Can blockchain fix the economies of virtual worlds?

Cryptocurrency could be a strong fit for online games, which often develop their own realistic economies despite being cut off from mainstream currencies.

Because gamers value their in-game winnings no less than they value their real-world possessions, there is an opportunity to track and guarantee the money flows of virtual worlds.

"Blockchain ... allows any kind of transaction to be trusted and tracked better than a single point of contact transaction," said Derrick Morton, CEO of FlowPlay, a Seattle-based company that creates casual and sports wagering games, virtual worlds and social casinos.

FlowPlay has invested in another Seattle startup, Dragonchain, a company that integrates business applications on an open-source blockchain platform developed at a Disney incubator and originally called "Disney Private Blockchain Platform." FlowPlay took part in Dragonchain's ICO, an increasingly popular way for blockchain companies to raise funds. FlowPlay did not disclose the size of its investment, though Dragonchain's ICO, which took place this month, was valued at about $14 million.

FlowPlay will also license Dragonchain's blockchain to develop an in-game monetization platform for social games, and will build new games based on cryptocurrency. Its games include Vegasworld, a social casino game that has 45 slots, poker, blackjack, bingo and solitaire. Another game, OurWorld, is a virtual world hosting more than 200 games ranging from puzzles to action games.

Video games have long struggled with how to manage a digital economy, especially when real-world cash enters the system. Apple paid a hefty $32 million in refunds as part of an FTC settlement in 2014 after making it too easy for kids to spend their parents' money on in-app good such as Smurfberries. More recently, the software publisher Electronic Arts bungled the launch of the game Star Wars Battlefront II by introducing a microtransaction system that gave deep-pocketed players an edge — the backlash affected sales of the game and EA's stock price, prompting the publisher to temporarily remove the micropayment system from the game.

Unlike cash, blockchain and tradable cryptocurrency are natural fits for gaming, according to Morton. "This tech will change the way consumers interact with a company, particularly when money is changing hands," Morton said.

The games in FlowPlay are not real gambling. FlowPlay will use the blockchain to create virtual currencies for very small purchases, often less than $1, to pay for virtual items that are part of the games.

Through Dragonchain, FlowPlay's users can pay for virtual goods and services with cryptocoins, and can also trade the coins with other players in an open marketplace. Dragonchain's technology also supports loyalty and rewards programs, which FlowPlay can use to encourage the growth of the virtual economies that these games often create.

Writing for PaymentsSource, Malcolm CasSelle, president of the Worldwide Asset eXchange, argues blockchain enables a virtual marketplace to deal in cryptocurrencies, which is natural next step to boost an already rapidly expanding marketplace. CasSelle also argues the blockchain can increase the value of virtual items because trends such as virtual and augmented reality are closing the gap between fantasy and reality. If virtual goods appear to be real, their interchangeability becomes essential.

"It's similar to frequent flier miles on an airline," Morton said. "You're getting cryptocurrency for doing things on our products."

Dragonchain's platform also gives users control over how data is accessed and used, which adds an element of security. "Blockchain and cryptocurrency are a kind of 'wild west,' " Morton said. "We want to make sure we are working with a trusted partner."

As a result, gaming companies are embracing cryptocurrency. As FlowPlay plots its future products in concert with Dragonchain, Xsolla, a company that distributes and publishes games, announced it will accept WorldWide Asset eXchange's cryptocurrency for more than 2,000 games.

"I don't think blockchain is necessary for the an online gaming platform, but there are some advantages," said Brad Margol, a principal at AZ Payments Group. "Fraud is a problem in the industry and blockchain can help minimize fraudulent transactions and chargebacks. In addition, having a private-label cryptocurrency will enable a better loyalty and rewards delivery channel."