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Why are Online Gaming Companies Embracing NFTs and Blockchain Gaming?

Editor, TRANSFIN.
Jan 10, 2022 4:27 AM 4 min read

Are NFTs the next big thing in online gaming?

NFTs, or non-fungible tokens, have taken the finance world by storm. To many observers, these digital tokens are the future of art, music, and the very definition of "ownership". (If you're still unclear about what NFTs are, read our explainer here.)

Now, blockchain tech is foraying into the gaming industry - and fuelling a divisive debate in the process.

Blockchain games have been around since at least 2017, when a video game called CryptoKitties allowed players to buy NFTs for digital cats.

However, the trend took off in a big way in December, when French video game company Ubisoft became the first AAA studio to enter the space. It released its own NFT marketplace - Quartz - where players could buy various in-game accessories for the game Ghost Recon Breakpoint.

Why are Online Gaming Companies Embracing NFTs and Blockchain Gaming?Ubisoft isn’t the only gaming firm jumping on the NFT bandwagon. Vietnamese studio Sky Mavis developed Axie Infinity, a blockchain-based game that enables users to collect and breed creatures named Axies ("kind of like “Pokémon”, but with NFTs"). Mobile game studio Zynga announced a pivot to the space in November. Even GameStop is trying to cash in. And gaming communities are even coming up with players’ guilds to assist new players in exchange for a cut of future earnings.

Furthermore, judging from comments by industry bigwigs, this trend is likely to explode in 2022. EA's CEO called NFTs “an important part of the future of our industry”. Ubisoft's CEO labelled them a "revolution" in online gaming.

Gaming-related NFTs generated $4.8bn of revenue in 2021. NFTs themselves seem to be here to stay: OpenSea just raised $300m at a $13bn valuation and sales of these tokens touched $25bn last year, up from $100m in 2020.

However, the hype is also dividing the gaming community. Simply put, not everybody is gaga about blockchain gaming.

Video game distribution platform Steam banned blockchain games and NFTs back in October. Ukrainian developer GSC Game World was forced to abandon its attempt to integrate NFTs in Stalker 2 following pushback from fans. Ubisoft itself seems to be less gung-ho about blockchain than it was before - describing it instead as a “major change that will take time” - following backlash from its own employees.

Why is the online gaming industry in two minds about NFTs?

To understand that, we need to first comprehend just how disruptive digital tokens can be in this space. About two decades ago, video games typically followed a premium model wherein you bought the entire game from a store (usually as a DVD) and enjoyed full access.

The advent of online gaming changed this model to a largely free-to-play or pay-to-play one, with developers earning money from merchandise sales, in-game purchases or subscription fees. A temporary offshoot (derogatorily described as "pay-to-win") involved players being able to pay to unlock advanced characters, but this was a short-lived phenomenon.

NFTs offer a radically different model that has been dubbed "play-to-earn", which incentivises users with financial benefits vis-a-vis digital assets. Players can either pay to win these assets or pay to purchase them, and then trade them outside the gaming ecosystem as well. The idea is to increase the value of the games themselves while offering users a chance to make a buck while doing what they love.

That sounds good, right? What’s the controversy, then?

The first concern is the technology itself - it’s still a nascent one, and so far players aren’t convinced. Take Ubisoft’s Quartz platform - users have had to play for over 600 hours just to earn one NFT. But some NFTs are selling for atmospheric prices, so this may not be all work and no pay, right? Well, one report suggests that 15 Ghost Recon NFTs were purchased for a grand total of only $400.

But let’s say Ubisoft and its players were to fix the loopholes and perfect the technology tomorrow. The problem of environmental implications would still persist. Blockchain technologies are notorious for their environmental impacts, with some of them consuming more electricity than entire countries. NFTs are guilty of millions of tonnes of carbon emissions due to the energy consumption linked to crypto mining. For perspective: the Nyan Cat NFT (a blurry cartoon meme of a cat with a rainbow behind it) had a carbon footprint on par with someone's electricity usage over two months.

Why are Online Gaming Companies Embracing NFTs and Blockchain Gaming?There’s also the concern that developers will treat NFTs as a cash grab to milk gaming ecosystems dry while paying less attention to the games themselves - such as the graphics, music, storyline, characters etc. And it’s not just players who feel this way: Microsoft’s Xbox chief Phil Spencer opined that some of the NFT-related developments feel “exploitative”. Video game journalist Geoff Keighley echoed his views.

Needless to add, NFTs and crypto in general continue to operate in a regulatory grey area in most countries, so they aren’t exactly solid investment bets considering that a growing list of countries are outright banning cryptocurrencies and governments in India, US and Europe are still grappling with how to regulate the space. Moreover, trading NFTs by playing video games may draw regulators’ and tech aggregators’ attention as a form of online gambling, which would spring up a whole different set of questions.

That said, the blockchain gaming trend is likely to expand this year as more studios flirt with the concept. The gaming industry - pegged at $200bn - has undergone tectonic shifts in technology and business models over the past decade. Courting new reinventions is very much right up its alley.

FIN.
 

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