What are NFTs and their implication in the video game industry
SEGA, Square Enix, Take-Two, Electronic Arts, Ubisoft, Zynga, and other companies are betting on blockchain-based technology with investments and speeches that make it unclear how it will affect video games.
The development of the NFTs game has dominated media headlines and social media discussions throughout this year. It is the fashionable term, the new technology that is going to change the world. The video game industry has not been slow to jump on the bandwagon. This week, Phil Spencer, head of Xbox, railed against non-fungible tokens: “There’s a lot of speculation and experimentation […] it feels more exploitative than about entertainment.”
During the previous months and weeks, some of the big companies in the sector announced that they were researching, investing, and/or developing in the fusion of NFTs and video games. Electronic Arts, Take-Two, SEGA, Square Enix and Zynga talked about it in their financial reports, that is, in front of shareholders. However, the developers and employees of the large companies in the sector themselves have no interest in the technology. As games as a service, DLC, social games, and other seasonal terms have prospered with more or less success, investors are rubbing their hands when they hear about it.
On the other side of the scale, the players and the video games themselves. Users wonder, first, what is this about NFTs; second, how will they affect the hobby they enjoy; and third, the threat that technology poses to the future of the planet we live on. Regarding the video games themselves, there is the question of what innovations would be obtained both from the point of view of creativity and from the point of view of marketing and monetization.
NFT technology and the blockchain have existed in the video game industry for more than three years , despite the fact that it was not until 2021 that the terms took over the headlines of media like this. But before going into it, we are going to explain what we mean by those acronyms and that anglicism.
The blockchain and the NFT: decentralized digital capitalism
The blockchain is the system that allows the existence of cryptocurrencies and NFTs. It is a huge network that proves that a digital item, whether it is a currency like Bitcoin or Binance, or an image, belongs to a specific person or entity. This membership is not controlled by a public or private body, but by each and every one of the network nodes, which makes counterfeiting practically impossible.
Our colleague Alberto González from Vandal Random makes a simile that serves to understand how it works: “[…] imagine for a moment that when we buy a car, the invoice that certifies that transaction, instead of being only in our wallet, was in all those wallets of those owners of a car. If someone wants to cheat us or falsify that invoice, they would have to alter all the invoices issued to date”.
An NFT or non-fungible token development uses such technology to ensure that an image, a GIF, a soundtrack, a video clip or even an item for a video game is unique. Obviously, you can see, for example, that unique image on a social network or on the website of an auction house, take a screenshot and say: “well, I already have it, it won’t be so unique”. But it’s not yours. As if it were a limited edition figure with a specific serial number or the first printing of a comic from the 70s, the item has value for its maximum scarcity: there is only one. The reason why millions of dollars are paid for a digital good is, as in collecting, speculation .
The promises of the blockchain are not something new in video games
Axie Infinity was released in 2018. It is not the only game that makes use of NFTs, as there are many others like CrpytoKitties, Plant Vs Undead, and Wanaka. However, it is the most successful. Players of the Sky Mavis-created title buy unique monsters (which are NFTs), train and upgrade them in battles, and sell them to other players.
The game’s popularity grew by 5,000% between April and October 2021, reaching over two million daily active users. Starting to play, that is, buying one of its creatures, costs around 1,500 dollars as of November 2021, which leads new players to ask for loans from veteran players, to whom they will later have to pay a high percentage of the possible benefits they get.
The idea of earning money playing video games, play to earn as defined by the creator of Axie, is the most commented premise when talking about the relationship between interactive entertainment and blockchain technology. But it is not something new: you will remember the auction house that Diablo III had at its launch or the players who illegally sold World of Warcraft gold. From PC Gamer they remember Entropia Universe, an MMO that has been active for almost 20 years in which its community, currently around 86,000 users, has been selling properties for years. As of 2009, the purchase and sale between user had moved 420 million dollars.
There have also been bets on the trade of other types of digital goods in the video game industry. Brian Fargo, founder of inXile Entertainment and Interplay ( Wasteland, The Bard’s Tale ) is behind Robot Cache, a blockchain-based digital PC game store with a unique premise: players can resell their games to other users. Three years later, the store is still in the beta phase and important publishers are missing, but in its catalog, we can find games like Ghostrunner, Cristales, The Walking Dead, and classics like Roller Coaster Tycoon.
In recent months, some well-known studies have begun to make their first steps with the blockchain. Microsoft bundled its Azure servers and the development NFT technology into a Minecraft server for educational purposes (specifically, teaching about space and women scientists). In Azure Space Mystery, players get unique items (NFT) that give them access to meet Minecraft versions of great scientists from the last 14 centuries.
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