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Will Bitcoin Have Any Real Effect on the Video Game Vertical?

Posted by Greg Kathol

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Feb 21, 2014 9:02:00 AM

There is a fair bit of noise out there about Bitcoin. Many have heard of it, most are trying to figure out what it really is, but some are using them and even “mining” them. So why is Bitcoin important, if at all and why should I care. Will Bitcoin have any real effect on the video game vertical? Time will tell, but I have some thoughts about this.

First a Little History

Bitcoin was created as a digital peer-to-peer currency in 2009 and is not backed by any government entity, bank, or other centralized service. A person (or group of people some contend) going by the pseudonym Satoshi Nakamoto, wrote the software for issuing or as it’s called, mining the Bitcoins. Here is the original paper describing Bitcoin. The mining process occurs when a participant solves complex math problems to mine the Bitcoins. Since mining and verification are decentralized, the growth and security of the system does not rely on a single source but rather a vast global network using cryptographic technology. Miners are rewarded for their efforts by being required to verify and record the transaction of a Bitcoin in exchange for Bitcoins and a small transaction fee, not unlike credit card processing or PayPal. What is unique about this process is that Bitcoins are created at a rate of 1 block or 25 Bitcoins every 10 minutes. There is a finite amount of Bitcoins that will be available to the world; only 21 million will be issued ending in the year 2140. Bitcoins are kept in digital wallets and are spent by going through a rather standard online transaction similar to online banking or PayPal purchases. Here is a little more info on Bitcoin. And if you are interested, a great Wiki page on digital wallets.

How to Get Bitcoins - Mine vs. Buy

To get Bitcoins you can try your hand at mining them, but this method is really just for the enthusiast/hobbyist and by no means will make you rich. As a matter of fact, you’ll probably spend more on the right machine and the power to run it then you will reap from mining. One used to be able to mine them on a home PC, but as time has gone on, the complex cryptographic algorithms have gotten so complex to solve that you need a specially built machine to mine them now. Then how do you get them? The most common way is to purchase them from a Bitcoin exchange or receive them as payment. A Bitcoin exchange will sell them to you based on current exchange rates. Here are 3 different Bitcoin exchanges to check out - https://coinbase.com, https://bitquick.co, https://www.mtgox.com.

Bitcoins Volatility - Does it Matter?

It’s important to note that Bitcoin rates fluctuate frequently and often with large swings. Just 2 years ago a Bitcoin was worth under $5. That value skyrocketed at the end of last year, reaching over $1,200 and has bounced up and down since, dropping to under $600 when this blog was posted. Many economists say that these large and frequent swings will level out as Bitcoin becomes more prevalent and supply grows, while others disagree and think it’s just a bubble waiting to pop. Many also think that the digital currencies volatility may push people away from using it. However, Marc Andreessen doesn’t not feel that will be the case. In his article published on the NY Times he said, “The criticism that merchants will not accept Bitcoin because of its volatility is also incorrect.  Bitcoin can be used entirely as a payment system; merchants do not need to hold any Bitcoin currency or be exposed to Bitcoin volatility at any time.  Any consumer or merchant can trade in and out of Bitcoin and other currencies any time they want.” It’s important to note that Marc Andreessen’s VC firm has invested about $50 million in start-ups that service the Bitcoin industry. His opinion that Bitcoin can be used just as a means of transferring funds is very different to most who feel they need to keep it, as you would other currencies. It will be interesting to see if this thought process will spread.

Source: Bitcoincharts.com  - 1 Bitcoin in US dollars - Past 2 Years - Jun 2012 - Feb 2014

Bitcoin and the Public Psyche

Bitcoins unfortunately started reaching the public psyche from news about the black market and illegal transactions taking place that used Bitcoin. The well known site, Silk Road hit the news in late 2013 after the FBI shut it down and seized millions of dollars worth of Bitcoins. There are sites that accept Bitcoins that aren't underground or in the deep web. Overstock.com accepts them as does WordPress. In fact, there are over 20,000 companies currently accepting them with more being added each day, according to Bitpay’s directory. This amongst other factors will help the perception of Bitcoin change. The growth potential for this is huge and should not be underestimated, especially in the eCommerce and tech spaces. Many early adopters like that fact that Bitcoin is community-driven and maintained. Because it’s decentralized, there isn’t a single server array to hack or government to control or restrict it. 

But this doesn’t mean everyone likes the idea. There are consumers concerned about the unregulated digital currency’s use and it’s potential economic risks. Then there is government regulations looming on the horizon and China’s recent decision to stop it altogether.

