of broadband Internet access, many publishers turned to online gaming as a way to innovate and monetize their games not in a buy-to-play format, but in more sophisticated ways, such as subscriptions or in-game item sales. The kings of massively multiplayer online role-playing games (MMORPGs), such as RuneScape, EverQuest, Ultima Online, and World of Warcraft, are now garnering tons of community heat. The other side of the industry was Second Life, which focused on social interaction with virtual player avatars and user creations instead of any elements of gameplay — the meta-universe 5 years before the concept of bitcoin. The modern "web3 games" industry still continues to exploit Second Life's achievements and concepts, even though more than a dozen years have passed.

Historically, there have been few console MMORPGs due to the lack of built-in Internet connectivity for the platforms. This made it difficult to create a large enough community of subscribers to justify development costs, which was the reason for the separation of console games into a separate, closed environment for user revision. 

Involving new people in the market with their ideas, vision, and lack of understanding of "how things should be done" also led to a new audience attracted by a new, more open approach, which in turn affected sales and development of new market segments and the creation of long-term trends:

Game socialization

The blurring of boundaries between computer games and social networks. Currently, multiplayer game projects are actively developing and functioning simultaneously as social spaces where players can play and communicate during the game (e.g., The Crew, Minecraft). 

Streaming

The importance of the viewing experience. The popularity of online broadcasts of the process of gameplay in real-time, or so-called game streaming, is growing. I want to note that this is an example of a service built solely on the actions and interests of the audience, but more and more often acts against the interests of this audience and creators. Some small indie projects, like Speedrunners or Gang Beasts, were initially developed to attract user-streamers of Twitch and YouTube by means of non-standard cooperation models, unusual visuals, and graphics, as well as great opportunities for creating interesting videos.

Cloud Gaming

Today cloud gaming is becoming one of the drivers of the gaming industry. The market is actively growing: the average annual growth rate is over 45%, according to experts' estimates. There are several reasons for this rapid development. Firstly, this technology allows users to save on gaming and run new games on low-powered old devices, stationary computers, and smartphones, which is becoming more and more relevant due to the audience expansion to include developing countries, paying only for the time spent in the game. Nvidia, Apple, Google, Amazon, Microsoft, Verizon, and others have launched or are about to launch their services. The fact is that cloud gaming services will soon become part of the ecosystems of technology corporations that already offer a variety of online services: online shopping, cloud hosting, and TV shows. This allows us to tie the customer even more firmly to the ecosystem of the corporation, which brings us to the same situation that led us to the need for web2.

Oposition

The PC games market, which used to be appealing to big corporations, but not enough to invest large amounts of money in development, advertising, marketing, and other costs, has changed. Big players have entered with democracy and interest in the audience's opinion


The development of the industry always leads to its monopolization and alienation from users, which creates another controversy and an exodus of the audience from big studios’ products, which in turn forms a new market and opportunities for indie developers, which was utilized by big platforms and products, such as Steam, Kickstarter, Twitch and others.

The industry accumulated a gigantic amount of people and resources and started to stagnate, but here's where the change happened. 

Let’s see what Web3 is

Web2 predictor vs Web3 idealism:

«There’s been a lot of talk about Web3 lately, and as the person who defined “Web 2.0” 17 years ago, I’m often asked to comment. I’ve generally avoided doing so because most prognostications about the future turn out to be wrong.»

Tim O’Reilly

History repeats itself, “the first time as tragedy, the second time as farce.”, and so the person who gave an idealistic definition of web2 accuses web3 of idealism, but he is absolutely right. It has been 14 years from the inception of Bitcoin to the present day, and in that time over 300 million people have become crypto users and are interacting with blockchain in some form, which correlates with the internet penetration numbers before the dot-com crash. 


“Neither venture capital investment nor easy access to risky, highly inflated assets predicts lasting success and impact for a particular company or technology. Remember the dot-com boom and the subsequent bust? We’re in an “even crazier era than the dot-com era.”

