5 min read

Square Enix, a Japanese entertainment company, is jumping into the blockchain gaming craze.

Why did Square change name to Block?

In some ways, it's linked to the idea of building blocks, neighborhood blocks, and local businesses and communities coming together for music-filled block parties. Square refers to the term "blockchain" or "code sections."

This weekend, Square Enix President Yosuke Matsuda used a New Year's message to signal the company's interest in "blockchain gaming" and "decentralized games" as "a major strategic theme for us starting in 2022." Matsuda, in particular, sees the blockchain provide "explicit incentives" for players to create "major game-changing content" and profit from their "creative efforts."

While Matsuda categorizes the vast majority of players as "playing to have fun," he predicts "a certain number of people whose motivation is to 'play to contribute,'" by which he means "helping to make the game more exciting." According to Matsuda, most traditional games rely on "personal feelings such as goodwill and volunteer spirit" to motivate user-generated content, which is "one reason there haven't been as many major game-changing content that were user generated as one would expect."

Matsuda sees advances in token economies as providing "explicit incentives" for players to create in-game content, as well as "a tangible upside to their creative efforts." According to Matsuda, this will lead to more content being created, which will attract more "play to have fun" players and result in "self-sustaining game growth."

Is Square a blockchain company?

Building blocks, neighborhood blocks and their local businesses, communities coming together at music-filled block parties, a blockchain, a section of code, and obstacles to overcome are all associated with the company's name. In this press release, Square, Inc. is referred to as "Block."

Everything has been done before.

While Matsuda claims that "blockchain-based tokens will enable this," many other game developers have showed that a marketplace for user-generated content can established without using blockchain-based solutions. Valve launched its Steam Workshop marketplace for user-generated items in 2011 and announced in early 2015 that it had paid creators more than $57 million for items in just three Valve games. In 2015, Valve allowed Skyrim players to sell entire mods, but the program canceled four days later, with Valve stating, "It's clear we didn't understand exactly what we were doing... even though we believe there's a useful feature somewhere here."

Roblox recently announced that in 2020, over 1.27 million player-developers earned in-game Roblox from their creations, contributing to the company's $45 billion initial public offering (IPO). Only 4,300 of those players earned the $350 minimum required to convert their Roblox to real money, adding to the criticism that Roblox's business model exploits its disproportionately young user base.

There is a slew of other games that allow players to buy and sell in-game items, all of which predate the recent explosion of non-fungible tokens (NFTs).

Using a blockchain-based marketplace allows in-game item creators to sell their creations on third-party marketplaces, avoiding the hassles and fees associated with the game's original publisher's centralized marketplaces. In the end, however, the publisher keeps control over the game, including what types of items and even item sales permitted (as Ubisoft's recently revealed NFT offerings).

The value of all those in-game items is also contingent on the game's continued popularity—whether they're on the blockchain, if the game goes away, all those items become functionally useless.

Trying to catch that moment,

Aside from technical requirements, Matsuda is clearly enamored with the hype surrounding "decentralized gaming," which he writes will "be a major strategic theme for us starting in 2022," with initiatives such as "potentially issuing our own tokens in the future." Matsuda says that in recent years, he's noticed "an increase in societal literacy and acceptance of crypto assets," and that he believes NFTs will "become a major trend in gaming Metaverse from now on." Trading in NFT-based digital goods could "become as common as dealing in physical goods," he writes.

User-generated content marketplaces in games are old news, and they're still nothing more than a lucrative niche. NFTs and "the blockchain" are the hot new buzzwords that immediately pique the interest of investors and speculators.

Still, we'd be wary of predictions that blockchain technology will revolutionize the way players interact with and create content for games. Paying players for user-generated content is nothing new and adding the blockchain on top of a marketplace changes nothing or obviates the challenges of creating a truly lucrative and self-sustaining market for such creations.