Cryptocurrency: Fool’s gold?

13 February 2019

KamaGames embarked on something of an industry first by launching a token sale in late 2018, an experimental process to test the viability of cryptocurrency in the social casino market. However, as chief executive Andrey Kuznetsov explains, the process taught the Dublin-based studio some harsh lessons.

Many have tried and failed to match the growth of the Playtika-owned WSOP app and the enduring popularity of Zynga Poker in the social poker vertical. KamaGames, however, is probably the only studio that has managed to stay within touching distance of the top two in the sector.

“In order to compete with these guys, we need to find things we can do better than they can,” chief executive Andrey Kuznetsov explains. “They’ve got more money, more resources and more people – Zynga even had greater access to Facebook users in its early days.”

This has seen the studio invest heavily in researching new products and technologies, with the result that KamaGames’ Pokerist app became the first of its kind to launch on the Facebook Messenger platform. It was also the first to launch multi table tournaments with its free-to-play multiplayer 3D blackjack game, followed by the launch of a 3D craps product in 2018.

Crypto focus
KamaGames’ drive to innovate saw it increasingly focus on cryptocurrencies. This was, Kuznetsov says, in part due to queries from users about processing payments in crypto, as well as the realisation that the user profile of crypto enthusiasts tended to mesh with those of its existing player base.

Ultimately this saw it develop its own cryptocurrency, the KamaGames Token (KGT), based on the Ethereum platform.

However, the studio’s global communications director Sam Forrest stresses that the move into crypto had nothing to do with money.

“The company made it clear from the onset that the objective of the token sale was not to attract the interest of investors or their financial backing,” Forrest explains. “Nor did it look for speculations related to the token and therefore never intended to list it on any of the crypto exchanges.”

Instead, he says, KGT was designed to give players the best possible return on in-game currency purchases, as well as experimenting with the use of cryptocurrency as a retention tool.

“When we started to design KGT, we tried to implement features that would improve retention, such as by offering players the opportunity to collect more chips the longer they hold onto their tokens,” Kuznetsov says. “We also set it up to allow holders to collect free chips each day for the first six months following the token sale, provided they log in to redeem the offer.”

There was also a focus on reactivating lapsed players through the sale, as well as providing VIP players and big spenders with a way to purchase more in-game chips at the best possible price.

“The token was designed in the same way as a promotion,” Kuznetsov explains. “It was a good opportunity to get more chips for a lower price.”

The rationale behind using a cryptocurrency in such a way is not new. PayPal, despite not integrating the currencies into its commercial platform, has reportedly launched an internal cryptocurrency for staff, which employees can accumulate by participating in company initiatives and contributing ideas for new business practices or innovations. These can then be exchanged for rewards.

Mobile messaging platform provider Kik has also dabbled in cryptocurrency as an engagement tool with its Ethereum-based Kin coins. Kin is an evolution of Kik’s Kik Points programme, which gives users that answer surveys or watch marketing videos token rewards that can be exchanged for content, goods or experiences on its platform.

Falling flat
As an experimental project, KamaGames’ core goal from the KGT experiment was to ascertain whether there was an actual demand for cryptocurrencies on its platform, or whether it was a case of a small but vocal majority making themselves heard. It turned out to be the latter, Kuznetsov says, with demand for KGT “miserable”.

“It was far less than our most conservative projections,” he says. “I don’t know why really; maybe it was because we started our token sale in August, when there was a massive depression in cryptocurrencies.

“Most of the new markets and breakthrough technologies do tend to be a bit like the Wild West in the early days,” he admits. “And at that time it did have a poor reputation, which it is just starting to emerge from – we just caught the tail end of it.”

He estimates that only about 33,000 individuals participated in the token sake, “which is tiny, compared to the millions of new users we have each month”.

“When it comes to improving retention and reengaging lapsed players, or working with VIPs, we found this was affected by the complexity of the entire process,” Kuznetsov continues. “If anything it confirmed the rule we learned in 2010; on mobile, everything should be as simple as possible.”

Furthermore, KamaGames found that the motivation for users to purchase KGT was not in order to buy in-game chips at a lower rate, but with a view to speculating on any increase in the value of the tokens. However, this was at odds with the goals of the process – an initial coin offering was not even possible, Kuznetsov says.

“It was a case of distributing tokens that could be exchanged for chips – that was all,” he says. “We talked about it everywhere, yelled about it in our interviews and at the conferences we spoke at.

“Yet we still had plenty of people asking about what exchange we were in, how they could resell tokens,” he continues. "We still had some people that paid hundreds of Euros without even researching what they were buying.”

Pitfalls of blockchain
Even the underlying blockchain technology did not appear to have any viable application for the business. Kuznetsov says that building a social platform using a decentralised solution would risk slowing down the speed of the solution, something KamaGames, which processes about 1.5m transactions per minute, could ill afford.

He adds that games powered by a random number generator could even become more predictable as a result of distributed ledger technology. As every other number generated by the RNG is made public and stored on the blockchain, this could mean that it would become possible to ‘decode’ the algorithm using past results and thereby predict what the next number would be.

Ultimately, KamaGames will not be permanently adopting cryptocurrency as a payment solution any time soon.

“Blockchain will be adopted by some sectors, but I doubt that gaming will be the priority industry for solutions providers,” Kuznetsov says.

Forrest adds: “The most successful use of this technology is yet to be seen. It’s a very small, vocal minority that is asking for it.

“And most people just don’t actually understand it, what it does, and what it will actually mean to Joe Bloggs on the street,” he explains. “What will make it go mainstream is when the top multinational companies start to use it via a simple to use, day-to-day application.”

While KamaGames was burned by its foray into cryptocurrency, Kuznetsov says that the crypto sector seems to be going through an evolution. The days when companies could use an initial coin offering to raise some quick cash are over, he says, even if there are some advocates that will continue to tell businesses they are still living in those days.

Forrest adds that while there may be opportunities, these are perhaps outside both the company’s and the sector’s landscape.

“It’s apparent from the recent innovations of PayPal and Kik that tokens do have the potential to be effective as a rewards-based system. However, following the KamaGames Token sale, the question still looms about their value on social gaming platforms,” Forrest says.

“While the conversation around blockchain and cryptocurrencies won’t dissipate anytime soon, there is a clear indicator that it may not be widely adopted by the gaming industry in the near future.”