The prospects and pitfalls of NFTs

NFTs and Blockchain gaming has been stirring up a lot of controversy lately. We talk about the much-debated technology with a developer and a game researcher.

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Recently, a new ore has been discovered in the digital goldmine that is modern gaming. We're of course talking about NFT, a technology that has drawn many headlines in the past months and, to put it mildly, not all of them positive. But what are the potential benefits of the technology, and why has the reaction been so hostile? To find out, we have interviewed a game developer and a researcher to learn more about the technology. But before we get that far, let's first define the terms.

NFT stands for Non-Fungible Token and is a unique piece of data stored on a Blockchain - a decentralised ledger, that also serves as the foundation for crypto currencies such as Bitcoin and Ethereum. In terms of video games, NFT's can theoretically be applied to secure ownership and redistribution rights of digital assets. This includes unique skins or weapons in an online game which, connected to an NFT, can be sold to other players in exchange for crypto currency.

Many of the biggest players in the industry such as EA, Konami and GameStop have already embraced or spoken highly of the technology. Furthest in the implementation is the French giant Ubisoft, as they have introduced NFT's in Ghost Recon: Breakpoint through the project Ubisoft Quartz. Yet, the reception has been less than stellar from both players and other developers with many condemning the introduction of NFT as exploitative or a gimmick.

The prospects and pitfalls of NFTs
Ubisoft Quartz hasn't been a success story so far, and the announcement video on YouTube drowned in dislikes (back when those were still visible to the public).
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The negative reception shouldn't come as a surprise for game developers, though. At least not according to Miguel Angel Sicart. He works at the Danish IT University and has studied the economy of video games for many years. "Gamers are tired of always getting the short end of the stick. And now, NFT has been introduced as another relatively unclear way for the game developers to earn money without necessarily giving anything of real value back to the players," explains Sicart.

Besides following in the footsteps of other controversial monetary schemes such as loot boxes and in-game currency, a lot of the hostile reaction to NFT's probably stems from scepticism towards the underlying Blockchain technology. The climate footprint of the technology and the large degree of speculation in crypto currency (not to mention outright scams) has resulted in a lot of negative press - something that normally causes an allergic reaction for even the most hardened game developers. Why then, do so many developers still seem hellbent on NFT? According to Miguel Sicart, it mostly comes down to market control. "It seems like Electronic Arts, Square Enix and the other large game companies view NFT as a way to control the grey market around games. A market that has always existed," the game researcher explains.

In many cases, the reselling of digital content for real money is a violation of the game's terms of service. The digital goods are authentic, but the reselling is illegal, making it a "grey" market. For the developers, this might result in a loss of potential revenue, while the consumer is offered no protection from scams, and their account might be closed without notice if digital content is bought from a third-party reseller.

The prospects and pitfalls of NFTs
The grey market of skins in Counter-Strike: Global Offensive has led to a lot of criticism of the developer Valve.
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It is here that NFT enters the picture, as a weirdly shaped brick in a complicated economic and juridical puzzle. At least according to Mark Laursen. Back in 2018 he founded the developer Bright Star Studios. Having already raised more than €1.5 million in investments, the Danish developer is currently working on Ember Sword - one of the most ambitious projects based on NFT and Blockchain. By utilising the underlying Blockchain, Mark Laursen and other proponents of NFT envisions a safer and more transparent market for digital goods in video games. "Players have always traded their items. It has just been on grey markets. We have decided to run it openly and with transparency, so the players legally can earn money trading," says the CEO of Bright Star Studios.

While other companies communicate a similar vision, Mark Laursen doesn't think highly of the NFT initiatives that have been revealed so far by Ubisoft and other major developers: "Many of the projects so far announced don't seem that thought out. It seems to be mostly about selling stuff to the players. Our concept is not based just on selling. It's based on letting the players create and sell content themselves, and then we just take a small commission."

While Bright Star Studios hope to release the first playable build of Ember Sword this summer, the final release is still some way off, as it is planned for 2025. At that time, players will be able to visit the fantasy world of Solarwood, to fight monsters, explore caverns, gain levels and find new equipment. In other words, the standard fare for the genre. But the game has another layer to it. Each month a limited number of cosmetic items will be released (skins, avatars, emotes, mounts and so on) that the player can earn through missions in either PvP or PvE. The items are all attached to an NFT that can be traded for the in-game currency, Ember - an ERC-20 cryptocurrency based on the Ethereum chain. Mark Laursen thinks that NFT implemented this way doesn't represent a continuation of prior anti-consumer practices, but rather a more consumer friendly practice. "In MMO's the players are often cheated. Our idea is to value their time. The time that people spend on a hobby or a game, generates a form of value," he explains.

The prospects and pitfalls of NFTs
While Ember Sword is still a long way from the full release, it has already garnered a lot of attention in Blockchain circles.

As already mentioned, games based on Blockchain can potentially give players a part of the value generated in a game by letting them resell rare equipment or earned cosmetic items. This has led some insiders and developers to adopt the phrase play-to-earn. But the phrase might promise more than it can deliver. "It sounds fantastic - being able to earn money by playing video games. But that is not the whole truth. You do earn money. But most of it you earn for other people," tells Miguel Sicart.

As an example, he mentions the Blockchain-based Axie Infinity where a small group of players earn most of the money. He also doesn't believe NFT will conquer the industry, but for different reasons entirely. "A Blockchain is slow by nature. It operates slowly due to the different consensus mechanism, whether it's proof-of-work or proof-of-stake. So, it's actually the complete opposite of the speed that is needed in computer games dealing with interactions in real time with pictures and sound. And that is why I think it's much easier to manufacture digital scarcity the old-fashioned way - with a centralised database, where the developer can adjust rates and availability, instead of through a Blockchain and NFT," says Miguel Sicart.

The prospects and pitfalls of NFTs
Axie Infinity has become very popular in the Philippines. But the game is also notorious for its high cost and complicated in-game economy.

Perhaps unsurprisingly, Mark Laursen from Bright Star Studios views the matter differently. For him, NFT and Blockchain are essential tools for providing the player with control over their digital belongings. "Our system is based on only providing a limited number of cosmetic items each month. And it's open and transparent, so it's possible to track every transaction. On the Blockchain we would never be able to duplicate items and manipulate the market, without the players noticing."

The studio chief also explains that Bright Star Studios is aiming to avoid a situation where the richest players benefit from high barriers of entry due to ownership of NFT being a requirement such as in Axie Infinity. With a bit of luck, you might get economically rewarded for your adventures in Ember Sword. But it shouldn't be the primary motivation, according to Mark Laursen: "We primarily view it as one of several gameplay elements. It's not play-to-win either, where the player with the largest wallet dominates the game. The items you might buy are solely cosmetic."

What about the question of speed and climate footprint then? Mark Laursen explains that Ember Sword operates on a so-called Sidechain. Here several transactions are bundled before they are transferred to, and executed on, the mainchain Ethereum. This results in much faster transactions, than if each one was handled individually, and brings down the power supply. With plans for climate compensation, Bright Star Studios aims for true carbon neutrality (though the effectiveness of carbon offsetting is another heated debate in and of itself). In the end, the studio chief thinks that most of the technology's problems will be overcome and compares it with the early days of the internet. Back when flashing banners promising trips to Las Vegas and free money led many new users astray. NFT has so far struggled with a similar reputation, and the next year or two will probably determine if the technology manages to gain a more respectable and prominent position in the industry.

The prospects and pitfalls of NFTs
Proponents of NFT and Blockchain gaming thinks the genre will eventually gain mainstream attention.

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