Rivers of gold still flow from our quarantined houses, a digital lifeline to online worlds that connect and entertain us, while extracting our most precious resource – our fiat currency. Are gaming NFTs the way to make sure that we are really getting our money’s worth?
According to Newzoo, purveyor of fine gaming statistics, the video game industry is on track to bring in $159 billion in revenue in 2020. An increasing percentage of the money people are spending on games goes toward in-game purchases. These types of purchases include items, upgrades, downloadable content, skins or other assets. Players are often required to purchase or earn in-game currencies in order to obtain these items and upgrades.
In some cases, the items purchased are used up, like ammunition; while in other cases, the items or upgrades become a permanent addition to the player’s inventory. Once the players have invested in this in-game economy, the player’s account holds this accumulated wealth. The market has responded positively when studios have created marketplaces for players to buy, sell and trade their in-game treasures. Some games, like Counter-Strike: Global Offensive, have even been used by criminals to launder money, due to the amount of money flowing through these markets for game items.
In that case, the game maker (Valve) “decided that newly purchased keys will not be tradeable or marketable” in order to combat the fraud that had occurred. While this may have been an honest attempt to reign in the fraud in their marketplace, the lack of real ownership and control over in-game assets is an obstacle to their transformation into a digital asset class that investors will trust.
We’ve all heard the stories of gamers who have lost access to their accounts – maybe their email account was lost, or hacked, or maybe they were banned from the game, fairly or unfairly. It’s not unheard of for a gamer to invest thousands of dollars into a single title, a potentially devastating, even irreplaceable loss. But it’s not just loss prevention that is disrupting the way people think of in-game assets. Speculators looking to profit from in-game investments are flocking to a new type of blockchain asset that is fundamentally different from cryptocurrency.
Non-Fungible Tokens (NFT)
The promise of non-fungible tokens, or NFTs, is that they can be “a viable way to move from a promise a company gives you, to real ownership of a digital asset,” according to Merl, a developer working on the Phantasma project, whose blockchain platform offers gaming developers real-time NFT minting at a negligible cost. By placing these assets on the blockchain, players own the private keys to these assets, something game studios will not be able to take away from them at will, and also giving players the ability to trade outside of whatever marketplace the game developers intended.
While cryptocurrency has undoubtedly been the runaway “greatest hit” for blockchain technology, nearly every other application of blockchain technology would necessarily involve the use of non-fungible tokens, rather than fungible currency tokens. Non-fungible tokens are indivisible and unique, unlike cryptocurrency tokens, which are divisible and interchangeable. NFTs could be used to represent nearly every other object in the real or digital world. Whether it’s an in-game asset or, say, the deed to a piece of real estate, NFTs allow us to put any object on the blockchain where it can be traded, sold, transferred, or even burned, if the user desires.
Non-fungible tokens will also give players control over the price of in-game assets. As it stands now, game assets are worth whatever the game developers are able to charge for them. But if players were free to trade on their own trading platforms without interference, the market would assign prices to the assets based on the tried-and-true principles of supply and demand. That $50 item might end up only being worth $10 if the supply exceeds the demand, or it might be worth $500 if the reverse is true. The upper boundaries of these prices are sure to be pushed upward when players feel they actually own the assets they are purchasing, rather than simply paying for the privilege of using them – subject to the whims of game developers.
Entering the Arena
The battle royale over Fortnite’s in-game revenue reveals just how desperate companies like Epic, Apple, Google, Microsoft and others are to monopolize this cash cow. But the most important player in this battle remains the consumer, and they always have the last word. The disruption of this industry is all but certain, given the number of contestants to the throne. Is it possible that none of these companies will emerge victorious, and instead the gamers themselves will come to expect ownership of their in-game purchases before they put down their hard-earned money on that new weapon or skin?
The NFT revolution is already in full-swing in the art world, where minting NFTs is not only possible, but very simple to do using platforms like OpenSea.io or Rarible.com. But the market for fine art is synonymous with astronomical valuations, unlike gaming economies, which run on the allowances and pocket money of kids all across the world. Kids who are more impatient – and more digitally savvy – than any generation before.
For gaming to work on the blockchain, the fees associated with the dominant blockchain for non-fungible tokens, Ethereum, would make this transformation nearly impossible. Any Ethereum transaction requires a network fee, often $10 or more, even for a $1 in-game item, and the lower the fee, the longer the user has to wait for the transaction to complete, running the risk that the transaction may never complete at all. New entrants to the blockchain game, like Phantasma, are coming up with solutions like nearly instantaneous block times, transaction fees that are mere hundredths of a cent, or sidechains that can each handle thousands of transactions per second. At the same time, there is hope that Ethereum 2.0 may resolve these long-standing issues with the Ethereum network and maintain their current dominance in the NFT marketplace.
According to Phantasma Co-Founder Lee Kai Lee, “we are now at the start of a new era with blockchain gaming.” Already over a quarter of a million NFTs have been minted by one game on the Phantasma blockchain alone, 22 Racing Series, still in beta. Other blockchain projects are rushing to add NFT to their list of features, and it has become something of a cliché, now that DeFi (decentralized finance) is starting to fall out of fashion, to say that non-fungible tokens are the ‘next big thing.’
The speed with which the blockchain community has accepted the inevitability of NFT as fact shows us just how self-evident this trend is. If blockchain technology is ever to move beyond just cryptocurrency, then the use of non-fungible tokens is non-negotiable. But game studios aren’t going to make this move unless the consumers demand – or at least reward – the use of non-fungible tokens for their in-game assets. It’s going to take a change in consumer behavior, now that the technology is available, to realize the promise of NFT technology in gaming.