May 27, 2022

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Future Technology

NFTs are coming for your video games. Players, get ready.

It has all the hallmarks of a Pokemon game. You collect cartoonish creatures and use them to battle against other players. Some are rarer than others, inspiring envy in fellow trainers. But this game doesn’t run on a Nintendo console. It’s built on a blockchain. 

In Axie Infinity, players put their team of Axies against an opposing player’s team. Each Axie is represented by lines of code in a game, and doubles as an NFT, or nonfungible token. Winning battles and going on adventures earns the player cryptocurrency called smooth love potion (exchanged as SLP), which can be sold for actual, real-world dollars. If a player has two Axies, they can use SLP to breed more, which can then be sold to new players. 

We’re not talking about pennies here: One 22-year-old was reportedly able to buy two houses with his winnings. 

Online games like Axie Infinity are a far cry from the AAA titles released by big game studios, but the integration of NFTs and cryptocurrencies into gaming isn’t just an indie trend. Established players in the industry like Square Enix and Sega have said they’re interested in using NFTs in upcoming titles, and Ubisoft has already integrated them into one of their key games, Ghost Recon Breakpoint. 

Blockchain technology is no longer vaporware drifting on the horizon of the video game industry. It’s here. Are blockchain-integrated games like Axie Infinity the dawn of a new gaming era, or a blip in the market that will vanish as quickly as it began? The question is as contentious as cryptocurrency itself.

Playing to earn vs. playing for fun

NFTs are polarizing. 

A novel method to determine ownership of digital property using blockchain technology, NFTs entered the cultural mainstream in 2021. As cryptocurrencies like bitcoin and ether skyrocketed to new all-time highs, newly minted crypto millionaires began speculating on NFT digital art. People pay eye-popping prices to own digital pictures — think $250,000 for a colorful ape avatar — and the NFT speculation market is now at a fever pitch, with celebrities like Snoop Dogg and Ellen DeGeneres putting their names behind NFT collections.  

Critics dismiss NFTs as an energy-intensive fad that will soon go the way of Beanie Babies, while proponents argue they’re the beginning of a cultural shift that will upend digital ownership. Whether you find NFTs compelling or absurd, or simply don’t get it at all, the video game industry is increasingly embracing them — and cryptocurrencies — as the next big thing.

The question gaming companies are trying to work out is how to best use the tech. First there’s a soft integration, where players can own digital goods, like costumes or weapons, as NFTs instead of leasing them from merchants like Epic Games, as is currently the case. Then there’s the play-to-earn, or P2E, model, where blockchain assets that have value outside of the game, such as cryptocurrencies, are earned via gameplay.

Axie Infinity exemplifies the P2E trend, along with games like Guild of Guardians and Galaxy Fight Club. Though not all players are able to buy houses with their winnings, many report earning thousands of dollars per month. And the game’s 1 million-plus daily players have led to nearly $29 million per week in revenue for Sky Mavis, the company that owns and runs Axie Infinity. 

Players have found different ways to earn a living off the game. Some farm SLP tokens, breed Axies and sell them to players. With the game’s patronage system, some experienced players lend out their Axies to new players and take a cut of the profits, kind of like a taxi company lending cars to drivers. Virtual land in the game can also also be sold for thousands, or even millions of dollars worth of cryptocurrency. 

Yet the sustainability of the economic systems games like Axie Infinity create is up for debate. If new players stop joining there will be no one to sell Axies to, and SLP tokens will become worthless. Plus, it appears that new players have a much harder time making cash than those who joined early. To play the game you’ll need to buy a team of three Axies, which would currently cost around $150. If Axie Infinity stops making players money, critics say there’s little reason to play.

“It’s better to have a normal amount of players that you can reasonably keep interested and engaged in the game,” said Andrius Miron, who runs Gamestarter, blockchain-based crowdfunding platform for indie games. “This is the part where I’m not super excited about Axie Infinity, because I believe their game is mostly focused on the money-making machine aspect rather than gameplay itself.”