Tim O’Reilly

The inability to understand how the new web3 system can be linked to existing legal and commercial mechanisms. It differs sharply from the approaches at the time of previous radical changes. The first versions of the Internet, by contrast, simplified the creation of valuable new services and quickly turned almost everything in the physical world into a digital shadow: people, objects, locations, O'Reilly says.

Perhaps developers and investors forgot to think about the value of the developments because they temporarily switched to making easy money through speculation. It is true that they are trying to implement technologies in the fields of art, sports, games, and the Web3 metaverse, but all these web3 technologies are mostly aimed at speculative income generation without utilizing new tools that have emerged thanks to blockchain technology. 

To clarify, cryptocurrency is not the only market favored by speculators. The valuations of trendy startups are also justifiably inflated, which can intentionally lobby for the capital's interests. Afterward, this is fraught with a crisis like the 2008-2009 crash or the previously mentioned dot-com crisis. 

Whatever this web3 crypto Internet could be, finally the market will be formed after another failure and change in the trend to a real decentralization and real involvement of the audience in its development, not just investing in ill-conceived and empty concepts and promises, expecting supernormal profits.

All of the companies that survived were making money—a lot of it. (In the case of Amazon, it was free cash flow, not profit, but the numbers were huge, as was the business and economic insight behind it.) Their valuations, while high, were supported by plausible models of future earnings and cash flow.

None of them needed to raise enormous sums of money by today’s standards. (Yahoo’s total pre-IPO investment was $6.8 million, Google’s $36 million, and Amazon’s $108 million.) When you see companies go back again and again to investors for funding without ever reaching a profit, they may not really be businesses; they may better be thought of as financial instruments.

They all had millions, then tens of millions, then hundreds of millions (and eventually billions) of daily active users for world-changing new services.

There was an emphasis on unique and durable assets - whether data, infrastructure, or groundbreaking models - focused on customers and their needs. 

They managed to take the lead in the technology market even in the decades that followed. Case in point: Apple and Microsoft were able to adapt to change.

At the time of the dot-com crash, there was not much of what people are used to relying on today: iPhones, Android, Twitter, Facebook, cloud computing, digital cards, and online payments. However, the world has become much more complex and interesting, and it is better to deal with the problems it poses through collective solutions and building a foundation on the mass user and the benefits for them, rather than on immediate demands. 

Synthesis

Putting together the Main and Opposition in a synthesis, I would like to present a solution for those who are thinking about moving from web2 to web3. Long-term trends show that we are again coming to the necessity of true decentralization due to market monopolization and the time is approaching when developers will be forced to involve players in the creation of the game and take part in its development, not only to offer a finished product, even a good one, or just a profitable economy. As such a solution can be created in a new web3 DAO, which will contain the necessary set of tools for creating games and authoring web3 apps.

This is all temporary and passing stuff, even though web3 offers all these tools. This is not about NFT, IDO, and the possibility of getting fabulous money fast, at a stage that doesn't even make it to the FFF round, but about a new perception of the audience and the product that is created. 

The transition from web2 to web3 means not a simple addition of a new monetization option, but a real possibility of revolutionary changes in game development and support, which requires an understanding of what opportunities the "new Internet" offers and how it can help bring the project, not to a new stage or level, but a radical transition from one paradigm of perception to a completely different, more open and decentralized than it was before. That's the whole point. 


“The World Wide Web is more of a social creation than a technical one.”

Tim Berners-Lee – creator of The Internet

The new Internet was created as a response to the monopolization and rigidity of the web2. A simple transfer of models and patterns from the previous technology can certainly deliver results, but it will be fleeting and insignificant. Real change happens only when something really changes. We'll discuss specific changes, mistakes, and problems that web3 companies face in GameFi in the next part of the article.

I'll finish with the last quote, which helps to understand the long-term dynamics of both web and other industries.

At a certain stage of development, the material productive forces of society come into conflict with the existing relations of production or – this merely expresses the same thing in legal terms – with the property relations within the framework of which they have operated hitherto. From forms of development of the productive forces, these relations turn into their fetters. Then begins an era of social revolution. The changes in the economic foundation lead sooner or later to the transformation of the whole immense superstructure.

 

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