It has been an extremely rough year for cryptocurrency projects, as crashing prices, daily revelations of scams, and the ongoing usability nightmare of blockchain-based computing has left venture capitalists’ next big bet looking more like a pipe dream than anything you could reasonably call “web3.”

Crypto-based video games, which last year looked as if they might attract a big audience to begin collecting non-fungible tokens, have instead drawn collective outrage at perceived developer greed. Game giants have largely been fleeing the space as a result.

And so, with that in mind, today let’s talk about a prominent company that’s going in the other direction.

“I think it’s something that could have the biggest impact on this industry — but it’s also probably the most controversial thing that we could talk about,” John Hanke said.

Hanke, CEO of Pokémon Go developer Niantic, was closing out the keynote address Tuesday morning at his company’s first-ever developer summit. Niantic had already unveiled the new version of its augmented-reality developer platform, Lightship, which includes a location-mapping feature called the Visual Positioning System. Hanke also announced Campfire, a social-networking app that opens to a map and lets people find and interact with players and events for Pokémon and its other games.

As his talk wound down, though, he wanted to talk about one more thing: Niantic’s early explorations around incorporating blockchain technologies into its games.

Earlier this year, Niantic had met the team behind SpotX Games, a Miami-based company that describes itself as “a web3 innovation studio for the real-world metaverse.” Its specialty is creating crypto-based scavenger hunts that turn the experience of playing into digital collectibles.

“When we met them they started talking about using blockchain as a way to inspire people to go outside, discover new places, have fun with friends,” Hanke said Tuesday. “It was kind of like we were talking to ourselves.”

Hanke was taken with SpotX’s work, and acquired the studio.

At South by Southwest in March, SpotX demonstrated a scavenger hunt game that offered cash prizes for visiting different locations in Austin and interacting with them via web-based AR tools on mobile phones. Anyone who finished the game could generate an NFT highlighting the places that players visited. It looked like this:

Hanke loved that the NFT was more than a “pretty picture — it’s a memento of what you did.”

This offers a hint of where Niantic might try to take crypto-based gaming in the future, using the technology to authenticate and commemorate experiences as players move through the world. The idea behind putting all this on the blockchain, a SpotX employee told me during a demo Tuesday, is that the data’s hard to fake. (I don’t know why anyone would fake a visit to Austin, or winning a scavenger hunt, but as usual with crypto the technology is still ahead of the use cases.)

“It’s early days here,” Hanke said on stage Tuesday. “You’re gonna be hearing more from us, I think, on this topic in the future.”

In the run-up to Tuesday’s event, I hopped on Zoom to discuss Niantic’s latest offerings with Hanke. The company proved with Pokémon Go that it could take a nascent technology like AR and take it massively mainstream, generating an estimated $5 billion in revenue in its first five years.

For that reason, I found myself interested in Hanke’s tentative embrace of web3. The company appears to be a long way from bringing the technology to a flagship property like Pokémon. But this year gamers have revolted at the mere suggestion that NFTs might eventually come to their favorite titles. For that reason, I wanted to know what about the blockchain appeals to Hanke and his team.

Like a lot of people, Hanke is drawn by crypto’s promise of decentralization — the idea that interacting with the web via wallets will make individual users more powerful at platforms’ expense.

On stage Tuesday, he said that today’s web3 debates reminded him of when he was a young founder in the dot-com era. In 2000, Hanke co-founded a company called Keyhole; Google acquired it four years later and turned it into Google Maps.

In the late 1990s, just as now, there were plenty of get-rich-quick schemes and hucksters, he said. But there were also important ideas on the verge of becoming big businesses.

“The potential for web3 is to move us back — to a more decentralized version of the internet,” he said. “And to recapture some of that spirit and vision that was there when it started.”

One question I had for Hanke is, even assuming that’s all true, why do you need a blockchain for it? His answer is that crypto can let you authenticate into websites using much more limited data than we give away today by logging in with Google, Facebook, and similar services.

Hanke told me:

Most people use an identity from one of the big companies. It’s our primary passport to everything that we do, to apps and online. In a sense, we’re selling our digital soul when we do that. It’s a habit that we’ve built up, and it’s kind of just the way things work right now. But web3 would enable us to have self-sovereign identities. So instead of using one of those buttons, you could use a web3 system that wouldn’t leak your personal information, and wouldn’t put a middleman between you and the service that you’re using that could intercept or store information in a way that you might not want to happen. So to me, that just really feels like the way it should work.

[…]

It’s uses like that that made me want to bet on it as an integral part of the future internet. Blockchains are actually useful in that context, because there’s no central authority.

I think in practice it could be quite difficult to make wallets more private and secure than our existing identity tools; Molly White has written persuasively that crypto wallets tend to share more data than we are comfortable with, since they are on public blockchains, and there are no guarantees anonymous wallets won’t be de-anonymized.

I also wonder whether consumer demand for decentralization is as strong as web3 founders are betting on. Centralized platforms enable many services that we have come to depend on, from password resets to transactions that can be reversed in the event of fraud. Decentralization so far has meant giving all that up, with disastrous consequences for the user experience. It’s no wonder so few people have set up a crypto wallet, relatively speaking.

At the same time, frustration with giants like Apple, Google, and Facebook is real, Hanke said:

Solving the wallet onboarding problem — everybody sees that as a huge thing. I don’t think it’s an impossible thing to solve. I do think that setting up and making a wallet today is not really for the faint of heart. [But] the reward there is very large. So we’ll see if consumers continue to care about those things — if they care more about them over time, and continue to be wary about people sort of looking over their shoulder and looking at their personal information continuously or not.

For what it’s worth, I think the issue here is less about whether consumers would be interested in more private methods of conducting business online than whether those methods are safe and convenient. Hanke told me he does see challenges around designing a good user interface, and that some “healthy skepticism” is appropriate.

My last web3 question for Hanke was why he thought average people would be excited to see NFTs and other crypto products in their games. He said those products let players reward creators more directly, with middlemen taking a much smaller cut than before, and that people love to back independent projects. (Equally as interesting to me is what he did not say — that adding NFTs to video games would make them more fun to play.)

On one hand, it may be a little unfair to press Niantic this hard on what are clearly some very early plans. Hanke was straightforward about the fact that the company has more questions than answers about web3. NFTs may very well never come to Pokémon Go or any of its other big titles.

On the other, Hanke sure sounded serious to me. And Niantic has something that very few other crypto-curious game developers do: tens of millions of users. That gives the company an influence that its rivals lack. And, assuming that anyone can figure out how to make crypto useful or fun, the user base could give the still-private company a significant opportunity as well.

“Frankly, it’s really easy to dismiss that whole set of technologies, just based on some of the things we read about,” Hanke told developers. “I think that would be a huge mistake. I think there’s something really important about this technology.”