The Heartbeat of Cardano.

The Dangers of Gamification in Crypto

You might have heard the term gamification before, but what is it exactly? According to wikipedia gamification is “the strategic attempt to enhance systems, services, organizations, and activities by creating similar experiences to those experienced when playing games in order to motivate and engage users.” Like everything in life, this new concept that is gaining popularity in business practices around the world, can have a positive and a negative impact.

An example of a positive impact is Brilliant, a website dedicated to teaching users complex concepts related to math, data analysis, computer science, programming and engineering while using an engaging and fun way of delivering the lesson by employing a format related to playing games. There have been numerous research papers and advancements in the field of gamification applied learning with positive results.

However, the dark side of gamification lies in the fact that game design in the modern age is aimed towards retention of the user. This paper analyzed the effect of gamification in learning with a population of 101 Dutch university students and found positive results if the experience is tailored, so the student receives personalized feedback and session is limited to prevent “binging” the game. Both of these features are not present in modern video games, which are made to serve a wide audience and employ sneaky tactics to maximize longer play sessions. 

Loot boxes in video games

It might sound odd to use the term gamification when talking about a feature inside a video game. However in this case I’m referring to the gamification of gambling inside them. With the rise of online gaming, massive multiplayer games and esports, the goal of video game designers and publishers has been shifting from providing the best experience possible to maximizing engagement and profits. 

One of the new ways they manage to do this is with loot boxes. For the uninitiated a loot box is a random reward you get inside a video game, either by earning it for completing a challenge or more commonly by buying it with real life money. The randomness and the real life value of the loot box is what transforms a harmless and fun feature into a depredatory corporate tactic to extract the highest amount of money possible from consumers. Which in the case of these video games, are often underage kids or adults with gambling addictions. 

Although crafting addictive mechanics into video games is nothing new (arcade machines are famous for taking your pocket change) the advancement of technology and proliferation of video game systems in most households has for certain exacerbated the issue. The problem of underage kids gambling away their parents’ savings got so out of control that several countries had to issue new laws to prohibit or limit this feature in video games marketed towards kids.

Memecoins & Shitcoins

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You might be wondering by now what loot boxes and gambling in video games have anything to do with crypto. The crypto space has experienced several transformations in the short fourteen years of existence. From a niche reserved only for cypherpunks and anarchists to a global industry of trillions of dollars, the explosion of new products and services is nothing short of astonishing. 

Although no one said all these products and services had to have value. Austrian economist Joseph Schumpeter authored the concept of creative destruction to describe the “process of industrial mutation that continuously revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one”. This concept applies more than ever to the cryptoasset industry due to its permissionless and decentralized nature.

One player in this creative destruction are the memecoins and shitcoins. Memecoins are not bad per se, there are some good examples like Hosky Token on Cardano which uses the popular appeal of a dog-themed memecoin to advocate for decentralization and support small single stake pool operators. 

However, these cases are the exception to the rule. Shitcoins on the other hand are just “pump and dump” schemes engineered with the only objective of extracting value from inexperienced traders and users of crypto currencies. Shitcoins rely on popular subjects that are currently trending on social media. From FLOKI the shitcoin named after Elon Musk’s new dog or PEPE named after a popular internet meme. These are just two examples of a big (too big in my opinion) niche inside the industry, which fuels the skepticism and distrust of people outside the space towards their view of crypto currencies as a whole. 

While these projects started as a joke or a way to innovate, evolve and try new things, now they have become a true problem inside our industry. Founders of these projects now resort to complicated tokenomics mechanics to give the impression that there is utility behind the worthless tokens. Staking is used to give the appearance that the user can do something with it. By depositing their tokens in a protocol, the project takes out of the circulating supply a considerable amount to give the impression of shortage as a way to artificially inflate the price. However the staking is not doing anything productive (like securing a blockchain) it’s just a way to take tokens out of circulation while making the user believe they are “earning” new tokens by doing so. 

Crypto gambling

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The next step in the evolution of gamification in crypto is crypto gambling and I’m not referring to sites that provide actual gambling using crypto currencies, like sport betting or poker tables. Which I don’t have any problem with since they provide the service they advertise without obfuscation of their intentions. I’m referring to decentralized protocols being built around a shitcoin, to give the appearance of utility, which implements nefarious gambling schemes disguised as games. These crypto gambling games implement all the industry schemes to induce addiction and the illusion of earning something.

