The State of NFTs in Gaming

NFTs are the new hot topic, not only in blockchain/crypto assets, but also gaming and pop culture (i.e. Butters as “Chaos” the NFT salesman in a recent South Park episode). With the millions of dollars changing hands for generative art NFTs and the gaming industry beginning to take it seriously, it’s worth taking a look at what NFTs are, how they fit into gaming currently, what liabilities they may bring, and where the blockchain and gaming industries may take them.

What is an NFT?

Firstly, let’s define an NFT: an NFT is a “non-fungible token,” meaning that it is a unique token on a blockchain, which is a decentralized digital ledger, that typically corresponds to rights in a piece of digital art. That sounds complicated, so here’s a simpler version: it’s a file, whether that be an image, video, audio file, or really any sort of file, whose proof of ownership is typically kept on a decentralized blockchain (i.e. Ethereum or Solana) similarly to the way that a file is kept on a hard drive. The media itself, however, is typically held in centralized storage. The rights that an NFT grants to the underlying art can vary widely, being everything from a transfer of full copyright to almost nothing, but typically includes at least the right to display the art.

This is still complicated, so think of it like this: you own some rights to a car (CryptoPunk) that you have a title for (Non-Fungible Token) and this title is stored is a safe deposit box (blockchain wallet).

Crypto Punks are the most well-known NFTs, but we are currently just scratching the surface of NFT potential

Utility of NFTs

There is fairly broad potential for what could be kept on the blockchain, leading many to refer to blockchain as “web3” as some envision the future of the internet is all of the collective information of the internet being held on blockchains.

The more fun speculation on where this can lead is how we can recreate the Oasis from Ready Player One or Metaverse from Snowcrash, where we can all hang out in a virtual living room, then go anywhere in a virtual environment, including jumping into a virtual movie theater or video game with your friends, all with a single avatar that is an NFT on the blockchain.

Meanwhile, some of the more pragmatic amongst us speculate that important instruments that may benefit from being kept on an immutable, decentralized, and transparent ledger, such as mortgages and deeds, could be held as an NFT on a blockchain. This could provide a more simple solution the next time a large bank with well-paid lawyers claims that someone had taken out a mortgage when they didn’t (happens more than one would think) and simplify records, leading to advantages like cheaper and easier fee trail searches for deeds that would be more reliable than having someone dig around the files at a county clerk’s office.

NFTs in Gaming

While there are avatars and immersive games already, experiments in multi-game avatars have been a bit lackluster as they would often violate the EULA (software licensing) of the games in which they would exist (remember, just because you own a copy of a game doesn’t mean you can legally do anything you wish with it, i.e. modding or streaming). However, these games may be able to keep most of their EULA intact while allowing an NFT avatar to enter them. I imagine it a bit like Bob from Reboot: that is, enter the game, be modified a bit to fit into the game, and then play the game while keeping some of its own attributes.

The real value of having an NFT on a blockchain that can enter multiple games is that you own the NFT representing some rights to the avatar. I’m not enough of a coding or software expert to discuss exactly at what point an in-game NFT asset can be brought beyond the reach of usual developer tools to freeze or recover them, but it is the core marketing point of most NFT games.

Additionally, everything is still quite speculative, with questions of whether there will be one or several Metaverses and how they may interact with other organizations. Despite this, greater ownership of in-game assets is a major selling point for current NFT games like Axie Infinite.

After the industry had a rocky ride regarding ownership of gaming assets when they became available in games like Second Life, most gaming companies have licensing agreements that give them a “kill switch” in case of violations of their Terms of Service. Currently, if a gamer violates those terms, they can be stripped of anything they own in their game, i.e. in-game items like skins, virtual real estate, or even their account.

Ownership of your gaming items on a blockchain could potentially open up a game’s economy more to the real world, with players able to buy, sell, and trade items as NFTs on a blockchain regardless of whether they even own or play the game, creating a speculative economy similar to the one currently with CryptoPunks.

