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Game-Changing Possibilities for NFT Gaming in the Metaverse

Legend has it that Vitalik Buterin created Ethereum because his warlock got nerfed. In one version of the story, Vitalik wrote, "I played World of Warcraft from 2007 to 2010." "At some point, Blizzard removed the damage component from my beloved warlock's Siphon Life spell. I cried myself to sleep, and I realized the danger of centralized services. I quit."

The story is a metaphor for the power of decentralization. A game skill or item could not be nerfed or weakened, even if a company like Blizzard Entertainment wanted to if it were an immutable blockchain token. Additionally, since non-fungible tokens reside on public blockchains, they can be read by any game's software. Siphon Life could, in the future, be used not only in World of Warcraft but also in Assassin's Creed, Uncharted, and possibly Tetris if it lived on a public blockchain.

A winking joke ("I cried myself to sleep"?) rather than a serious design proposal, Vitalik was 16 when this happened. Nevertheless, some have taken it literally as a call for games that use immutable tokens to represent skills or equipment. World of Warcraft-like games proposed to do exactly that during the 2017-2018 initial coin offering bubble, selling virtual swords and armor before even starting development.

Non-fungible items are facing increasing challenges. New blockchain gaming projects, such as Ember Hearts and Mirandus have abandoned the concept. Leaders of blockchain gaming are generally unenthusiastic about the concept, and traditional game studios have little incentive to support interoperability. Counterstrike is looking less likely to feature bow and arrows from Horizon: Zero Dawn any time soon.

New possibilities have emerged with the rise of the "metaverse" concept. Instead of NFT interoperability across games, innovators are increasingly expecting games to emerge from NFT ecosystems, like races between CryptoKitties or platform-jumping Bored Apes. Therefore, while Vitalik's warlock may not be safe from the nerf bat, NFT-based game assets may become even stranger.

But why blockchain-based games?

"I began getting YouTube ads for rune marketplaces a week or two after Elden Ring came out," said Carlos Perierra, an investor at Bitkraft Ventures. The currency of Elden Ring is the rune, a popular video game whose multiplayer features make it possible to trade or sell items. However, these are risky markets.

Perierra explains the complex process for buying Elden Ring runes: "You have to enter PVP [player versus player], and the seller drops them for you." The seller says, "These behaviors have been around for a long time, but they have to be done on the gray market, which can be scammy.

"What's the point of not extending it to become more efficient and scalable?" Using blockchains to track virtual items makes sense from that perspective: Items are already being bought and sold at a furious pace, leaving players exposed. There is already a multibillion-dollar industry (yes, seriously) dedicated to transferring cosmetics between players involving a lot of trading and speculation. Many companies, such as Valve, moved to legitimize and shape the market without the support of game developers.

The introduction of NFTs would make it easier and safer for players to buy and sell cosmetics or other items while at the same time helping developers capture a larger share of revenues. Games like Counterstrike: Global Offensive, which has skin trading enabled, generate tens of millions of dollars for Valve and independent skin designers.

NFTs would simplify and improve the buying and selling process while allowing developers to capture more of the value of their products. Skin trading generates tens of millions of dollars for Valve and independent designers alike in games like Counterstrike: Global Offensive.

Nonetheless, Valve controls a significant portion of that market through Steam, the world's most popular digital games marketplace. Items for other games such as Elden Ring and World of Warcraft are also sold through Steam, but Valve takes a 30% cut. Such fees are why item sellers for games like Elden Ring or World of Warcraft frequently use awkward, unofficial workarounds that leave players vulnerable to scams.

'Pay to win' is an Issue

In the meantime, there's a good reason these markets aren't official: While many players love them, others strongly oppose them. Specifically, in multiplayer games, players often see buying in-game achievements as cheating that devalues their achievements.

Items that make characters more powerful or competitive are especially prone to be derided as "pay to win." Changing powerful game items into NFTs isn't a foregone conclusion. Such a model would make any game "pay to win."

It's probably impossible to make items or skills immutable within a single game for related design reasons. Many games now have multiplayer components, and character abilities must be adjusted so that the competition is even. While a teenage Vitalik was frustrated by losing power, nerfing Siphon Life made the game more fun for others - and World of Warcraft's success after Vitalik quit suggests that Blizzard actually got this and related tweaks right. (Sorry, Vitalik.)

In addition, cross-platform transferability would cause balancing and player experience issues. An NFT is little more than a marker of ownership, and it would not consistently indicate the utility of game items.

A moderately powerful weapon in one game could be made completely overpowering in another. "Even if we agree that interoperability is a good idea, it's still very complicated if we open the walled garden," states Pereira. "It gets a lot harder, a lot faster."

There is also a challenge at the level of the graphical interface. 3D visual assets for games can be designed with various tools, such as Unreal or Unity. The problem is that these proprietary formats are linked to specific rendering engines," Joel Dietz, CEO and Founder of MetaMetaverse told me. "It's not easy to integrate them." The goal of MetaMetaverse, Dietz said, is to enable interoperability across engines for assets.