One of these schemes is positive reinforcement, which is widely used both in casinos and video games nowadays. The psychological explanation is too complex and out of scope for this article but the basics dictate that both rats and human brains release dopamine when we are rewarded for doing a specific task. The more we do such a task, the more we are rewarded. But this also generates another problem which is a tolerance to the dopamine released, that’s why researchers found that not being rewarded every time, but so often gets the subject involved in the activity because they don’t know when the next dopamine release is going to come. Thus engineering addiction to a specific task.

We can see this system applied on slot machines in casinos, progression systems in video games and more recently in the gamification of crypto gambling. The best example of this is PancakeSwap a project that originated as a copy of Uniswap V1 but in the Binance Smart Chain and this wasn’t the only time they did that, instead of developing their own code (which would take time and effort) they once again forked the Uniswap code, but now its version three. This is one of the downsides of open source in the crypto ecosystem and there’s nothing we can do but educate people about these practices. The “developers” of PancakeSwap copied another successful DEX (decentralized exchange) and created their own token called $CAKE. They added traditional DEX features like liquidity pools to fund their AMM (automated market maker) but they also added “staking” of their own worthless token as a gimmick to show that their token has utility. What did they do afterwards? They introduced gambling disguised as gaming:

A lottery, a NFT collection, prediction of futures prices (gambling) and “pottery” which is basically a merge of staking and the lottery because the other three schemes weren’t enough to rob users of their funds. These schemes are accompanied by cute graphics of bunnies and pancakes with the objective of attracting young and inexperienced users that see crypto only as a game. Which influencers love because it provides inviting thumbnails for young people to get attracted to and click on the video, what they don’t know is that afterwards they get instructed to use their hard earned money (or worse their parents) to gamble it away while thinking they are on the vanguard of technology for using a decentralized protocol engineered to extract their money.

Financial Derivatives

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Financial derivatives are very powerful tools that move the global markets. In the past they were reserved to an elite few of financial analytics, bankers and hedge fund managers. However the democratization of access to financial markets has opened the door to a broader audience. This of course is a positive thing, after all one of the goals of crypto is to “bank the unbanked” and access to financial instruments is a part of that. 

The danger presents itself when people uneducated in these instruments start playing with them like they are in a video game. To better explain this point let me use an analogy. Let’s say we advocate for the use and access to firearms, but we only advertise how fun and colorful they are without mentioning how dangerous they can be and how to properly handle them. That’s exactly what’s happening with options and futures in the crypto asset industry. 

To clarify, I’m an advocate of freedom and self-sovereignty. If someone wants to gamble away their life savings either in a slot machine or with crypto futures, they should be able to do so. I don’t believe restriction of access is ever the answer to solving social or behavioral issues. I personally believe that access to dangerous tools (firearms, slot machines or crypto derivatives) should always be accompanied by proper quality education.

Another gamification of financial derivatives are the contracts for difference or CFDs which are a way to provide an experience similar to spot trading but with futures contracts. They are perpetual futures contracts on steroids because you still have the risk of liquidation but the user is betting on a move upwards or downwards in a very short period of time. As we all know crypto markets are already very volatile which turns CFDs into a gambling addict’s dream (or nightmare). 

Final thoughts

The purpose of this article is to shine a light to a growing issue in our ecosystem. Depredatory tactics engineered to extract the most amount of value from the user have creeped in into the cryptocurrency industry. Some people argue that shitcoins and crypto gambling games are a good way to attract new people into the space, and there is some truth to that, but we should ask ourselves if the end justifies the means. In my opinion it never does and it’s a dangerous slippery slope that can be used to justify the worst actions.

The onboarding of new users to the crypto space should be grounded on technological innovation, the value proposition of cryptocurrencies and the problem that we are trying to solve not in pretty graphics and cute mascots that rob people of their hard earned money. Otherwise we are feeding into the mainstream narrative that crypto is, quoting Obi-Wan Kenobi, a “wretched hive of scum and villainy”.

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