The Effects of NFTs on Esports and Gaming

How are NFTs entering, impacting, and influencing the world of Esports and gaming?

The Effects of NFTs on Esports and Gaming

What Is NFT Gaming?

Non-Fungible Token (NFT), what does that even mean? If something is fungible, it can replace or be replaced by another identical item. If something is Non-Fungible, that means the opposite. A token is a thing serving as a visible or tangible representation of a fact, quality, feeling, etc. So, essentially, an NFT is an impossible-to-replicate certificate of ownership over an item, allowing something to be exchanged, that wasn’t previously exchangeable.

In the gaming industry, an NFT can represent many different things. Some of the most common instances of NFTs in the gaming world include different types of skins, items, and weapons, but NFTs can also be applied to trading cards, tickets to real-life events or online tournaments, and more. Though virtual items such as skins have been involved in gaming for quite some time, the added exchangeability brought by the non-fungible tokens (and their associated ownership) means the possibilities are endless.

It’s easy to see why game developers are exploring this arena. While pay-to-win gaming business models are usually disliked by players, they’re also very lucrative. If you’re unfamiliar, a pay-to-win model is used in games where people can use real money to purchase in-game items that give them a large competitive advantage, or in some cases advance them through the game. Examples of this include Clash of Clans and Candy Crush. Even outside of pay-to-win games, many people like spending money on video games and treating their virtual selves. According to Payments Journal, the global online-gaming, microtransaction market is estimated at $33.4 Billion. That $33.4 Billion does not all come from NFTs. In fact, the vast majority of virtual items sold in the gaming world ARE NOT NFTs. However, given the boom of the NFT industry and the emergence of NFTs in video games, it’s sensible to think that the market for gaming NFTs could match or surpass the microtransaction market. The most notable example of this is probably the AWP Sniper Rifle Skin for Counter-Strike: Global Offensive, which sold at auction for over $61,000.

Things, virtual or real, are only worth as much as the value we assign them. Hardcore and casual gamers alike have spoken clearly with their spending–to them, personalizations, modifications, and rare items are valuable. And although the reaction to NFTs in gaming has been initially negative (concerns of capitalistic greed and environmental indifference) the opportunity for overwhelmingly positive advancements remain. NFT technology can lead to profits, to be sure, but by definition and practice, it’s about ownership.

Axie Infinity uses a play-to-earn model and is probably the most popular NFT game. The game has over 3 million users and a late 2021 equity valuation of $3 billion. Their native currency - cryptocoin AXS currently converts 1 AXS: $30 USD and has a market cap of over $2 Billion. If these seem like big numbers for something that’s “just a game”, it’s because Axie Infinity represents more than that.

If we choose to dive deeper into the Axie Infinity example, we begin to learn how they turn a profit. While they do use a play-to-earn model, you start the game by purchasing three of the required Axie creatures to enter. The Axie creatures you own are now your very own NFTs,and since you own them, you can make the decisions to keep, sell, or trade! Additionally, and as is the case with any NFT sale, the originator (in this case Axie Infinity) earns a small percentage of each transaction.

If Axie Infinity is one of the most famous examples of in-game NFTs, Ghost Recon Breakpoint may be one of the most infamous. The open-world, military shooter was released late in 2019 to mediocre reviews. With ongoing updates and new releases, the game improved and reviews followed suit. However, things went awry in late December 2021 when the game developers released their NFT platform ‘Ubisoft Quartz’. In theory, the concept is fantastic - earn a limited edition item through playtime or achievement, and receive it as an NFT, allowing you to auction or trade to other players.

However, the reality is that the developer controls the scarcity, which impacts demand and pricing. Another concern is that it can very easily lead to inequality within the gaming world. Inequality in all forms is an inherently ‘real world’ problem, or so we thought. Video games should serve as an escape, and not as a reflection of economic stature.

Beyond the potential for inequality, Ubisoft Quartz was met with laughter for two more reasons. First, the NFTs did nothing to change or impact gameplay. There was nothing more behind it than a skin or visual appearance. Secondly, and most controversial was the promotion of eco-friendly technology. While the blockchain used (Tezos) has the second-lowest CO2 emission, gamers dove deeper into the environmental impact. Other blockchains with prominent features include Solana (One of the fastest operating, and lowest transaction fees) and Ethereum (most secure).

NFT Environment

The effect NFTs have on the environment can get fuzzy at times, and are often multi-faceted. The case of Ubisoft Quartz and Ghost Recon Breakpoint is a perfect example. The Ubisoft brand highlighted the fact that they’d be using one of the most eco-friendly blockchains, Tezos. However, they also benchmarked 600 hours of Ghost Recon Breakpoint to earn an NFT built on that blockchain. Gamers quickly called out the contradiction, citing that 25 days of non-stop 24 hour/day AFK hours required to earn the NFT, from a large number of users, would likely negate any positive or neutral impact Tezos (who uses proof-of-stake instead of proof-of-work) had strived for.