Whether P2E games like Axie Infinity can either hit the mainstream or even financially sustain themselves is still unclear. Less opaque is the reaction of video game giants, who are eager to integrate some blockchain elements into their games. 

Reevaluating ownership in the digital age

Talk to blockchain evangelists and they’ll say that NFT technology isn’t about profit-seeking, but digital ownership. This is the same pitch gaming giants may increasingly be making to their players. In-game items will soon be sold as NFTs which, unlike microtransactions of the past, can be traded for other digital goods or sold to other players for money. 

That people are eager to pay real-world money for in-game items isn’t up for debate. Over $90 billion was spent on microtransactions last year, according to Super Data research, much of which came from gamers treating themselves to new costumes or weapon skins. Particularly passionate players are also willing to pay high sums for rare items. 

A few years back, an item that alters the appearance of your rifle in the popular game Counter-Strike went for just over $61,000 at auction. The scarcity of the item, and the popularity of the game, meant that someone was willing to pay more than most Americans make in a year for the privilege of ownership. And in 2012, a weapon for the game Diablo III netted 7,500 euros (over $8,000 USD) at auction. Rare items in popular video games selling for high price tags is now a well-documented phenomenon.

“The games industry has long created digital assets and sold them inside games,” said Michael Pachter, a video game analyst with Wedbush Securities. If the trend for such transactions moves toward the blockchain, Pachter said, that’s where the big companies will go.

While many of the huge gaming companies have spoken about integrating NFTs into their games, Ubisoft, the company behind franchises like Assassin’s Creed and Far Cry, is the first to actually do it. In December 2021, Ubisoft integrated NFTs into squad shooter Ghost Recon Breakpoint.

In Breakpoint, players can own NFTs called “Digits” independently of the game. Because the Digit is a digital asset minted on a blockchain, it’s stored in your digital wallet rather than on Ubisoft’s servers. If the Digit increases in value by becoming a cult item, or if only a small number are in circulation, you can sell it on a third-party marketplace. In this way, game developers across the globe are hoping to entice players with true ownership of the valuable in-game items that have become so sought after.

But how well NFTs will function in games — and whether or not gamers will abide by this trend — is still playing out. The reaction to Ubisoft’s NFT experiment has been overwhelmingly negative. 

The YouTube video announcing Ubisoft’s NFTs received less than 2,000 “likes” and over 40,000 “dislikes,” and few players are buying the NFTs. As of December 2021, Ubisoft has sold less than 20 NFTs. Sega, another game company with a household name, has noticed gamers’ outcry against NFTs and is taking a measured approach to the technology, with Sega management saying they wouldn’t pursue NFTs if the approach was seen as “simple money-making.”

While the opportunity here may be apparent for game developers, it’s still anyone’s guess which one will figure out how to integrate NFTs in video games in a way that connects with players and gains traction in the multibillion-dollar industry.

“We’re trying to describe Amazon in 1993, before it was created,” said Pachter, speaking to which company will become known for integrating NFTs in video games. The digital world moves fast, and the dominant players can easily change. Pachter cites the early days of the internet as an example: “If you had asked me in 1993, ‘This internet thing, who wins?’ I would have said AOL. Because they were the dominant player.”

Gaming companies are split

Just because NFTs can go in video games doesn’t mean they should. This is the view not just of concerned experts, but also some gamers themselves.

And while many in the industry are open to NFT integration, it’s not universal. Phil Spencer, Microsoft’s head of gaming, says he’s wary of NFTs. Steam, one of the largest digital video-game stores in the world, outright banned blockchain-related video games. When you account for the negative backlash Ubisoft received for introducing NFTs in Ghost Recon, its trepidation toward blockchain technology makes perfect sense. 

More than half of game developers are interested in NFT and blockchain technology, according to one recent survey. However, if the Ubisoft backlash continues as other major developers experiment with NFTs, this era of gaming may be short-lived, and P2E games like Axie Infinity will become footnotes in video game history. So whether or not NFTs become a lasting trend in the gaming world depends on the gamers. As always, the players decide, and the market will answer. 

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