5 reasons against NFTs in games (Part II)

In my last piece, I wrote about why NFTs should exist in games. Read Part I here. Now, I am going to explore why NFTs, at least in its current state, should not be a part of games.

PART II. Main arguments against crypto

1. Business Model / Play-to-Earn

Argument: Mainstream business model, play-to-earn (P2E), is unsustainable.Axie Infinity, one of the most popular crypto games, popularized the P2E model.. Players in the Philippines (called scholars) earn more than average daily wage (>$40 USD) from playing Axie Infinity ( CNBC). However, since the price of the tokens was propped up more by speculation rather than genuine demand for the game, the token prices collapsed once new player growth and capital inflow stalled (longer, more detailed analysis Naavik). To simplify, people spent money expecting a monetary return, rather than for fun. As soon as capital inflows dried up, players started leaving because there was less profit. In Axie’s case, SLP (the main utility token of the game and commodity to be traded into USD) dropped by more than 8x and the earnings arbitrage quickly disappeared.

Counterargument: Axie dev team recognizes this issue and is actively working to rebalance the economy. In the long-term, Axie hopes to build a game where people spend money without expecting to take money out of the system, like traditional games nowadays. Secondly, many crypto games are exploring the free-to-start concept in which players get a (non NFT) starter pack to onboard the game. Axie Infinity is rolling out Battle v2, which offers training Axies, and Gods Unchained has a Welcome Set that contains 70 free cards. Mini Royale: Nations is going free-to-play first as players don’t need to spend a dime to enjoy the FPS gameplay!

SW’s Take: P2E is a type of shared economy. Current P2E economy is not sustainable because, while the economy is large enough, players want to take out more than the economy can support. Crypto games are lagging in the fun department and as a result, a sustainable source of capital inflow to support the economy. New crypto games are gaming-first and crypto second, which could address the capital inflow challenge. In the future, crypto games must evolve to cater to different types of players, those who spend money to have fun and those who play to earn.

2. Environmental Impact

Argument: Crypto projects are destroying the environment. The most popular chain, Ethereum, is built on a system called “proof of work” that is incredibly energy consuming ( The Verge). Currently, a single Ethereum transaction consumes as much electricity as an average U.S. household uses in a workweek ( Fortune).

Counterargument: More and more games are being built on new chains (e.g., Solana and Avalanche) and sidechains (e.g., Polygon) that are proof-of-stake, which consumes >99% less energy than proof-of-work ( NBCNews). Ethereum is also transitioning to Ethereum 2.0, a proof-of-stake mechanism, that will cut energy usage by 99.95% ( Ethereum blog).

SW’s Take: Most game developers don’t consider Ethereum when evaluating which chain to use, due to the high gas fee and latency associated with the proof-of-work system. Most new games are being launched on Eth layer 2 (e.g., Polygon, Immutable) or proof-of-stake (e.g., Solana, Avalanche, etc.) networks.

3. Ponzi Scheme

Argument: Blockchain and NFTs are all scams. Lots of projects raise money and don’t deliver projects. NFT Minecraft Project raised $1.2M in tokens but was deleted a few days later ( Kotaku). Tons of people are scammed daily on Discord. Google searches for “NFT scam” hit an all-time high the week of Jan. 1 ( Google Trends).

Counterargument: The technology is innocuous but the people are not. Scammers are preying on the public’s ignorance, and perhaps greed, to make money. We need more credible and experienced developers to lead crypto gaming projects.

SW’s Take: I agree with the counterargument.

4. Gameplay Impact

Argument: Blockchain does not improve gameplay. It seems like just another business model innovation, “another way for publishers to make more money from players.”

Counterargument: Blockchain will not change core gameplay or game mechanics, but it can expand gameplay strategy and endgame meta. New crypto players (e.g., play & earn players and investor-players) have different primary motivations and ways to engage with the game compared to fun-seeking or competitive players. Behaviors change when incentives change. For example, for a character collection role playing game (RPG), the ability to own and later sell a character NFT could enable new progression by owning a specific type of character. The ability to sell this NFT also means there is an efficient way to “burn” the NFT from the player’s inventory or “recycle” the NFT to another player. Endgame metas like managing a real-world economy (e.g., EVE Online economy) could also be enabled by real ownership and permissionless trading.

SW’s Take: A shared economy can expand the player base (e.g., bring in play & earn players and investor-players) and offer new game metas for players. However, some players will be resistant to blockchain because they see it as a new way to extract more money from players. NFT should not be designed to enable a pay-to-win strategy. Instead, it should give players more playing options and true control over their assets.

5. Solution Or Problem?

Arguments: Ownership and open economy can all be addressed without blockchain technology using a centralized database. Blockchain is a solution looking for a problem.

Counterargument: Blockchain gives “ecosystems of people and applications the ability to exchange value with each other without requiring central gatekeepers. In fact, there’s entirely new ways that games will be able to extend their ecosystems through modding and even open-sourcing their client software… Blockchain expands modding to include modding that interacts with the economy (custom auction houses, charting, etc.) as well as even outsourcing gameplay to the community itself” ( Jon Radoff).

SW’s Take: What blockchain offers is a paradigm shift and a new relationship between game developers and players. Blockchain is permissionless. For the first time, players have agency and control over their assets. The game developer is a partner, not a gatekeeper. See my take on open vs. closed economy.

Conclusion

Blockchain technology promises a paradigm shift. It redefines the relationship between players and game developers. There are 3 fundamental assumptions or leaps of faith that one needs to believe in to embrace crypto gaming:

• Players care about ownership
• Players care about control / don’t want gatekeepers in the system
• Players want to participate in the economic upside / shared economy

If you believe in two or more of these assumptions, then crypto makes sense. Even if blockchain doesn’t fully play out as it promises, there are some observable and exciting ways it is positively impacting the gaming industry. They are

• Expansion of the player base: Crypto games is expanding the player base to play & earn players and investor-players. Folks who were traditionally unable to or uninterested in play are now motivated to engage. Currently, the player influx is mainly driven by speculation and earning potential. Crypto games could permanently expand the player base when games become economically sustainable.
• New way to fundraise: Game devs can fundraise directly from players through token, NFT or other sales at an unprecedented scale. The most funded Kickstarter game was Frosthaven, which raised almost $12 million dollars. On the other hand, crypto gaming projects are raising multiples that (e.g., Sipher raised ~9,950 ETH early December, or approximately ~$40 million dollars).
• Community-driven development process: Engagement with community and evangelists is a much bigger part of the development process. Crypto gaming teams spend much more time communicating updates and managing expectations than traditional game dev teams. This is a different attitude and relationship with the player community compared to the traditional game developers who rarely engage with the community until the alpha/beta phase.

Thank you so much for reading. It was an amazing thought journey and I couldn’t have written it without the support and constructive criticism from my friends, colleagues and mentors.