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NFTs For The Gaming Industry
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NFTs For The Gaming Industry

November 19, 2021

Gaming is Big (yes, with a capital B) business. In 2020, the videogame industry was worth almost $160bn. To put this figure into perspective, the music industry was worth just under $62bn in the same year, and the global film industry was an estimated $136bn in 2018.

People love gaming, you see, and gaming they do, in their millions, every day. By the end of 2020 for example, Xbox Live had over 100m monthly active users. (In 2016, the service had about 40m active users.)

These staggering figures only highlight the rising popularity of gaming as a means of mainstream entertainment. Of course, these days we can game on pretty much any platform. From the ubiquitous mobile phone, tablets, laptops, gaming consoles, even our TVs. In other words, gaming is immediate, accessible, and relatively affordable.

But despite the immediacy and the inescapable truth that gaming is only going to increase in value over the coming years, the fact remains that the gaming industry is structured in such a way that gaming revenue benefits the retailer that sells the game, the publisher that commercialized that IP, and the studio that created it. In short, the revenue flow only goes one way. The gamer gets no financial reward for playing a game that might have cost millions of dollars to create. (Call of Duty: Modern Warfare 2 currently ranks first in the list of most expensive videogames ever created. COD: MW2 had an estimated budget of $250 million.)

But over the past twelve months or so, that unidirectional revenue flow has begun to change course. Thanks to blockchain technology -and more specifically, non-fungible tokens (NFTs), gamers can get a slice of the gaming money pie.

Let’s explore how.

NFTs: value for the players, at last

In the traditional model, a studio creates a game, a publisher distributes it to retailers, which sell it to consumers (i.e., the gamers) This distribution used to be in the form of physical CDs (and 3 1/2-inch disks before that, if you’re old enough to remember those.) Some games used multiple disks. Nowadays, most games are distributed via a digital service, like Xbox Live or Steam. It’s certainly more convenient than the old days. (1994’s Beneath a Steel Sky, published by Virgin Interactive Entertainment, came on 15 floppy disks!) Every stakeholder (the retailer, the shipping company, the publisher, and the studio, take a share of the game’s profits, as it should be. But what about the gamer? Someone might spend a sizeable chunk of time and effort playing the game, getting to know its intricacies, its maps, learning the gameplay. Shouldn’t this effort be rewarded too?

The current economic model of game production and retail creates value for stakeholders, but little to no value whatsoever for the gamer. Blockchain addresses that shortcoming through the use of NFTs.

How this value is created

Videogames, particularly massively multiplayer online role-playing game (MMORPG) ones, feature considerable in-game economic systems that often translate into big-time real-world profits. The economic system of sci-fi epic EVE Online for example is worth $55m in real, hard cash. And some of the in-game assets can sell for respectable amounts. A Gold Magnate frigate, one of the game’s rarest ship types, sold for $33,000 in 2020, for example. But even that ship, pricey as it was, pales in comparison to the $6m plus (that is, six million American dollars) that someone paid for the virtual planet Calypso in the game Entropia.

All these assets are in-game. Essentially, you cannot use them outside of the game environment. They are valuable, certainly, but this value is limited by the scope of the game world. Tokenizing game assets using blockchain technology enables a paradigm shift in how these assets are handled, their value, scope, and relevance.

The tokenization of in-game assets opens up a whole new world of possibilities. You could purchase an in-game item, say a new ‘skin’ for your favorite character. Right now, this new skin would make the character really cool in the game, and nothing much else. But imagine that you acquire this skin in tokenized asset form, an NFT, in other words. Suddenly, that skin becomes transferable elsewhere (to a different game environment, or any other ecosystem that supports digital assets -digital art exhibitions, for instance.) Blockchain-based games and assets have a great power: the power to expand the game’s economy by orders of magnitude. This might lead to the development of brand new game categories, creating a substantial amount of value for the players, at last.

Gaming NFTs: properties

Blockchain technology is disruptive for many reasons. It provides a radical new way to manage trust in network environments, and it’s decentralized, of course, which removes many of the issues lingering in legacy systems. When it comes to gaming NFTs, the use of blockchain technology heralds the arrival of a brand new asset class of in-game items, with three striking features: ownership, scarcity, and interoperability.

Ownership

As we saw earlier, in-game items in ‘traditional’ gaming environments are only useful and usable within the confines of that same environment. A skin purchased in Epic Games battle royale-style Fortnite cannot be used outside of Fornite, for example. In this concept, ‘ownership’ (of that skin) is only an illusion. You might have paid for it, but it effectively remains the property of the game’s developers, as you cannot use it elsewhere.

Tokenized assets turn that concept in its head by enabling the player to truly own an asset. Gamers who purchase that skin (or any other in-game item, for that matter) can save it, sell it to other players if they so choose, use it in a different blockchain-supported game, or turn it into digital art.

Scarcity

Rarity equals value. (A Revenant Carrier, one of EVE Online‘s rarest ships, can set you back around $8,000 in real money, while a 1999 First Edition Shadowless Holographic Charizard Pokemon can fetch almost $370,000.) It is this rarity that makes these things such prized collectors’ items. But of course, these items have to be authentic to hold onto their value. This is where blockchain technology comes in. The inherent immutability of blockchain data means that gaming NFTs can be provable authentic, so players intending to splurge the cash can do so with peace of mind by determining the provenance of a given item. Subsequent collectors can do the same, thanks to the distributed ledger’s data traceability.

Interoperability

Up to the current era, games play in centralized servers, using siloed, proprietary platforms that do not communicate with one another. (The concept of cross-platform gaming, which enables Xbox Live players to face off against players on PC or Playstation Network is relatively new, and remains limited to just a few games.) Generally speaking, centralization is king in modern gaming.

Blockchain technology disrupts that concept through the tokenization of in-game assets. Blockchain-based games can interact with one another, so items acquired in one game can be used in any other game on the same blockchain, or even in another, if both technologies are integrated.

Conclusion

NFTs are little digital wonders to some, short-lived fads to others. The truth probably lies somewhere in the middle. We have discussed NFTs in this space before, including a two-parter series (part one and part two) about some of NFTs’ more interesting use cases. These two articles would be a great starting point on your NFT knowledge journey.

When it comes to tokenized gaming, the possibilities become truly fascinating. NFTs are versatile, powerful, and unbound from centralization. Gaming NFTs represent the freedom to unleash a constellation of creativity, opening up a brand new universe of gaming, and heralding a new dawn of videogame player power.


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