This February, The Fintech Times is taking a deep dive into the world of gametech. Grab your headsets and controllers and tune in to hear about the latest tech and celebrities influencing the market to the development of eSports and much more.
Kicking off this monthly focus and first subtopic: the latest tech in gaming, we look at a technology that is soaring in popularity with seemingly no intention to slow down: non-fungible tokens (NFTs). Why are they so popular and what is driving this growth?
Alternative Revenue Streams
One of the biggest reasons for the surge in NFT popularity, is the potential paradigmatic shift in gaming it could have. “Until now, the value created within a particular game resides entirely within that game. An avatar skin, for example, can only be used within that game and can (in most cases) only be sold through transferring an entire game account — something that’s more common than you might think. NFTs allow players to effectively transfer value from games into the real world through blockchain,” said Carry1st CEO, Cordel Robbin-Coker.
Supporting his point, he discusses Axie Infinity and the Axie NFTs that have been sold in the real world for thousands of dollars. In 2021, 350,00 daily players traded over $2.7billion of Axie NFTs on Axie Infinity.
A reason for this success stems from the fact the majority of players are from developing countries, including the Philippines which makes up 40 per cent of Axie Infinity players. Many of these players earn daily rewards that are many times higher than their average minimum wages in their home country. Media outlets regularly report how many players’ lives have positively changed with earnings ranging from PHP 20,000 to 60,000 every month.
Eyal Melnick, Creative Director at Oto Motors discussed how making ‘play to earn’ more accessible could only benefit companies. “There are several factors driving growth in this space, most notably ‘play to earn’ which enables an entirely new set of revenue opportunities for gamers and NFT holders, which never existed before.
“Buying, playing, revenue sharing, staking, trading, and upgrading NFT metadata, are just a few of the growing number of utilities that are expanding the use cases within the NFT space. Now the user experience has become more visual and with plug and play solutions, it significantly lowers the barrier to entry for a much wider audience and demographic.”
Craig Armstrong, technology partner at Shoosmiths law firm added, “The appeal of collecting rare items is not something new – many of us will remember the excitement of trading football stickers in the playground as a child before digital collectables trading such as Pokémon characters took off. The play-to-earn potential of NFT gaming has taken digital asset trading to another level and has quickly become a big business, which can only become more popular when the transfer of NFTs between games becomes better supported by publishers such as within the WWW3 virtual world.”
But why would you want to transfer something like a skin or another digital asset from one game to another? The answer lies in personalisation. Being able to personalise an online character in a specific way that is unique to you, creates an individual identity for that character, and in turn the user. Owning a rare item suddenly holds a lot more gravitas in the gaming universe as it is unique as well as hard to come by.
“The current market boom surrounding gaming with blockchain integrations and NFT’s (Non-Fungible Tokens) is something worth investigating. Why you might ask, well it is single handedly the future of gaming and eSports.” Said Steven Walters, CEO of Gallant Token. “Traditionally, a player would buy something in a game, and it would be married to that game under their profile. When NFT’s are introduced into a game, it then brings ownership with it. The ownership is verifiable and visible by incorporating blockchain technology into the gaming ecosystem, consumers/players now can physically own and control the assets that are obtained in the game. Exclusive items such as skins, avatars, weapons and various items drive players to want them to stand out or even possess the rarest item.”
This was further supported by Rafik Signatulin, CEO of DeNet who said, “NFT technology assumes the uniqueness and the possibility of collecting digital assets, so it has long found its application in the gaming industry. Most online games let the players to customise the appearance of player-controlled characters, and some companies manage to make millions of dollars selling digital wardrobe items. Rare things can often be sold by the players themselves – for tens of thousands of dollars. Now imagine that in-game items are not just rare, but unique, one of a kind. The popularity of such a mechanic has already been demonstrated by the CryptoKitties game, after which many developers have thought about introducing this mechanic into their games. People are attracted by the gameFi principle ‘play and earn’.”
Popularity for the wrong reasons
Despite the many perks of NFTs in gaming, there are some potential drawbacks that could garner popularity for the wrong reasons. The first of these is fraud. In a similar way to cryptocurrencies and their use of the blockchain, it is difficult to pin
Shoosmith’s Armstrong noted, “It is inevitable that the modern-day gold rush of play-to-earn gaming also appeals to fraudsters and money launderers. This is likely to have been a key factor in Steam’s recent decision to avoid NFT games on its platform. And so, whilst the benefits of blockchain decentralisation are at the core of NFTs, it will fall upon the government to seek to apply regulation to this sector to combat the use of NFTs for illicit purposes. How this can be effectively policed in practice is something that games publishers and law authorities alike will need to wrestle with.”