This is another example of NFTs being positive in theory and stumbling in practice. It certainly seems as though game developers have been listening to the criticisms voiced (loudly) by consumers and are legitimately taking the feedback to the drawing board with them.

In order to successfully implement NFTs and create harmony among developers and consumers, there are several factors that developers and creators need to be conscious of. Environmental impact, being chief among them.

NFT Impact On The Environment

The NFT itself does not affect the environment. How the NFT is created, however, is energy-intensive. Suppose you create a piece of digital art. Uploading that singular .jpeg isn’t going to cause any harm to the environment. Now, when you attach the metadata necessary for your art to be purchased on the blockchain, and when it’s published on an online marketplace - significant computing power has been used. There are two main forms of this computing power, which are used to solve complex math problems to mine crypto and mint NFTs. Proof-of-Work and Proof-of-Stake.

Proof-of-work, to put it simply, is thousands and thousands of high-powered computers working independently to be the first to solve a puzzle of sorts, and validate an exchange. This is ensuring that during each transaction, no user is spending the same money twice. This process will have thousands of computers burning through energy, competing for a singular achievement, and only one can win. If you do ‘win’ and are the first to solve the problem, you are rewarded with crypto. This process is best for security and decentralization. This is also where the story of crypto and NFTs harming the environment, really stems from.

Proof-of-stake forces these ‘miners’ to put up collateral in exchange for being the one to solve a problem or puzzle. This eliminates wasted energy and competition. This process also uses several other computers to validate that the solution is correct. The ‘miner’ to solve the problem, as well as the ‘validators’ are rewarded a small amount of crypto. This method is best for the environment and is significantly faster. However, since it constantly gives the power of validation to those with the most holdings of the network’s native currency, centralization is of concern.

Proof-of-stake often uses “Staking Pools”. These pools are used by people who are seeking to become validators and be rewarded for adding a block to the blockchain, or solving a math problem/puzzle. This is why some crypto can be staked by individual users. Staking, for individuals, means guaranteeing no transactions occur with your crypto for an extended period of time, in exchange for a small percentage of what was staked. Typically, you can see 5% back for a 3-month stake.

Ethereum has pledged to improve their impact on the environment. The blockchain that features the vast majority of NFTs has been working on ETH2.0 - A model which will be using proof-of-stake. The rollout has been delayed, but remains promising and should be in full function soon. To learn more about NFT environmental impact, check out this interview from the 2022 Collegiate Esports Commissioner's Cup (CECC).

Figurative Environment of NFTs

Understanding the process of mining and minting can help explain the environment of different cryptocurrencies. At first glance, all cryptos are relatively similar, and the volatility is something that crypto investors just have to live with. However, if your NFT or crypto lives on a blockchain that uses proof-of-stake, you may experience something different.

When many users are staking, guaranteeing no transactions for an extended period of time, volatility is low. So, while Ubisoft may have missed the mark on their 600-hour requirement for their gaming NFT, they hit a home run in using Tezos as their blockchain. Furthermore, as we dive deeper in to the age of crypto, more and more eco-friendly methods are arriving. The concern about cryptos impact on our environment is real, but absolutely solvable, and will evolve over time.

How this impacts NFTs and micro currencies living within a game is yet to be determined. How will the popularity of a game impact the pricing and value of an NFT?

NFT Ownership

As it pertains to digital art, there has been confusion about what NFT ownership actually means. In some instances you may own the IP of the artwork itself. In others, you may just own the metadata associated with the piece you purchased, and whatever incentives come with that. Many NFTs are associated with exclusive parties, events, etc.

In the gaming world in particular, NFTs feel more ‘real’, as backward as that may sound. The weapon NFT, though digital, is still that weapon. The NFT has real value in that it will alter the game (to what significance is dependent on the game and the NFT), so long as other gamers are interested in it. For example, if NBA2K got into the NFT realm, they could put different shoe colorways or boosts as an NFT. You could either purchase, earn, or unlock this shoe colorway or boost. As the owner, I could then choose to keep the item for myself or sell it for whatever native (or other) crypto the game is using, and that could then easily be converted into real cash. Regardless of what you as the owner decide to do with your reward for hundreds of hours spent grinding away, is that you now own your token. That object can never be taken from you or disappear - you can finally earn a real-life reward for your virtual time spent.

This would require creating or linking a wallet and a willingness to pay small fees, but the premise is the same. You may be thinking, ‘what would 2K get out of this?’ Well, the NFT creator usually gets between 10% - 30% of every transaction associated with that NFT. So even though you may have acquired through a play-to-earn model, they’ll be banking off of that NFT for as long as people are interested in the game.

Pros of Ownership

Positives are sometimes (usually) financially based, however, if acquired through achievement can be seen as a status symbol as well. Whether you plan to make real money, in-game currency, or reputation from the NFT you earned - ownership has its perks.
Rumored perks and possibilities in the gaming realm of NFTs include corresponding real items, real-life events, unlockable digital events/levels/worlds/etc. Ownership of these digital assets can open you to a world of real-life possibilities.