So, how has this worked so far? Honestly, while there’s a lot of potential, the realization of said potential has been a bit lackluster…

Current Experiments & In-Game Economy Issues

Taking a look at one of the most successful NFT games, Axie Infinite, we see that this is a game that is popular in Southeast Asia. This is because in Vietnam (good wifi, relatively small economy), players can sometimes earn more playing this game than they could in some jobs, making a living off of grinding and leveling their Axies (which are NFTs). Considering how the Axies cost over a thousand dollars and are a requirement to the game, guilds have formed to loan players Axies where they kick back most of the value to the guild, but can “play-to-earn” and eventually buy their own Axie.

This seems a bit like the dilemma created by the Gil farmers of Final Fantasy XI (the first online game of the franchise) that ultimately wrecked the game. The game’s economy indirectly enabled players to pay real money for in-game currency from gamers in countries where the money earned could constitute a living wage as a full-time job, and enable players to outspend their competition. These international gamers would create sophisticated guilds to overrun any area containing anything of value, leaving the less sophisticated, more casual gamers to either pay real money for in-game resources or get brutally crushed. For a more local example, a friend of mine (who shall remain unnamed) would buy and mine all of one particular resource in an area of World of Warcraft, drive the price of that resource way up, and then dump all of it, earning enough to sell resources on a secondary market to support himself as a side-gig.

This pay-to-play environment is the same reason I don’t typically play freemium multiplayer games, and why gamer clans, bots, and hackers often overrun popular games with easily-manipulated economies until the communities playing them implode, and then move on to the next. With AAA studios spending millions on development and marketing for their games, their flagship products, this may be the biggest financial liability they face.

And those gamers did all of that, plus bots, hacking and cheats, without any blockchain-based incentive.

Gaming Studio Vulnerabilities Complicated by NFTs

While studios have become more experienced on security after watching so many hacks, it also illustrates that, up the stakes, and enough bad actors will try every crazy thing imaginable and eventually find some unforeseen crack in any digital dam - this could be similar to the roughly $16 million two college-aged hackers made off with after flipping FIFA Coins on the black market after they hacked EA SPORTS’ FIFA game, but with a new class of asset that brings in a whole new set of unknowns in and of itself.

Additionally, half the appeal of putting equipment, gold, and avatars on the blockchain is that it may not be shut down by Terms of Service because it wouldn’t be subject to a license, it would (potentially) be the personal property of the blockchain wallet’s owner. The nature of the incorporation has yet to be seen, but it could seriously hamper a game’s ability to react to situations like cheats, bots, hacks, and a surprising amount of other problems that can come up with unforeseen player actions/interactions. This can run the risk of alienating and undermining communities, the lifeblood of online multiplayer and cash flow.

Final Thoughts on NFT Gaming Today

Looking to current NFT game titles, while a couple are enjoyable, they mostly have modest development. While this isn’t an issue for one game that I do quite enjoy, Gods Unchained, that’s because this is a collectible card game similar to Magic the Gathering, and this genre has a relatively low bar for how much development has to go into it. Take a look at the gameplay of current high-tier NFT titles, however, and you can see they have a long way to go before they can compete with AAA gaming.

Considering how a crypto gaming company can now come out with a token to raise funds with a few videos from a prospective game and reach a billion-dollar market cap with the right marketing buzz (i.e. Gala Games), they’re changing the business model in ways that are difficult to foresee. This can include selling you an NFT avatar before the game is even made, however, should they make the game there is no guarantee of how the NFT will be used exactly, that it won’t suffer some sort of crippling nerf in an update that undercuts its value, or that gamers won’t resent the degree of ownership in the avatar the NFT confers should it be limited. On the plus side, however, they can use pre-game token sales to raise the sort of funds required to make an amazing game on par with what Microsoft or Playstation can produce.

While the future of NFT gaming looks bright, there are a lot of questions that need to be answered. In addition to figuring out how the titans of the gaming industry will ultimately incorporate NFTs, they also have to figure out how to make blockchain more environmentally friendly (and, while moving from proof of work to proof of stake shows potential, I doubt this will be the endpoint of that discussion) and not require a complicated on-ramp like some current blockchain wallets.

We should keep in mind, however, we’re still just in the stone age of NFT gaming. Trying to guess where this will take us would be like me predicting the mobile or online gaming movement back when I was first connecting to Prodigy Internet in 1994 via a dialup modem and there was an actual yellow pages of internet sites because there were only a couple hundred of them.