Gaming The System – Blockchain Exchange Allows Gamers to Trade Itemsbr>
William Quigley is the CEO of OPSkins, a leader in the virtual goods marketplace. Based in Montreal, OPSkins is a long-established escrow system for the sale of virtual gun designs, also known as skins, earned from playing such first-person shooter video games as Counter-Strike: Global Offensive, Call of Duty, and others. The skins have no utility within the game, but are cosmetic enhancements for in-game tools.
Prior to OpSkins, Quigley joined Clearstone Venture Partners shortly after its formation and concentrated on its Internet and communications-related investments. During his first two-and-a-half years with the firm, he worked out of the idealab incubator and helped launch and lead investments in many idealab backed companies, including Homepage.com, FreePC, FreeMusic.com and Paymybills.com. A number of his early-stage investments have gone public, including MP3.com, Tickets.com, eMusic and PeopleSupport, and several have been acquired. He also spent time at Mid-Atlantic Venture Funds and the Walt Disney Company.
Now he’s taking OPSkins in a new direction, creating the Worldwide Asset eXchange (WAX), a decentralized platform that will allow all virtual item market participants to exchange merchandise, apportion fees, and settle transactions, in effect creating their own exchanges without a central authority. The new company will have an initial coin token offering in October.
Quigley and OPSkins executive Malcolm Casselle talked with Block Tribune about their plans to subvert the multi-million dollar skins market.
BLOCK TRIBUNE: Explain to me how the current system of exchange works. You mentioned that there were barriers holding back the market. Tell me what the pain points are right now and what you’re going to be aiming to do to solve them.
WILLIAM QUIGLEY: Today, the way all exchanges in the gaming virtual item space work is they are centralized exchanges. By centralized, I mean someone sends a virtual item that they own to the exchange. The exchange holds that item, and then when a buyer comes along and buys it, the exchange transfers the item they’re holding to the buyer and they take the proceeds from the sale and they send that to the seller. That’s what we call a centralized model. There are many, many problems with that centralized model. One, it takes millions of dollars to set up a centralized model, because you need things like payment processing and security. Security is in anything, whether it’s virtual items, or virtual coins, like cryptocurrency. Security is always a very serious concern because there is no safety blanket. If somebody steals your items, there’s no FDIC, there’s no insurance company.
If they steal them, they’re lost and lost forever. There’s a pretty big barrier to entry for an exchange to be created. One, it has to set up a security mechanism, payment mechanism. Obviously it needs to market its products and services. Then, after it’s set all that up, it has to convince people that if they send their items to their exchange, they’ll at least get their item back if it never gets sold. There’s a lot of trust that people have to put in the operators of the exchanges.
The founders of WAX also founded a couple of other virtual item exchanges. We were the first guys to exchange a virtual item outside of the game on a secondary market in the late ’90s. Then we created OPSkins, which was kind of the next-generation virtual item exchange. These are what we call cosmetic items. They don’t have any end-game utility. They just are used to wrap around an item you have within a game. Turns out, they’re much more popular than the traditional virtual items that had some utility, such as they gave you better protection against an attack, or more life to do some operation within a game. The strictly cosmetic items actually sell and trade much more frequently. We have much experience in the virtual item trading business and what we’ve noticed over the past year and a half, in particular, has been some of the people who own virtual items are comfortable getting cryptocurrencies, rather than US dollars or some other form of fiat currency.
What we found is the adoption rate is actually much higher in people who play massively multiplayer online games, there’s about 400 million of them globally, and who trade virtual items in those games. There’s a lot of people who are quite familiar with trading virtual items and trading a virtual item is actually kind of complex. As I mentioned, first you have to figure out how to choose an exchange that will sell it on your behalf. You generally don’t want to sell it yourself, because there’s always a standoff in any kind of online exchange between two individuals. One of them has the item, the other one has the cash. Who gives their cash or item first, is always the question. They look for trusted intermediaries, like formal exchanges to do the hand-offs. We do that function. But there’s a far greater potential, we believe, if we could empower all the people who have virtual items to effectively construct their own exchange and market to either the small community that they interact with every day in the video games they play, or make it into a bigger business.