Transferability

The transfer of NFTs is incredibly simple and guaranteed safe. You can gift, sell, or auction your NFT through several different methods.
Typically, you’d just head to the wallet that your NFT is stored in, and hit ‘send’ or ‘transfer’ depending on your wallet. After that, you’ll be required to enter the recipient's wallet address and pay a small transfer fee.

There are two real options for selling your NFT - Fixed Price or Auction. Auction is the most common, you’ll list your NFT on a marketplace with your lowest acceptable offer and duration for the auction to occur. During the auction time, people will bid on your NFT, and you’ll walk away at the end with the NFT going to the highest bidder.

Less common is the fixed price sale. This usually only happens if there’s a universal price point for the item. This may be appropriate if you have several of the same NFT or you want to accurately predict your profits. As is the case with the auction method, the seller makes the determination on the selling price. You are the owner, after all.

Play To Earn

Play to Earn is a concept that rewards the user for interacting with the selected game. Achievements or hours spent on the game come with a reward. Some games feature an in-game economy and others don’t. What remains the same is the concept of being rewarded, one way or another, for playing the game. What isn’t always discussed, is the initial cost or roadblocks to playing.

Axie Infinity, for example, requires users to navigate crypto wallets, buy in fees, hidden costs, etc. before even collecting Axie. While there will certainly be improvement in the ease of interaction, the 3 million daily users of Axie were able to figure things out in the interim.

One reason for Axie Infinity’s success is prioritizing ‘play’. So long as ‘play’ comes before ‘earn’, this method can be beneficial for all. Players are able to earn, in some cases, a fairly significant amount, despite some volatility. Whether or not this is good or bad has been debated - but some players from the Philippines have been making a living and supporting their families by playing Axie Infinity.

Other popular Play to earn games include:

  • Thetan Arena - Online Multiplayer Battle Arena - BNB Chain - Free to Play - THC, THG Tokens
  • Splinterlands - Trading Card / Auto Battle / Deck-Builder - Hive/Wax Chain - Free to Play - DEC, SPS Tokens
  • Alien Worlds - Strategy Management - Wax Chain - Not Free

The Play to Earn model is not without criticism. Some have speculated that the economies created within games are simply not sustainable, and that they are built on a ‘house of cards’ or hype. Others cite the casino-like nature of the games, by both design and function. Concerns are legitimate but the integration of NFTs, as opposed to strictly cryptocoins should help to mitigate some of the perceived risk.

Status Based

Status-based NFTs are something that is earned. Depending on the NFT’s nature, you may not be able (or have any incentive) to sell. This could be something as simple as a badge displaying your level or rank, or something based on achievement.

One underappreciated component of NFTs in the gaming world is that NFTs, once created, can often not be changed. This is especially useful in a trading card game like Gods Unchained because the power or status given by NFTs can never be decreased. Gods Unchained utlizes an in-game currency, $GODS, and rewards successful players with the tokens, which can be used to buy NFTs. Additionally, by reaching a benchmarked number of games, you can earn rare or exclusive packs, which vary by rank (or status).

Tournaments

Gaming tournaments are played on local, regional, national, or international level. Tournament structure depends on the game, however, the premise is always the same - find the best team or individual at the game of choice. Famously, NBA2K hosts an annual tournament, which you can follow in game, with the individual tournament winner taking home $250,000.

Usually, though, gaming tournaments live outside the game itself. Competitive tournaments are hosted by a third party at centralized location. Some tournaments are massive and feel like a festival, others are local and can be found in tiny shops. The location has bearing on what type of prizes are available and the amount the prizes are worth, as different states and regions have different guidelines and laws. NFTs and crypto may change that. Because it is decentralized, it may be easier for buy-ins and pay-outs of significant value to be done in the native cryptocurrency of the game. NFTs could be created by the game developer, or even the tournament host.

Tournaments can be played by professional players or amateurs. One of the largest tournaments is the Collegiate Esports Commisioners Cup hosted in Atlanta, Sponsored by Neustreet, beginning May 6th. You can get a better look at tournament nuance, here.

What The Future May Hold

The possibilities are endless and overwhelmingly positive. Despite the initial criticisms and downsides of experiments like Ubisoft’s Quartz, the gaming industry is inevitably going to continue forward and expand its use of NFTs. 100 Thieves recently launched a wildly successful and well received NFT event. The game created hundreds of thousands of digital collectible necklaces, which could be claimed for free, by users. The necklaces were based on the real version awarded to the 100 thieves winning team.

100 Theives set a precedent and the overwhelmingly positive support from fans paints a clearler picture of what gamers can expect in the future. By continuing to provide constant customer feedback via vocal or monetary protest (or support) to developers, gamers can help ensure games utlize NFTs in a way that’s beneficial to all.

We’re quickly approaching a world where free play leads to acquired NFTs that can be used as an exchange for currency or tickets to exclusive (real or virtual) events. If you haven’t already, or if you’re on the fence about your willingness to partake, you should set up an NFT wallet to get ahead of the curve. Progress is inevitable, and this isn’t going away any time soon.