IEEE: Is NFT a scam or the future of the gaming industry?

The NFT game Axie Infinity, developed by Ho Chi Minh City-based blockchain technology company Sky Mavis, has popularized the in-game economy of the Ethereum blockchain

Is NFT a money-making scam or an industry-changing revolution?

The inexorable spread of NFTs into the video game industry has polarized the ongoing debate in the cryptocurrency and gaming worlds (neither is willing to share their views online), and articles with different views have been covered a lot in articles that preceded the old Yuppie public account. But while some of the more ambitious claims made by NFT promoters seem unlikely to materialize, the technology could shake the relationship between gamers and developers.

NFTs are built on the same underlying blockchain technology as cryptocurrencies, but while any two Bitcoins can be exchanged in a similar way, each NFT is unique. Thus, these tokens can serve as a certificate of ownership for digital projects, which are both easy to verify and impossible to forge due to the cryptographic foundations of blockchain technology. The technology went mainstream last year, and since then, NFTs associated with digital images, GIFs, videos and tweets have been sold for millions of dollars each, with total sales set to reach $25 billion in 2021.

But while NFTs are unique in their own right, the digital projects they claim are easy to copy or download. This has led people to claim that they have no intrinsic value and that the market is driven by speculation. Their environmental impact has also been criticized for the processing requirements of some blockchains, although there are indeed more eco-friendly options.

NFT advocates "focus on ownership technologies and how the market works." This is not a source of value for the game. ”

—Edward Castronova, Indiana University

Recently, the technology has entered the gaming industry, with a new group of blockchain game companies and established developers celebrating its merits. NFTs seem to be better suited to games than digital art, as they can be attached to unique in-game items, such as costumes or weapons, that can actually be used by their owners and are not easily copied like JPEG. So far, the reactions of gamers have been largely opposites, with many criticizing the technology as a way to squeeze more money out of players. But advocates say it gives players a way to actually own their digital items and sell or trade them without being subject to the arbitrariness of a particular app store or game publisher.

Aleksander Larsen, co-founder of Sky Mavis, said: "They are the perfect vehicle for storing unique game data that players should be able to own and use, and possibly use in other experiences. He said that as players play a variety of games, they can accumulate NFTs related to costumes, weapons, characters and achievements, which they can decide to sell after playing the game, or keep it as a unique collection.

Larsen said that by connecting game projects to the broader blockchain ecosystem, NFTs also give developers immediate access to powerful financial capabilities. Some games have taken advantage of this to create a new game mode called "Play to Earn," and Axie is a representative of this approach. Players buy monster NFTs that can earn cryptocurrency by fighting against each other, or create new NFT monsters by breeding to sell or rent to other players. Sky Mavis takes a cut from all transactions, but Larsen says this approach allows gamers to capture some of the value created in the virtual world. "We're trying to make the cake bigger by sharing part of the revenue."

Despite the excitement, Edward Castronova, a media professor at Indiana University Bloomington who specializes in virtual world economies, said there's nothing particularly new about the ideas. Games like World of Warcraft and Runescape have long allowed players to trade valuable in-game items, and while they don't have a direct monetization pathway, third-party websites make it possible to buy and sell loot for real money.

3D character artist Xavier Coelho-Kostolny likened the NFT gaming craze to taking a cup holder from BMW and trying to put it into the Honda Civic.

Castronova said the technology will improve the transparency and security of these in-game economies while providing easier access to complex transactional features. But he sees it as a gradual improvement at best. While NFTs have the potential to enhance games that are already entertaining, he believes that more often than not, they can be distracting, causing developers and investors to overlook what is most important to their customers.

"They're plagued by questions about how the technology of ownership and how the market works," he said. This is not a source of value for the game. "People play games for fun, and unless NFTs are added to improve the fun of the games, they don't add any real value." Attempts to introduce auction houses in the game Diablo III failed, allowing payers to sell items for real money, suggesting that transaction dynamics can easily make the game worse than better.

One of the most enticing claims made by proponents of NFTs in games is that they have the potential to facilitate the transfer of in-game items between different games. This was one of the reasons Ubisoft released the NFT series for its Ghost Recon Breakpoint game, but with little success.

But while in principle, NFTs are a great way to manage ownership of different gaming ecosystems, the technical challenge of actually moving items between them means it's just a pipe dream, says Magnopus 3D character artist Xavier Coelho-Kostolny, who has worked on AAA games. He likens it to taking a cup holder from a BMW and trying to put it on the Honda Civic. He said: "The Honda Civic has no structural support, it doesn't have a general shape, the materials are all wrong, it can look weird because the style of the car is wrong.

But NFTs do provide contributors to crowdfunded game projects with direct value that can be traded on the open market, which may still be important.

Many game studios use customized software that varies from the 3D file format, to the way material textures are rendered, to the underlying physics. Coelho-Kostolny said the two largest commercial game engines, Unreal and Unity, can't even agree on whether to use the Y axis or the Z axis, and despite efforts to establish open standards for virtual worlds, they are still in their infancy. Coelho-Kostolny added that the legal issues involved in allowing one company's intellectual property to appear in another company's game will also be enormous. Moreover, it's unclear what incentives are available for developers to support a project that doesn't make money.

Larson agrees that interoperability between games is a distant dream, and he recognizes that NFT games can't all be about transactions. There are quite a few Axie users who play exclusively to make money, and that's something they're trying to change. "We think games need to be more fun," he said, "and that's the foundation of anything to make it sustainable." But he said the enthusiasm surrounding NFTs has made the game grow much faster than other possibilities, and he believes this approach proposes a novel growth model for small developers. Giving people a way to gain partial ownership of a game also creates a whole new dynamic between players and developers. "They're actually working on the game with you," he says.

In other words, NFTs offer smaller developers a more flexible way to crowdfund, op Games said. Without NFTs, game developers conducting crowdfunding campaigns may adopt the kickstarter premium in the game, which can only be delivered after the game development cycle is fully complete. However, with NFTs that exist independently of the game itself, developers can offer some direct value that can be collected and traded on the open market. The technology can even help create more specific connections between players and developers through decentralized autonomous organizations (DAOs). These are the people who cooperate on a project without a central hierarchy, according to the rules of smart contract coding on the blockchain. Decisions are made by voting, and voting rights can be distributed based on NFT ownership. These could still be significant developments in gaming technology.

"What would the game look like if it was designed in collaboration with the player?" Gardi said. "What if NFTs were used as a way to manage game development?"