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Gaming and Non-Fungible Tokens (NFTs)



SUMMARY


While the global gaming industry continues to grow in all markets, it is still structured to primarily benefit game developers, maintaining a one-way flow of value where players spend money to gain access to in-game assets and gameplay configurations. In contrast, blockchain-based games and decentralised applications (dApps) allow players to more effectively leverage the utility and value of in-game purchases and asset acquisitions.


Blockchain technology in games is powered by Non-Fungible Tokens (NFTs), digital assets that represent game content. These tokens are unique, rare and indivisible, while the blockchain networks underlying NFTs enable player ownership, verifiable scarcity, interoperability and immutability. Together, these advantages have the potential to drive mainstream adoption and create a far more equitable value model.



CONTENT


  • Overview

  • Non-Fungible Token 101

  • The advantages of gaming NFTs

  • NFTs and the future of the blockchain gaming industry



OVERVIEW


The global gaming industry generates revenue from three sub-markets: Mobile, PC and console gaming, which together are worth hundreds of billions of dollars and continue to grow. However, while industry incumbents benefit from this strong growth, gamblers generate little lasting value for themselves. After investing in expensive consoles, PCs or mobile devices, players enter gaming environments that offer tiered access to play. In these traditional games, money flows in one direction: players must spend money to gain access to game content and exclusive features.


In contrast, blockchain-enabled games - many of which are decentralised applications (dApps) - focus more on creating value for players. This dynamic leads to a paradigm shift that allows players to better capture the utility and value of assets they acquire through in-game purchases, regular play or promotions. For example, when a player purchases an armour upgrade in a traditional game, the only benefit is that it improves gameplay in the context of that one game. However, in a gaming ecosystem that uses cross-platform Non-Fungible Tokens (NFTs), the same armour can be tokenised, turning in-game purchases into transferable assets that can provide benefits in networked games or be exchanged for money or other digital assets.


The underlying blockchain networks enable the creation and use of these NFTs in different game environments. Because NFTs are unique and can be designed to retain their value beyond the game in which they were created, blockchain-based games have the potential to dramatically expand the game economy, establish new game categories and drive the development of new games. To understand how this process might evolve, it is important to understand NFTs.



NON-FUNGIBLE TOKEN 101


Non-fungible tokens are not unique to the blockchain gaming industry. These tokens can represent digital and real assets such as artwork, real estate, collectables and even personal identity. As a result, NFTs have a wide range of practical uses, targeting different industries and use cases, and their adoption is growing. Unlike most other digital tokens, NFTs are characterised by three features:


Non-fungibility:

As the name suggests, each NFT is a cryptographic token that represents something unique or non-fungible, meaning it is not interchangeable with another NFT. The metadata in each NFT exists as a permanent, immutable record in the blockchain. This record describes what the token represents, much like a certificate of authenticity, as well as the ownership history and transaction record (title) of the token. In contrast, many cryptocurrencies such as Bitcoin (BTC), Ether (ETH) and other utility tokens are fungible - i.e. one BTC is virtually identical to any other - and therefore not unique in this sense.


Rarity:

The rarity of any NFT is a key factor that makes it desirable. In the game CryptoKitties, for example, users collect and breed digital cats, each embodied by a particular NFT. Some of these CryptoKitties are considered rare collectables, which increases their price among collectors who value their demonstrable rarity. In 2018, a CryptoKitty named Dragon sold for 600 ETH, which was the equivalent of $170,000 at the time.


Indivisibility:

Cryptocurrencies such as Bitcoin are divisible into smaller units as they are fungible and used as a medium of exchange. In contrast, most NFTs must be bought, sold and held as a whole unit and are therefore indivisible - just like you can't buy 10% of a concert ticket or 60% of a plane ticket.


Now that we have discussed the characteristics of NFTs, we can look at the benefits of using these tokens in the context of online gaming.



THE ADVANTAES OF GAMING NFTS


Although many NFTs use Ethereum's ERC-721 token standard, NFTs are also widely used on other networks such as TRON (Blockchain Cuties), EOS (EOS Knights) and NEO (Blocklords). Among the many benefits of decentralised gaming are:


Ownership rights:

Traditional in-game purchases are one-time, non-transferable investments that remain in a single game world. By using NFTs in-game environments, players own their assets in the game instead of the game developers. Using blockchain technology, players can store their in-game purchases, sell them to other players or transfer them to other supported games.


Verifiable rarity:

Collectors value rarity and authenticity, and the rarity of in-game NFT purchases is verifiable through the immutable records on the underlying blockchain network. This distributed public ledger confirms the number and uniqueness of each NFT, as well as its ownership history.


Interoperability:

Traditional online games are played on central servers. The assets in the game, therefore, reside in proprietary systems that do not communicate with others. In contrast, decentralised games exist on independent blockchains that serve as a backend framework for other networked games. Therefore, game assets represented by NFTs can be designed to be interoperable across different environments. For example, two games built on the Ethereum network can support the same in-game assets such as vehicles, armour or even entire characters.


Immutability:

Traditionally, when a traditional online game is closed, users lose all their in-game purchases. NFTs, on the other hand, exist independently of a particular gaming platform and are stored on the blockchain itself. Thus, in-game purchases can be bought and sold regardless of what happens to the game, and new games can be developed to fit into an existing blockchain protocol. In addition, blockchain-enabled game assets cannot be duplicated or manipulated because each NFT creates a permanent record when it is issued.



NFTs and the future of the blockchain gaming industry


Although there are benefits to the adoption of NFTs in the gambling world, there are also significant obstacles to overcome. First and foremost, NFTs need to be made more attractive and intuitive to consumers who are not as tech-savvy. And because NFTs have intrinsic value, there is a risk that some of them will be used primarily as speculative objects. This could lead players to buy in-game assets in the hope of selling them later for a profit, rather than using them as intended within the game ecosystem.


Despite these challenges, the potential for profit in the gaming industry will motivate more non-blockchain-oriented brands to experiment with NFTs, likely through partnerships with third-party blockchain projects that have the technical expertise to realise their visions. At the same time, the overall success of dApps in the gaming industry is likely to play a role in driving further improvements in NFT infrastructure and the development of innovative solutions that drive mainstream adoption.

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