Opposition and Scrutiny

Not everyone is in favor of this digital currency. Mark T. WIlliams writes in the article, “FINANCE PROFESSOR: Bitcoin Will Crash To $10 By Mid-2014” that Bitcoin valuation is a hyper bubble waiting to burst. He goes on to write about how China is no longer allowing Bitcoin transactions. Yes, that’s a big hit to Bitcoin, however, economies like the US and EU are allowing it. with

BitLegal create a regulatory map showing what countries are “permissive”, “contentious”, “hostile” and “unknown” to digital currency such as Bitcoin. The regulatory landscape is ever-changing. Even if governments deem Bitcoin illegal, it can still be used for peer-to-peer transactions. These transactions are essentially untraceable. Something that will be hard for world governments to control. This is perhaps one reason why it is feared by some. It’s not hard to find conspiracy theories surrounding Bitcoin. Beyond these fringe views lies a very real issue. With decentralization comes lack of physical security. Yes, Bitcoin is secure, but your digital wallet may not be. Fear of digital wallet sites being hacked, personal hard drives crashing and digital wallets on smartphones being lost, all contribute to hurdles any digital currency will have to get over. If you lose your digital wallet, you lose your Bitcoins. There isn’t any insurance plan, bank or government entity backing it up. This may sound like doom and gloom and it is not necessarily so. We entrust our digital selves to the internet and digital devices all the time. So in reality, it’s not a big leap for most to take, but trust in the system may be.

Spend Your Bitcoins

Here are a few companies that currently accept Bitcoin. As I mentioned before, there are over 20,000 companies currently accepting them. That number could rapidly grow in the coming year with overstock.com accepting them now and social gaming giant Zynga testing it.

www.ninjametrics.com - Yes, that’s us! We accept Bitcoin as payment for our services and we track its use in our Katana® social analytics engine for our customers games.

www.virgingalactic.com - Richard Branson’s Virgin Galactic - Here is an interview from CNBC about Accepting Bitcoin -  http://video.cnbc.com/gallery/?video=3000220731

www.overstock.com - A large online discount retailer.

www.wordpress.org - The  largest self-hosted blogging tool in the world.

www.reddit.com - A site to share your thoughts and opinions, then have it voted on by millions.

www.gyft.com - A site dedicated to redeeming, sending, managing, and buying gift cards.

www.xidax.com - Performance PC Company specializing is custom built machines for gaming

www.tigerdirect.com - Online retailer for electronic products.

www.etsy.com - A place to buy and sell handmade and vintage items has about 100 vendors accepting Bitcoin.

Competitors?

You mean there is more than one form of digital peer-to-peer currently out there? Yes there is. Here is a short list with links should you feel the need to further educate yourself of the various forms available to you.

  • https://Bitcoin.org

  • http://dogecoin.com

  • https://litecoin.org

  • https://ripple.com

  • http://www.peercoin.net

  • https://www.namecoin.org

Why is Bitcoin Important?

It isn’t, wait, it is. This nascent currency has been around for 5 years now and it keeps growing. Proof that it has at least some staying power. Will it become a standard form of payment, I don’t believe any time soon. However, I think it will continue to grow as it gains use amongst early adopters and distances itself from such well known scandals. With more mainstream companies starting to accept them, the transformation has begun. In fact, it is next to impossible to stop because it doesn't live in one place. It lives on computers all across the globe. This in and of itself makes it important, even if it fails to completely catch on, it will still live. And if another digital crypto-currency takes it place, the whole idea behind a decentralized currency will live on and still be used to some degree. Besides all of this; it also opens the door to microtransactions. More on this in the next section below.

Will Bitcoin Have Any Real Effect on the Video Game Vertical?

This is a great big, it depends. And it depends on both players wanting to use the digital currency and game developers seeing the need/trend to start accepting them. We are still in the infancy of Bitcoin. Take notice - Zynga is testing Bitcoin for in-game purchases as of January 2014. Others will take a serious look at Bitcoin, now that the largest social game development company is.

Because Bitcoin does not have the same fees as credit cards, it’s much easier for a game or online retailer to accept microtransactions or very small payments, typically under $1.00 but even under $.10 and less. This potentially opens up in-game and eCommerce purchases that were once unrealistic given a general $.30 transaction fee associated with credit cards. It’s hard to say how that could transform these market places, but it’s safe to say the sky's the limit and that’s exciting.

Bitcoin is a disruptor and test case of sorts. Succeed or fail, digital crypto-currency will be around in one form or another for some time. Perhaps it will be seen as an actual form of money or merely as a way to transfer funds from one person or company to another, for the lowest cost possible. Then quickly transferred back into the receivers native money.

Looking at the game analytics industry, we at Ninja Metrics have a way to track the Social Value of game players who use Bitcoin. This service shows a shift in its value and addresses its potential as a viable payment option. Ninja Metrics is ready and I’m sure others will follow.

So to answer the question we started with. Yes, Bitcoin will have a real effect on the video game industry. It already has, simply by being considered by game developers, early adopter gamers speaking out and tech buzz spreading around the world. It’s changing the perceptions of how monetary transactions can be made. Social Value White Paper Ninja Matrics

Topics: Game Industry, Bitcoin

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