By developing standards for interoperability, for instance, much of this complexity could be moderated. "That is the Holy Grail. That is the dream," said Ahmed Al-Balaghi, co-founder and CEO of Biconomy, which builds blockchain games infrastructure. "But who will create these standards?"

The company with the highest potential to lead that effort has squandered its position: "Meta cannot lead on standards," Al-Balaghi says of the company formerly known as Facebook, "given all the blowback they've gotten."

Game publishers will have to figure out how to make money from NFT items, the biggest challenge. From a business perspective, [traditional developers] sell in-game items that people are happy to buy. Still, they do not demand any reward for doing so." That may be a disincentive to tokenizing items, which is why Al-Balaghi says widespread interoperability of game items is "very far away."

Despite this, it's not clear the incentives are much different for some current Web 3-centric projects. Many have pursued branded partnerships with celebrities and deals with designers. A major goal of those deals is attracting users to a platform, so making assets interoperable might not be appealing.

"The Sandbox team is paying many people to develop on Sandbox, so even if the item works elsewhere, I'm sure they would have defensive licensing in place to prevent it. If you're pushing interoperability, that's a hard thing to deal with."

Build Back Backwards

The most popular NFT implementation relating to in-game items has been Loot, a video app launched by Dom Hoffman in August 2021, who founded Vine before TikTok. Loot's NFTs are incredibly minimalistic: Each is just a list of adventuring gear like wands and cloaks.

The most popular NFTs represent in-game items in Loot, a social media platform launched in 2021 by Dom Hoffman, who previously founded Vine, a pre-TikTok video app. Loot's NFTs are incredibly simple: They consist only of a list of adventuring gear like wands and cloaks.

A few thousand dollars for these black-and-white text blocks was greeted with disbelief by the general public, not least because the NFT market was in the midst of an irrational boom. As the market has dropped, loot prices have also dropped. Conceptually, however, Loot is one of the most interesting projects to date. The NFTs for Loot don't include any images or stats because they're "intentionally left out for interpretation by others." The idea was that items would be created by one entity, then the game would be built over top of the items.

The Loot experiment hasn't produced a notable game, and it might end up serving more as a platform for games than a game itself. Even before the current NFT or metaverse craze, the general idea proved compelling and practical. CryptoKitties gave us 60 apps a few months ago, "Kitty hats, kitty races, " says Mik Naayem, Dapper Labs' chief business officer. Naayem refers to KittyRace, a simple racing game where owners raced their Kitties. According to Naayem, it is a better model for NFTs in gaming than simply tokenizing in-game items.

He said that "taking something from World of Warcraft and adding it to Need for Speed will probably not happen." But the moment developers see an audience for an asset, and they'll start working on it."

In general, that's what has happened with NFTs over the past few years. Yuga Labs, the makers of Bored Ape Yacht Club, announced a virtual environment called Otherside in April. Yuga will reportedly be able to import not just BAYCs, but CryptoPunks, Meebits, and other collections as playable avatars. Since CryptoKitties is built by the same company that made NFTs, it differs from what happened with CryptoKitties. However, it demonstrates the basic premise that NFT "items" can be used as the basis for a game rather than being created just for one.

In addition to being an entire "metaverse," Otherside differs from the early, small-scale CryptoKitties add-ons. Such virtual worlds have grown in popularity over the last four or five years, and blockchain gaming has taken on an entirely new meaning. Metaverses might provide a more streamlined, if less revolutionary, vision of NFT-based gaming, just as Otherside is more vertically integrated than KittyRaces.

The most important model for Charles Smith, CEO of Nifty Island, is the children's game Roblox, where a large world is filled with minigames, most created by users. Smith says Roblox is Roblox's first attempt at being the YouTube of gaming. A Roblox game can have more DAUs [daily active users] than most [big-budget game] titles at any time. There are still studios that act like old Hollywood, but the future is small developers who build narrow experiences in shared environments.

One controlling entity can determine how items behave in the real world and transfer between games, thus enabling a limited degree of interoperability. Games are being developed across various blockchain ecosystems, and technical interoperability on the back end is still somewhat hazy, so keeping things confined to one chain is likely more practical for now.

Al-Balaghi argues that having different experiences within one ecosystem will lead to more success in the short term. He said self-contained worlds are easier to make and easier to market, but if users push for them, they could become a platform for greater openness. Code must be changed for it to be interoperable. Can these semi-open systems be fully opened by their guardians?"

I heard the most precise roadmap to the future of interoperable gaming while reporting for this story. But it echoes an increasingly evident sentiment: making good games is the key. As of now, there are no blockchain games that have caught on with users, except for "play-to-earn" games that emphasize financial elements rather than gameplay.

A bear market may be a better environment for focusing on substance, exploring new NFT-based models, and attracting investors interested in more than simply watching numbers go up.