Adam Morris, co-founder at NFT Club commented: “NFT scams are becoming increasingly common in line with increased ownership and the sophistication of technology making it easier for scammers to target investors. These are ever-changing and people are pretty smart with the sorts of scams they come up with.
“It’s important to always be vigilant, if you are buying a collection make sure it is verified. Lots of people make copy collections and try to confuse people into buying the wrong asset. Consider whether the price of the NFT seems legitimate and check if the contact address of the NFT aligns with that from its creator’s website.
“There has also been a surge in replica and fake stores made to look like the original ones in order to trick users into logging in or inputting their credit card information, this is what’s known as ‘phishing’. There are useful tools you can enter the web address into to check if the site is a scam but the best way to stay safe is to stay on legitimate sites such as OpenSea.
“Scammers are also getting in touch with users over Discord and Twitter. Impersonating OpenSea or Metamask support staff with the aim of tricking people into exposing their security phrase or sending links to fake customer service websites, where you are asked to input your credentials. If you are seeking technical support always go directly to official customer support websites and never share your recovery phrase.”
Keith Oliver, Head of International, at Peters & Peters Solicitors LLP further supported this saying, “Unfortunately, any new investment opportunity opens up new opportunities for fraud. Just like Bitcoin and the other cryptocurrencies that followed in its wake, NFTs provide fertile ground for manipulation. Not only are the digital wallets that hold NFTs vulnerable to hacking, but both legal and illicit transactions involving NFTs are frustratingly difficult to trace. Because of this lack of transparency, it is relatively easy for NFTs to be sold to multiple buyers, each of whom would have paid a premium on the assumption of being the sole proprietor.
“Once uploaded onto the internet, the digital design itself becomes easy prey for fraudsters, who can pass the image off as their own and sell it over and over if they wish. In theory, the technology underpinning NFTs should safeguard investors from this risk. In reality, however, ‘minting’ (attaching an NFT to) a digital piece that you do not own is fairly straightforward, as there is no requirement to demonstrate ownership of the copyright – in some cases providing social media handles is the only verification required. With checks and balances that are so wholly inadequate, it is not surprising that fraudsters are flocking to NFT selling platforms.”
The future of NFTs
Oliver also discussed how the boom in NFT popularity was akin to Bitcoin and the crypto boom that took place only a few years prior. Many investors do not understand the technology. However, when you have a lot of money, this is not as big a problem as Virtuleap‘s CEO and co-founder, Amir Bozorgzadeh, points out that it is the wealthy currently driving NFTs’ popularity. “Much of the underlying momentum is fueled by crypto millionaires and the like, since they are able to readily trade in their digital income into assets that follow the fine art economy as a model. There is a lot to be excited about, but it’s certainly a bubble that will inevitably crash in the same fashion as we witnessed with the Internet bubble in the early 2000s. At that point, over 80% of the value will die-off along with the low-resolution IP they are tagged to, and what will remain will be the NFTs that are rooted in high-quality content and brands. From there on, I suspect the NFT economy will begin to weave itself into innumerable aspects of content rights and consumers models, and a be norm within the next decade.”
But looking at the immediate impact NFTs are having on the gaming market, Dorian Banks CEO Looking Glass Labs Ltd offers closing remarks: “NFTs have become popular from a vendor’s perspective as they provide massive opportunities to sell users new items in perpetuity and adds new game mechanics based on value and worth of those nfts – instead of a new user taking months to gain experience and items, they can just go to a marketplace and acquire what they want. Additionally, the vendor can take royalties on resale of items and everything is tracked on the blockchain, so there is zero cheating and fraud.
“For users, it allows for a transparent and safe way to transact goods (NFT’s); very different than when gamers would buy a game once on DVD or cartridge, play for a while then move on. Now, games can last years as players build up, trade and sell their in-game assets – it becomes a revenue source for many.
“Gaming companies are seeing the massive revenue explosion in NFT’s and wanting in on the action, so there is no doubt that is leading to the growth in the market.”