I kind of liken it to power sellers on eBay. We’re trying to enable people who maybe don’t want to use an exchange, don’t want to pay the fees that an exchange has. Maybe they’re not interested in exchanging items with people outside of their social circle. But you still need a mechanism to properly pay people and to switch ownership from one person to another. As we have been doing this for now 20 years in the virtual item trading world, we finally believe that there is a technology platform, and this is really what cryptocurrencies are about, in particular, ethereum. Using a technology platform like ethereum to create smart contracts that will bypass the need for an exchange and allow people to conduct a transaction themselves.
That lowers the cost of the overall transaction, but also opens up the ability for people who maybe don’t have a bank account, don’t have a credit card, maybe they just don’t have an exchange that operates in their language. Because the 400 million online video gamers are spread across like 100 countries. A lot of exchanges do not take anything but four or five different forms of traditional fiat currency. There’s practical reasons why people can’t use a traditional exchange, even if they wanted to pay the fees and they trusted it.
BLOCK TRIBUNE: Aren’t you, in effect, disintermediating yourself by allowing people to handle things themselves?
WILLIAM QUIGLEY: On the one hand, yes, I’d say we are. I also believe that there are a lot more people who don’t use formal exchanges today who would enter the market if they had a more convenient approach, an approach that’s maybe one where someone could set up, someone they know. Many of these gamers operate in small silos. Might be a few thousand people all share one server. They all play a modified version of a game on that server and they reasonably trust each other in that area. They don’t have to go spend money to market and buy Google AdWords, or put advertisements on websites to attract collectors of virtual items. They already have a captive audience, but they don’t have a way to make money through trading. It certainly wouldn’t be practical for them to spend millions of dollars to set up their own exchange.
I believe most of the people who wind up using these distributed exchanges that WAX will be creating will be people who maybe aren’t trading through the formal exchanges today. We don’t believe there will be as big of a direct impact on, let’s say, the exchange our founders started, as you would think. We don’t believe that we turn on WAX and 100% of the market moves to a distributed model in a day. There will always be people who like the additional services of large formal exchanges, and then they’ll be people who are happy enough with a distributed exchange that does the job they need and maybe at a more affordable price.
BLOCK TRIBUNE: Are the average customers mostly individuals? Are they small companies? Are they even the game companies themselves?
WILLIAM QUIGLEY: I’d say there’s probably about 400 million total individuals who collect these virtual items. Within that is a vast ecosystem of different industry participants. There are people who we call affiliates. These are people who find customers who want to buy something and connect them with sellers and they take a fee for that. You could call those small businesses. There are appraisers. One, two, three-person shops that evaluate the items and give their opinion about the value of that item and that helps sellers price it. It helps buyers feel comfortable with the price they’re going to pay. You also have people who, just like we see in traditional stock markets, invest in these virtual items and make a profit by trading them at a higher price. Then you have collectors. Individuals who may be are super fans of a particular game and they will collect thousands of virtual items. There’s a few other groups within there as well. Formal groups that help facilitate the transactions between the buyer and the seller.
BLOCK TRIBUNE: What’s the most expensive or most highly coveted items that you sell? Or that is available?
WILLIAM QUIGLEY: There are millions of items that we sell on any given day. Literally, millions on our site. Items can go as high as $200,000. It’s very typical to see items go for between $5,000 and $30,000. Then you have the more common items that will go for under a dollar and up to $500. The under-a-dollar or the $500 would probably be where the bulk of the items are priced.
The more rare an item and the more attractive or important the video game where that item is displayed, the more value the item has.
BLOCK TRIBUNE: You’re planning a token distribution. Walk me through how your system is going to work once that goes into effect.
