NFT: Gaming

Following-on from last years’ coverage on general NFTs, generative-art NFTs, and music-related NFTs, in this months newsletter we are focusing on gaming-related NFT applications. A quick recap: NFTs (non-fungible tokens) are tokens native to blockchains and, like any other token, are developed using smart contracts. The main difference is that they are non-fungible, i.e., unique, and with no 1:1 relationship between one NFT and another. And they can, in theory, carry a digital representation of any physical or digital asset.

Gaming industry and potential impact of NFTs

The gaming industry’s market size was valued at $202bn in 2020 and is estimated to surge to $546bn by 2028, according to a research article by Fortune Business Insights. Gaming was among the first use cases of computers and has always been a driving force in its innovations. It could, once again, have a similar role in the case of NFTs and crypto in two main ways: first, by contributing new innovations and second, by familiarizing new users with crypto. Today, several games already leverage NFTs as part of their gameplay. Although there have been several successful examples, it’s safe to say that the global killer gaming application is yet to be developed. This is in line with a report by S&P Global Market Intelligence that predicts a growth in revenues from in-game NFTs for game publishers from $3.6bn in 2022 to $15bn in 2027. Furthermore, gaming NFTs contribute a significant factor in terms of blockchain usage – a recent report by DappRadar suggests that NFTs and crypto-enabled games make up 49% of all daily blockchain activity.

There are countless possible applications for NFTs in gaming. In the realm of online gaming, these include in-game items, characters, skins, customizations, maps, virtual land parcels, tickets, and collectibles. In short, almost any digital asset used in a gaming environment could potentially be represented as an NFT.

Take EA's FIFA Ultimate Team as an example. This popular mode within the FIFA games allows players to construct their dream teams using virtual trading cards. However, it is heavily centralized towards EA. Players simply gain the license to use the cards they acquire; they do not truly own them. This means EA could modify, devalue, or remove these cards at will. Furthermore, transferability is limited, as the cards cannot be transferred between FIFA releases or freely traded between players. While there is a transfer market, it is tightly controlled by EA, leading to a widespread black market for selling cards and accounts for real money outside of the game — a practice that is strictly against EA’s terms of service and can result in a ban. Granted, EA might have imposed these limitations intentionally for profit maximization, as all profits from purchases are captured directly by the company. However, a more open approach could be beneficial for all parties involved. For instance, EA could collect transaction and royalty fees for NFT trades between users, offsetting losses with increased engagement and trading activity among players.

As partly seen in the EA example, NFTs in gaming could lead to numerous advantages, such as:

Ownership: Representing in-game items as NFTs makes them truly ownable, contrasting most current implementations, where gamers usually enter a licensing agreement with the developer when purchasing in-game items.
Decentralization: Being represented on a decentralized blockchain, a players owned in-game items are stored indefinitely. While a developer might still shut down a game’s servers, the NFTs would remain as mementos for the player.
Tradability: Representing in-game items as NFTs could allow players to trade these items more freely, not just within the given game’s ecosystem. This would offer more options for players and reduce the need for a "black" market for popular games.
Provable Scarcity: Being represented on a transparent blockchain could enhance the scarcity of in-game items, thereby adding to their desirability and potential value.
Interoperability: NFTs could enable items to be used across multiple games or within an entire gaming universe. For example, tools, weapons, and skins could be used in multiple games. However, solely providing in-game items as NFTs is not enough – it also requires developers to embrace interoperability and to standardize their systems for rendering and displaying items.

A selection of games using NFTs

While major game publishers and well-known franchises have not yet started using NFTs, there are many games being developed and, some of them have already achieved considerable success. Notable examples include:

CryptoKitties: CryptoKitties is a blockchain-based virtual game that allows players to purchase, collect, breed, and sell various types of virtual cats. Each cat is a unique NFT, representing different traits and rarities. While there was not really a gaming element to it besides collecting, the game gained notoriety for its heavy Ethereum network usage at the time and for popularizing the concept of NFTs in gaming.
Axie Infinity: Axie Infinity is a Pokémon-inspired digital pet universe where players battle, breed, and trade fantasy creatures called Axies. These Axies are NFTs, each with distinct traits and values. In fact, it draws some similarities to the CryptoKitties, however, with more things to do with the collected items. Players can earn in-game rewards and a portion of the game's transaction fees, fostering what became known as a play-to-earn model.
Decentraland: Decentraland is another early example of using NFTs in gaming. It is a decentralized, virtual reality platform powered by the Ethereum blockchain. The platform uses NFTs for ownership of virtual land parcels, allowing for user control, resale, and content creation on their land. Thus, users can create, experience, and monetize content and applications. Decentraland is often mentioned together with The Sandbox, another rather famous game in the space with a similar gameplay.
Gods Unchained: Gods Unchained is a free-to-play, digital card game where players earn card packs to build unique decks. The cards are NFTs on the Ethereum blockchain, allowing players to trade, sell, or keep them permanently. Its mechanics are often compared to Hearthstone but with true digital ownership.
Sorare: Sorare is a blockchain-based football fantasy game where players collect, trade, and manage a virtual team with digital player cards. These cards are NFTs, and their value fluctuates based on real-world player performances. Unique to Sorare, these cards are officially licensed by football clubs around the world. The game sees wide adoption and had around 600k active users during the FIFA World Cup.

Conclusion

In summary, the fusion of NFTs with gaming could bring a profound evolution in the gaming ecosystem by reinventing the principles of in-game asset ownership, value appreciation, and user control. Already, pioneering games such as Axie Infinity, Decentraland, and Sorare have integrated NFTs into their core gameplay mechanics. This not only empowers players with true digital ownership but also opens avenues for them to freely trade and potentially profit from their in-game assets. The potential for NFTs in the gaming industry stretches far beyond current applications. The next frontier may involve their broader adoption by mainstream gaming franchises and a shift towards more open, decentralized gaming economies. Such a shift could be driven by the potential for NFTs to create higher user engagement, enhanced player autonomy, and new monetization models, leading to a more equitable distribution of value in the gaming ecosystem. Yet, while transformative developments are taking place, it is still early days and the true “killer” application has yet to be discovered. However, there is significant ongoing development, and the industry is just getting started.

Even if gaming NFTs aren’t the future, the contempt of centralized gaming ecosystems has already made a significant impact on crypto in general, being one of the factors that led to Ethereum’s development. As Vitalik Buterin said in a bio himself: “I happily played World of Warcraft during 2007-2010, but one day Blizzard removed the damage component from my beloved warlock’s Siphon Life spell. I cried myself to sleep, and on that day I realized what horrors centralized services can bring. I soon decided to quit.”