Are NFTs and play-to-earn monetization models the future of gaming? Hopefully not.
Games are constantly changing, and with that, finding new ways to monetize. The newest monetization discovery in 2021 was the non-fungible token, or the NFT. The NFT has introduced the “play-to-earn” model, where acquired items become assets that can be sold for cryptocurrency to other users. Games like “The Sandbox” implement NFTs in a way that allows users to acquire ultra-rare cosmetics, some of which are available to only 10 users. However, play-to-earn games beg the question: will NFTs empower gamers with the ability to invest while they play, or is this simply another flash in the pan monetization scheme which will only serve to drain our wallets?
Non-Fungible Tokens
The first question on nearly everyone’s mind is: what exactly is an NFT? It’s nearly impossible to have been online in 2021 without hearing about them, but most people still don’t know exactly what they are. Essentially, NFTs are powered by the Ethereum blockchain. Ethereum is a cryptocurrency, a form of decentralized currency generated by computers. The blockchain is a database containing a series of digital ledgers for cryptocurrency transactions.
NFTs are based on technology that allows information to be stored on the Ethereum blockchain. This is the token, and the “non-fungible” part means that although these can be traded, no two are the same. This enables a new way to sell digital art. While anybody can look at or experience the art, only one person will hold the receipt saying that they own that piece of art. The information used to craft that receipt, though, is often just a hyperlink stored on the blockchain with a link to the file, so if the company hosting the link goes under, your NFT "receipt" will be lost to the void.
The most popular use for NFTs thus far is with randomly generated avatars, which are extremely controversial, and have been the subject of endless discussion on Twitter and similar social media platforms. NFT enthusiasts claim that these randomly generated profile pictures link the users together into a de facto community based on digital ownership. NFT detractors usually state the obvious, in that these profile pictures are usually incredibly ugly and not worth the thousands of dollars that they cost to acquire one. Regardless, countless celebrities like Eminem, Ellen DeGeneres, and Serena Williams have acquired NFTs of their own.
Play-to-Earn Games
Play-to-earn games are a new genre of game that implements NFTs that players can earn by playing the game or buying in-game assets. The idea is that players can support the game, and themselves, by earning NFTs and flipping them on the marketplace later. Typically, cosmetics in games are a one-time purchase, and are tied to an account. Play-to-earn seeks to change this by introducing a marketplace for items that can be traded for real-world currency.
Many games are already implementing this technology, most notably The Sandbox. The Sandbox is an MMO, like World of Warcraft, with the social elements of something like VRChat. It also features creative aspects similar to Minecraft. The Sandbox comes with a robust cosmetic marketplace with contributors like Deadmau5 and The Walking Dead. The items on the marketplace are NFTs, and because of this, they can be limited to a small group of players. The Sandbox is just one of many games implementing this technology, alongside Axie Infinity, Decentraland, and plenty of others.
Drawbacks
This all sounds too good to be true. Playing video games and making a good chunk of money on the side whilst doing so will almost certainly come with some sort of downside. NFTs and play-to-earn games are no different. The first, most clearly apparent downside is the cost of entry. Many of these games tout themselves as free-to-play titles, but the number of things you can do or assets you can earn are severely limited. Players who wish to get the best items will have to drop a boatload of money. Take The Sandbox for example. A standard set of shoes for your character will cost at least $100, while the top tier of items cost over $10,000 USD.
Another massive drawback is that all of these items are tied to cryptocurrency, which is by nature decentralized. This means that there is no centralized authority, like a bank, to set things right in the case of fraud. Many marketplaces and digital wallets have security vulnerabilities, so if your $10,000 Deadmau5 hat gets stolen by hackers, you will likely never be able to recover it without just buying it back from whoever stole it. This has already happened several times within NFT art communities, without any solution on the horizon.
The biggest issue with the investment side of NFTs, including in games, is that these are all speculative. There are no long-term investments that provide any sort of passive income, so all NFT related investments come with a great deal of risk. This is paired with the fact that NFTs are quickly becoming a flooded market, with dozens of different games offering hundreds or thousands of NFTs, which will inherently decrease the value of the NFTs as players branch out into different games and investments become spread thin.
Additionally, these cryptocurrencies are not stocks, and not based on company earnings or profitability. Therefore, the only way for the price of cryptocurrency – and by extension NFTs – to grow is for more investors to enter the market. Essentially, it’s a pyramid scheme.
This pyramid scheme is already drawing lawsuits as well, like the EthereumMax lawsuit involving Kim Kardashian and Floyd Mayweather. Both celebrities promoted the currency on their social media, drawing new investors which inflated the cost of the currency. Both celebrities immediately sold their held portions of the cryptocurrency, making out with a lot of money that came directly from their fans’ pockets.
All of these drawbacks are completely separate from the most impactful downside of cryptocurrency: the environmental impact. The energy required to generate cryptocurrency or process cryptocurrency transactions is astronomically high. A single Bitcoin transaction has the same carbon footprint as 2.4 million Visa transactions. The amount of energy consumed by Bitcoin and Etherum combined is larger than Thailand’s.
Are NFTs and Play-to-Earn Games Worth It?
While play-to-earn promises a future where gamers can have fun and make money at the same time, the reality is that NFTs and play-to-earn games are based on an emergent technology with lots of drawbacks, both yet to be worked out and inherent in the system itself.
The fact that the assets that can be earned in game are purely speculative means that the only way to make real money with your NFTs is to sell them for more than you acquired them for. This means that your NFTs can lose value, and the only way for the assets to grow in value is for more investors to enter the market, or for current investors to reach deeper into their pockets.
This introduces a new, incredibly expensive microtransaction system which is a zero-sum game, where the devs and/or initial investors always come out on top, leaving others with empty wallets. On top of that, the environmental impact from the system which NFTs are based on are far too serious to be ignored. Sure, the potential is there for money to be made, but at what cost?
This article already covers a variety of the drawbacks that come with NFTs and introducing them into video games, but those listed here are truly only a fraction of what could go wrong with blockchain-based gaming. Anybody with further interest in the topic should check out the excellent video essay "Line Goes Up - The Problem With NFTs" by YouTuber Folding Ideas. Line Goes Up extensively covers the history of cryptocurrency and NFTs, and how they introduce inherent problems in art distribution, game design, investment, and everything else involving NFTs.
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