Lately I’ve been considering an important question on the edge of virtual economies and virtual worlds, one that the Web3 community hasn’t fully addressed. The question is: what does ownership mean in a virtual world?

A general consensus about Web3 disruption holds that there is a shift in ownership power from central to individual control. One way to look at Web3 is that it’s essentially based on an ownership revolution. In this musing, I begin exploring what this revolution may mean for the makers and players of games and gamified experiences.

To start, let’s assume we have a hand in designing the Web3 economy. What attributes should it have and not have? To answer this, we can enter into a dialog where we decide what we want Web3 to look like, rather than be passive and let the changes happen to us.

We’ve already seen a number of early answers about what ownership in games means, including some Web3 experiments that have led to what I consider undesirable results. As many players would be quick to point out, some of these undesirable results earned people millions or even billions of dollars.

I believe these extreme boom and bust cycles have tarnished the image of Web3 enterprises for many. Here are three that cross my mind:

• AXS, the governance token of Axie Infinity, the best-known cryptocurrency game, once traded as high as $164.90. It is trading today at $9.12, with a YTD decline of 90%. Likewise, tradable Axies once sold for astronomical prices, with the most expensive one going for $800,000. Axies are now selling for an average of $200.
• CryptoKitties, trading on Etherium, are neither a good game nor a sound investment. There is a market for rare and collectable Beanie Babies, so if you enjoyed collecting them back in the day, CryptoKitties might be for you.
• The general NFT collection craze that started to get both hype and traction in June of 2020 resulted in the launch of thousands of NFT collections. Many funding DAOs promised unimaginable returns, and scams became so common that many of us in the gaming industry started adopting new slang like rug pull to describe the behaviors. While some NFT collections may have ongoing value, their sustainability has yet to be proven. Rather predictably, most have crashed.

I ask myself if I want to participate in anything even remotely like this. Frequently I recall the words of my friend Raleigh Freeman as we discussed this emerging Web3 space, and he said that is not my revolution.

And yet, while there’s a lot about Web3 that doesn’t work, these forays don’t mean the concept of a revolution in ownership is flawed—only that the execution so far is missing the mark. Bigly.

As we ride out the crypto winter, it’s time to set aside Web3’s irrational exuberance and publicity and find ways to drive change responsibly. To be clear, I don’t think that a URL simply pointing to a bitmap of art sitting on a server represents meaningful ownership. What I’m trying to understand is the psychological motivation underlying the ownership of virtual assets and the best way to demonstrate its value.

For a Web3 game to be successful—both accessible and sustainable—here are two basic tenets that I believe are necessary:

• The game itself must have inherent value and solid gameplay
• Digital assets need an independent existence outside the product

Digital and Real-World Value

Game makers and publishers have long tried to claim that virtual assets possess no real-world value. As recently as 2017, Ralph Koster declared that:

“If your virtual worlds are successful, your digital objects are going to have real money value. Anything you create as a digital object has real-world value.”

– Game Developer Conference

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Koster made this statement to the GDC audience, partly because many were still refusing to believe it. How quickly things can change. Fast-forward to our ‘enlightened’ perch in 2022, and the prior deep skepticism may seem laughable, given the market value of the current virtual goods marketplace.

So what do users expect when it comes to digital assets?

Going back to the beginning, in 1995 Matt Mihaly built Iron Realms, a multi-user text role-playing community. As far as I know, he built the first business around selling virtual assets in the virtual world of Iron Realms.

Mihaly tells a story about how a few days after they started selling virtual goods, a user wrote to Iron Realms and said that he wanted them to send him the sword he had purchased. I wonder what the player was expecting—it couldn’t have been a text printout of the code for the item.

Concept art for Iron Realms

This example shows us that since day one in online worlds, users have been asking to own their stuff. As a creator of virtual worlds (and I suspect I’m not alone), I’ll admit that I don’t know exactly what virtual ownership means, although I do know that the players want it to mean more than it has so far. And it’s up to us game designers to listen to these motivations and needs.

The view that virtual assets have value outside the game worlds in which they’re created leads to more questions. Here’s a simple analogy:

• What does it mean to own a sword in a game that someone else runs as a business?
• It is like having a locker at a gym—you don’t expect to take that locker home if the gym shuts down. You have the right to use that locker as long as the gym is open and you pay your dues.
• In the same way, if you have a sword in World of Warcraft and you stop paying your subscription or if the game shuts down, you lose access to your sword. Don’t you?

Ownership Economies, Communities, and Web3

The emergence of Web3 and the promise of the ownership economy shows that at least one class of users craves what we’ve been ignoring for many years, and they are willing to spend on it. These users are putting down large amounts of money to people who are offering them one interpretation of ownership, which is virtual goods registered on the blockchain.

However, ownership without community and governance is meaningless. For example, I own a home, and I have a deed that is registered with the county that says that I own my home. The deed is only meaningful within the context of the county, state, and federal government. Should those community structures that give that paper meaning cease to exist, the deed would not have meaning, or at least authority.

This kind of community-enforced ownership becomes more pronounced in places where the laws are less clear. For example, there is a community in Southern California called Slab City, an anarchist collective where people live in a concrete jungle of slabs.

I met someone from Slab City once and asked him how a resident could live there. He explained that you had to go and live there in the same spot without leaving for three to six months. It would take that long for everyone to get to know you. Once everyone in the community knows you, they know that is your spot. You could then successfully leave for a few days and come back with the expectation that all of your stuff will be there undisturbed.

East Entrance of Slab City, provided by Atlas Obscura

Ownership without community is meaningless, and the community, whether formal or informal, seems to have the power to bestow ownership. This makes the distributed and anonymous nature of blockchain to me an especially odd and potentially inappropriate mechanism for registering ownership.

A government is a community that lays claim to being the sole authority to execute violence within a geographic region and when a government fails to regulate violence within its own borders we refer to it as a failed state.

A government is a community that lays claim to being the sole authority to execute violence within a geographic region and when a government fails to regulate violence within its own borders we refer to it as a failed state.

There is a community of anarcho-capitalists who see blockchain as an opportunity to promote a voluntary structure of ownership not backed by a state actor and its associated threat of violence. While this perspective may be interesting as an abstract ideological or philosophical debate, I don’t see how a philosophy—whether you agree or disagree with it—should guarantee a specific technology a place at the table, nor be a required feature to include in product design.

Any technology I employ has to provide practical utility, or I’m not interested in using it. I’ll address the blockchain in future musings on why we need (or don’t need) blockchain to have ownership of virtual assets.

As I wrote in O Web3, Where Art Thou?, the first of this series of musings, my goal is to understand the essence, the real nugget, about ownership—what ownership economics for games and virtual worlds can, and perhaps should, be.

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