NFTs, or Non-Fungible Tokens, are revolutionizing the concept of digital ownership, impacting various industries, and the gaming world is no exception. These unique digital assets, underpinned by blockchain technology, are transforming how players interact with games, own in-game items, and even earn a living. NFTs have provided exciting opportunities to explore innovations and new economic models. Yet, despite their promise, they raise significant issues related to investment risk, environmental concerns, and the possibility of exploitation.
The movement of NFTs into video games has sparked plenty of debate. Others view this shift as an obvious next step in the evolution of digital ownership that gives more agency to gamers. To some, it’s a speculative bubble, to others a cynical mechanism for game developers to extract more revenue from their players. This post explores the growing trend of NFTs in gaming. It points out their considerable promise, grapples with the challenges they pose, and unpacks the continuing debate over what their role should be moving forward.
Understanding NFTs and Their Standards
NFTs (non-fungible tokens) are one-of-a-kind digital assets that are powered by blockchain technology. Unlike cryptocurrencies such as Bitcoin — a coin that is fungible and one is equivalent to another — each NFT is one of a kind and not interchangeable. It’s this uniqueness that makes NFTs useful for representing digital collectibles, in-game items, virtual land and other digital assets.
The ERC-721 and ERC-1155 standards define the technical rules for creating and trading NFTs on the Ethereum blockchain, the most popular platform for NFTs. ERC-721 is the standard for unique, indivisible tokens, while ERC-1155 allows for the creation of both fungible and non-fungible tokens within a single contract, making it more efficient for managing in-game items.
These three unique traits of NFTs are what distinguish them from any other digital asset. First, they are fungible, with every token having the same public identifier with no separate metadata attached. Second, they are indivisible. That is, they cannot be divided into smaller amounts. Third, they’re transferable, giving owners the freedom to trade or sell their NFTs without restriction on any number of marketplaces.
Axie Infinity and the Rise of Play-to-Earn
Axie Infinity is one of the leading examples of how NFTs are being used in video games. In this popular blockchain-based game, players raise, breed, and battle digital pets called Axies. Each Axie was a unique NFT with distinct traits and powers, which turned them into highly coveted assets in the gaming world. Similarly, CryptoKitties, one of the earliest NFT projects, featured digital cats, each represented by an NFT with unique traits and appearances.
Axie Infinity’s “play-to-earn” model revolutionized the gaming industry, especially in developing countries such as the Philippines and Venezuela. Initially, the game forced players to buy three Axies to start playing which meant players faced a barrier of an initial investment. The opportunity to earn real-world cryptocurrency rewards while playing the game attracted a massive user base. A lot of them began treating it as their primary economic engine.
Yet the long-term viability of the play-to-earn model has recently been called into question. From peak to trough, the NFTs of Axie Infinity lost an astounding 98% of their value in 2022. Simultaneously, the project’s native cryptocurrency SLP (Smooth Love Potion) crashed. Thousands of its most committed players lost everything they had invested in the game overnight with little recourse. This scenario exemplifies some of the harmful dangers linked to NFT-based games. The game was a major and sometimes the only source of income for most, particularly popular in places like the Philippines and Venezuela. For innumerable players, their investments would disappear within months due to the often volatile nature of the NFT market.
Overcoming Challenges and Exploring New Possibilities
Despite the immense potential that NFTs hold for the gaming sector, they must overcome a distinct set of challenges before they can be adopted widely. The environmental impact of NFTs One of the biggest worries about NFTs is their environmental footprint. This concern is particularly acute for NFTs on the Ethereum blockchain, which have historically used a proof-of-work consensus mechanism that required enormous energy deposits. The recent Ethereum Merge, which moved the blockchain from a proof-of-work to a proof-of-stake model, has cut its energy use by 99.9 percent.
The second barrier is the often prohibitively high transaction fees—referred to as “gas fees”—for conducting NFT trades, especially on Ethereum. For example, these fees can render the process of buying, selling, or trading in-game items expensive. This would have a disproportionate effect for smaller dollar transactions. Luckily, a number of solutions are being created to fill this gap. NFTs wouldn’t be possible without blockchain, which offers a decentralized and immutable ledger of ownership.
One exciting potential direction is incorporating dynamic NFTs (dNFTs). These NFTs are dynamic and can be modified in real time depending on events in the game or advancement of the player. By integrating dNFTs, it unlocks a much richer, more immersive experience for players. This allows them to iterate and develop more personalized and dynamic content that changes with the players’ advancement and success in the game. Other emerging technologies—like sidechains and Layer 2 scaling solutions—are making NFT transactions more energy efficient and scalable. Layer 2 solutions increase transaction throughput and reduce transaction fees on the base layer. They take care of the transactions off-chain before settling them on the Ethereum mainchain.
Interoperability and the Future of Gaming
The future of NFTs in gaming may lie in interoperability, the ability to use NFTs across different games and platforms. This would give players an unparalleled ability to own their digital assets in a way that allows them to transfer them between various virtual worlds. Enjin, The Sandbox truly pioneers for future interoperability. They provide new and exciting revenue-generating opportunities for developers. They enable players to take their NFTs from game to game and experience to experience.
As they pursue this goal, attaining interoperability won’t be easy. It’s a big challenge that will take collective action and agreement on standards to accomplish. In short, game developers will need to come together to create some sort of standard. They need to design systems that allow easy integration between multiple titles. Despite these challenges, interoperability provides amazing potential benefits. It has the potential to unlock a more interoperable and connected gaming ecosystem.
Previously, Ubisoft Quartz made it possible for players to purchase and use NFTs in certain Ubisoft games. It has faced intense pushback from the gaming community. Critics have pointed out that one of NFTs is the environmental implications. Their worry is that these digital assets will be susceptible to speculation, price gouging and the appearance that game devs are just using these things to squeeze extra $$$ out of players. This backlash very much underscores the idea that game developers need to think specifically about what it means to implement NFT technology into games.
