NFTs in Play – CoinGeek
The title of this week’s article should stir up a lot of emotion, given that NFTs or Non-Fungible Tokens have been the new hot topic since last year. There has been a lot of activity in this space, mostly centered around artists issuing digital art or other digital “collectible” types of tokens in an attempt to create a lot of speculative value to add to the already overheated market race. Sometimes it can be difficult to see through the hype for the actual innovations that may lie beneath.
NFT assets essentially fall into two general categories: NFT digital representations of real-world chattels and NFT digital collectibles. Most of the excitement and innovation is to be seen in the latter category. Of this group, projects can be divided into two subcategories: digital art and NFT games with virtual values.
This article will specifically focus on the use of NFT technology for gaming. The idea of having some sort of collectible as part of a game is nothing new. The idea probably goes back as far as collectible baseball cards, seeing its heyday with Pokemon and Magic the Gathering trading card games. In fact, this type of game still enjoys great popularity in Japan, where trading card games have gone digital, with physical cards containing QR codes or NFC chips that allow integration into arcade machines so that players can keep their own unique set of players in a game, and challenge others on a virtual battlefield, while still retaining the feeling of a head-to-head battle.
Long before NFTs were concerned with creating digital versions of physical assets (usually to make them more transferable), Japan has had the reverse NFT, or physical versions of digital game assets. These allow for customization of the gaming experience to the players, depending on the players’ assets. This is of course necessary on gaming platforms such as public gambling halls, which lack logins or player accounts and where there is no possibility to store personal user information. Therefore, physical cards act as a simple way of keeping state – namely the state of the cards you happen to have in your possession.
So, what do NFTs of the current trend have to offer? What is the appeal of having a digital version of an already virtual asset? These are good questions. There are basically two advantages to using NFTs in a game. First, it enables multiple game-to-earn models to be realized, and second, it allows for the potential persistence of virtual assets beyond the scope of the original game itself. Let’s explore the first aspect in a little more detail.
Play to earn
The idea behind play-to-earn is to incentivize players by allowing them to generate an income stream by engaging with their game. This model has become most famous in the years of Warcraft 3 and other MMORPGs, which allowed many players online to play as a group and form online “clans”. This first created the notion of a gaming community, and with online communities came the emergence of social work coming together to achieve common goals.
As is common with games like this, there are large in-game economies, along with an in-game currency to “measure success”, similar to the money-earning feature in the real world. Like the real world, economic concepts such as division of labor and specialization evolve naturally as the efficiency gains experienced by those who engage in this activity are hard to deny. Thus, the first play-to-earn game models were not something that game designers invented explicitly, but developed from large online game communities where some players were willing to pay others to “do the hard work” for them in exchange for money.
For example, a relatively new, impatient, but wealthy player may choose to pay someone online $100 to only purchase their higher-level game character to bypass the otherwise laborious task of playing through the lower levels of the game before gaining access to certain missions where their friends already had access. Alternatively, players may simply offer to pay real money in exchange for in-game items or in-game currency.
This practice is often referred to as ‘RMT’ or Real Money Transfer, and is highly disliked by game designers because it inevitably destabilizes the game economy. Game publishers use many different strategies to discourage this type of behavior. But despite their efforts, ‘gold farmers’ remain a lucrative profession, as players in developing countries are more than happy to sell their free time to play games and ‘paint’ characters for sale to players in first world countries. Thus the first games to earn games were born.
NFTs allow this model to be built into the actual game mechanics. Instead of trading characters by sending account logins/passwords between buyers and sellers, NFTs formalize the trading process by creating in-game items and potentially character assets that can be traded freely either in-game or, more likely, out-of-game. games in secondary markets, where they can usually fetch a much higher price due to hype and speculation. In a way, if “gold farming” was caffeine, tradable NFTs are methamphetamines. Not just limited to template characters leveling up to certain levels, NFTs normally carry with them a notion of uniqueness and scarcity, with some having a scarcity model built into the game itself. This results in NFTs having a sort of “corporate asset” quality, and collecting NFT gaming assets can become somewhat akin to collecting art or, more appropriately, gambling the stock markets.
This of course has short-term positive aspects in that it accelerates player interest and the number of players in a game, but in the long run, if not handled properly, it can act to erode game balance and result in a non-viable game.
What about non-asset based NFTs?
In addition to their use as virtual “beanie babies”, NFT games also usually include an in-game currency to provide some control over the internal economy. While necessary to achieve game balancing, creating an in-game economy with a trackable token outside of the game also comes with some challenges.
While many NFT-based games and startups have been observed, many of them are soon exposed to the complications that come with creating a token economy in their games. Either the tokens are an incentive model where players can earn money by selling the collectibles or “boosters” outside of the game, or they are simply a way to pay back the player by being a form of currency in their own right.
There are several ways in which an NFT game can generate cash flows:
1) Sell in-game tokens (currency or assets) before the game actually launches as a way to raise money to build the game itself. This is the ICO aspect of NFT gaming outfits and the practice is legally dubious as it borders somewhere between pre-selling a game and issuing a security.
2) Issue a governance token to the public markets and allow public trading of it to generate a value to the price of the game commodity. The token should have no use beyond exercising some control over an aspect of the game outside of the game economy itself.
3) Sell in-game currency for fiat, which is used in-game to purchase assets or participate in activities. This is how Roblox and traditional games with in-game economies do it.
RMT and external trading of in-game currency
While #3 is the most common and proven way to implement a play-to-earn model, the only problem arises when the in-game currency is traceable in secondary markets. Not only does this introduce potential problems with criminal elements using the in-game currency trade as a cover for money laundering, but it also distorts the in-game economy by connecting to the external economy. Most successful games like Roblox deal with this by controlling the speed and amount of in-game currency that can be issued and redeemed for real money.
NFTs remove this control.
On the contrary, NFTs are built to allow external and independent trading of assets, potentially outside the issuer’s control. This greatly disrupts the economy of the game as it allows people to ‘pay to win’1‘. Allowing external purchase of a game token allows people to do better in the game the more money they pay into the game. Although this is good for the gaming company, it is harmful to the gaming economy in the long term. It makes it unfun for newcomers and unbalances the game.
Games that have introduced in-game currencies that are freely traceable on the secondary market, such as Axie Infinity, have had to implement strict controls on the inflation rates of the token to manage their currency, much like a central bank of a country would. to. Despite this, they have already faced some serious difficulties. Guess managing an entire economy, even a virtual one, isn’t as easy as you’d think, right?
NFT gaming is certainly a space with huge potential. With the use of blockchains and token platforms on top of them, we now have the ability to connect gaming economies in a way that was impossible before. But with the opening of borders and the explosion of innovation we’re likely to see, there looms an equally dire possibility of missteps that will see many investors and players squander much of their savings and hard-earned money.
With the introduction of NFTs, we have introduced speculative markets to gaming economies. Where we once worried about the economic side effects of large swaths of the able-bodied population wasting their days playing games in a sweatshop for a living, we now face a reality just as dangerous as this market, turbocharged by greed/fear of open markets, can lead to something even worse. But at the same time, the technology could eventually lead to a merging of in-game and real-world economies in ways we can’t even imagine yet.
Time will tell.
/Jerry Chan
WallStreet technologist
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NOTE:
[1] While Play-to-Earn is normally accepted as a positive model for gaming, Pay-to-Win (where those who pay the most real-world money have the most advantage in the game) is universally seen as a harmful model.
See: CoinGeek New York panel, eSports & Blockchain: The Next Level of Professional Gaming
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