MALCOLM CASSELLE: The idea is that the tokens will represent two things. One, stored value for the items that they will represent in the trading process. Then they’ll also be the mechanism for the smart contract that will move the item from a seller to a buyer. The plan is to offer these tokens in a distribution in October to allow people who either are fans of games, or decentralized applications and cryptocurrency in general, to basically pre-buy the value and service that they’ll get when they trade items.
BLOCK TRIBUNE: I presume that you’re going to have some sort of a wizard that’s going to walk people through setting up this sort of transaction.
MALCOLM CASSELLE: Yeah. We’re going to have video sort of showing people how it works from start to finish. Ultimately, our goal, having designed products for 20 years since the beginning of the Internet, is to make this really, really simple. Currently, the process for buying or selling an item is relatively complicated. You have to understand quite a bit about the system and what you’re doing. I think the idea is we want to simplify the process and we see that gamers have a high degree of tolerance for complex things, which is a certain barrier to entry for people who are not in that ecosystem. We do understand simpler things spread faster and so our goal is to make the process really easy and we’ll show people how to do it.
BLOCK TRIBUNE: Tell me what is your cut of this transaction? Are you going to be sharing anything with anybody else?
MALCOLM CASSELLE: So we’ll be describing the breakdown of the fees in the whitepaper when it’s released. But I’ll give you a precursor so you understand kind of how it works. In the buying process, there are a number of constituents and the goal is to incentivize all those constituents to make the ecosystem healthy. For example, if there is a site that attracts you to list your item for sale, they can get a piece of the listing fee. If there’s a site that attracts a buyer who ultimately buys your item, they would get a piece of the transaction fee. There is a mechanism for an entity to act as a transfer agent that’s actually moving the item from a seller to a buyer. That is a complicated mechanism that has to do with the actual interface with the game publishers.
Typically, it’s through APIs or things called bots. OPSkins is the pioneer in that ecosystem, so it’s an area we understand extremely well. It’s very complicated and virtually all the software used in the industry is software we’ve written, so we’re really the leaders in that space. That’s another area where we’ll open it up and allow lots of people to play, to be transfer agents, and, of course, earn a piece of the transaction. Then there’s the token-holders. Token-holders will be providing the mechanism for the blockchain to exist. They’ll also be providing the security infrastructure that supports this whole process, so they will earn a piece of the transaction.
Then different silos of activity can work independently and then also collectively to make the decentralized exchange work. OPSkins runs as a centralized mechanism and by sort of exploding those out and atomizing them, we really allow the whole ecosystem to grow, because everyone gets to play a piece where they’re good at playing that role.
BLOCK TRIBUNE: What are the horizons on this? Today, you’re dealing with the gaming world. Are there any plans to expand into other industries? Are there any applications for other industries?
WILLIAM QUIGLEY: Yeah, for sure there’s other applications for other industries. The distributed exchange we’re creating is a way to empower anybody anywhere in the world who’s got a browser and an Internet connection, to facilitate the sale of something, could be virtual, could be non-virtual, and to do that in a way that brings most of the sophisticated and necessary components that you see in large centralized exchanges to a distributed exchange that they essentially will license to use. There’s a myriad of things that somebody could sell. We do anticipate that being an use-case, non-gaming based virtual items, once people who are very familiar today with trading virtual stores of value in game items between themselves. I believe they will move to experimentation with other things that they can trade to one another. Could be a ticket to a concert, or a movie, or a record. I mean, there’s many, many things that can easily be exchanged this way. The reason we like this entry point, the 400 million multiplayer online gamers, is because they’re already so familiar with trading with other people, trading online with other people, using all of the exchanges out there today to do that. Making sure they don’t get ripped off. Making sure they are getting the best price and so on. We see them, these MMOG players as the best group to start with because a lot of what they do is necessary for trading on a blockchain using cryptocurrencies.