NFTs rose to prominence in late 2017 with the rise of CryptoKitties. Many have argued that non-fungible tokens (NFTs) and digital goods within gaming will drive the mass adoption of Crypto. Gamers are digital natives, and NFTs are a gateway to a future of online-offline integration secured by the blockchain.
The mechanics of games and attributes of NFTs blur the lines between the virtual and real worlds. Scarcity, ownership, markets, coordination, trading, and consumption are central to gameplay and the real world. New ERC non-fungible token standards are being experimented to secure digital ownership, protect intellectual property, track digital assets and more. These more exotic token standards can apply NFTs to commerce and the creation of securities products.
Despite the optimism, I think there needs to be a reality check on NFTs, starting with video games.
There are many technical barriers to NFT mass adoption and no scalable architecture for massive user adoption with gaming. Technical uncertainties amplify with video game design. Existing infrastructure would not be sufficient and wouldn’t meet the demands of that game.
NFT design will likely become fragmented in a multi-protocol world. There are different standards and varying degrees of certification for token design. How will the best games be designed (especially across gaming platforms)? A follow up, how will different standards of games be distributed on different platforms?
Regulatory questions also remain. Current licensing policies place a centralized authority on digital art. Such policies undermine the entire purpose of NFTs.
Why decentralization in gaming? Why the blockchain? Are the attractive value propositions to NFTs specific to the blockchain and token economies, or can existing centralized providers deliver?
Creativity is critical for the most successful game studios, and it’s inherently a centralized process. The best games all feature centralized rules and gameplay. To do this, they need centralized coordination of marketing, game design, and infrastructure.
Decentralization would be a liability in the best game creating processes. With their skins, Fortnite is cited by some as an example of why NFTs could be successful. However, these skins are a result of artificial scarcity and unpredictable prizes controlled by Epic Games. This is to enhance gameplay and profit.
The habit loop in gaming experiences is not about fairness but entertainment. Digital goods in gaming are most interesting when they are non-fungible and scarce. Open source and chain interoperability reduce barriers to entry in the ecosystem. This makes it more difficult for discovery. However, NFT-based games don’t align incentives with the best game creators.
How secure is the IP for video games? Can a game be partially copied but replaced with better digital art? It is likely the unique and scarce properties to NFTs like digital art are stored in centralized servers. The only thing people own is numbers. Is there a still significant point of failure? Who has the most power? What happens if a game goes down?
When new games release or when a gamer no longer plays a title, what happens to that token? If tokens are exchangeable throughout the ecosystem, how are the original game creators protected? With democratization often comes commodification. This is not favorable for the best game creators, which is ultimately unfavorable to the best gaming experiences.
The value of games and digital goods are determined by the market—not on the supply-side. This means the game would have to integrate scarcity into the experience with creativity — a challenge already in a centralized value chain, but even more in a decentralized one.
The question of distribution is largely neglected in NFT and gaming conversations. This is the most important question with video games. Distribution suffers from a present and future cold-start problem. There is uncertainty in NFTs themselves, future game development, and new gaming platforms. The gaming industry is already an incredibly unpredictable business.
Small-game fallacies occur when people apply game-theoretic or microeconomic techniques to real-world problems. This is also known as the Luddic Fallacy. The study of NFTs and their possibilities isolate interactions within a contained and defined system. Evangelicals of NFTs incubate the “what if scenario” with “NFT for Fortnite” or an “NFT for X_video game.”
Tentpole games are rare. The moment a game is debuted, the mechanism of action is not ten more variants of that same storyline. Hollywood has learned this lesson.
I am optimistic about the future of NFTs. With video games, I think their properties will be native to emerging platforms like virtual worlds (VR). However, there is a great deal of irrational exuberance with NFTs and games and advocates should be thinking more thoroughly about the technology.