Site icon Jacob Robinson

Why NFTs Don’t Work For Games

Crypto gaming and pay-to-earn is a classic case of people being ignorant to history and making the same age-old mistakes. Here’s why.

(tl;dr: Something something beanie babies)

Those of you who know me and read this blog know two things:

  1. I am not holistically anti-crypto. I have sizable stakes in Braintrust and Gitcoin and have often gushed about how crypto can solve problems related to grant-making, freelance work, etc. Hell, I am not even necessarily anti-NFT — while I deplore those ugly, glorified profile pictures with the same integrity as a late 2000s Newgrounds dress-up game, there are a lot of artists out in the NFT space who putting in honest, wonderful work (see Oreste Mercado’s photography or Daeho Cha’s Weirdo Witches series)
  2. I have always (meaning, pre-crypto) had a problem with play-to-earn games. While I don’t want to spoil this entire blog post right in the introduction, there are some reasons for which games fundamentally do not work as earning vehicles, at least in any serious aspect.

This article is not meant to be some inflamed polemic against NFTs in games — a lot of people have already done that. Rather, this is meant to be a somewhat boring, realistic, and (in some ways) depressing analysis on how gaming NFTs cannot work. I am not making moral arguments here, I am making technical ones.

With that in mind, let us begin.

Problems with Intersectionality

Gaming is cool because it provides an intersection between art and technology. It’s a relationship I’ve talked about before, but one of the caveats I had mentioned is that sometimes there are people who are too in the art side or too in the technical side and just don’t get it.

Anyone who has played games can immediately recognize that the future in which the above LinkedIn post describes fucking sucks. First of all, no one wants to spend two weeks grinding for “better weapons” — perhaps if you are a power user, but power users typically do not consist of more than 5% of a games total player base. Secondly, the balancing issues that would occur out of item cross-contamination on this scale would likely be astronomical, even assuming that all these games were made by the same developers (it seems like the implication is that it is the same chain but widely differing games). Funnily enough, the power users I had mentioned would likely only be interested in focusing on one specific game and not a menagerie of them.

A quick look at Nicolas Vereecke’s profile and, surprise, he has only ever worked in tech and investing and not in game development or other entertainment media (he also now has a profile picture of a black Cryptopunk character which I think is very funny). Mr. Vereecke’s ideal world exists only in his head — it fails in execution, likely because he does not know what users want, likely because he hasn’t actually played that many videogames in the first place.

Unsurprisingly, Vereecke’s post was absolutely lambasted all over gaming Twitter. But looking at things deeper, there’s a more fundamental, subtle issue with this post beyond power-gaming and balance-scaling.

People don’t want to make money playing games.

Yes, I know, all the hiveminders and junior business boys in the audience just recoiled. “What, people will actively decline a chance to make money???”, they ask themselves. Yes, not everyone is on that hustle grind, and games are especially in this category. This is because games are made specifically as escapist vehicles, — to relax and move away, however briefly, from the reality of paying the bills and working a 9-to-5. Creating an avenue where in many ways the goal of the game is to make money, or to otherwise grind for hours on end, comes into direct conflict with that idea.

Still, this only explains why NFTs might not work. It is not a strong enough argument for why NFTs cannot work. To explain the deeper issue at play, we need to first take a history lesson.

The (Sad) History of Play-To-Earn Games

Play-to-earn games, I can only imagine, have existed since the beginning of time. But the start of P2E as we define it today was primarily influenced by two games: Second Life and Entropia Universe.

(Side note: Yes, this next section is going to sound a lot like my Metaverse article. Keep reading as we’ll diverge on a few key points)

Second Life was the first true attempt at a Metaverse game. It involved virtual people, living virtual lives in virtual worlds — and, yes, that meant a virtual economy.

When Second Life was big (and, for a while, it was very big), its economy was thriving. Anshe Chung, the virtual character represented in the above BusinessWeek cover, was pulling in millions in crisp green dollars solely by buying and selling virtual land with no true physical equivalent (sound familiar?). Entropia Universe, a game with a similar premise that came out around a similar time, was also seeing high-powered deals during its heyday — including a space station for $330k and a night club for $635k. For a while, it was good to be a play-to-earner in the metaverse renaissance.

Then, the players stopped coming in.

It was around the turn of the decade, and a new generation of games was coming in. People were no longer interested in the Metaverse future, and besides that the engines on which these games were built were beginning to show their age. People began to trickle out, and the real estate prices fell. The Titans of Second Life once again found themselves needing full-time jobs, and the game deteriorated in popularity to the point of just being the occasional butt of a Youtuber’s joke. The P2E dream, as it stood, was dead.

Sure, there were other attempts in the meantime. Valve has experimented with the idea of P2E with its Steam marketplace, while Blizzard tried the disastrous auction house experiment. But the concept of play-to-earn in its original philosophy — of playing a game to earn real money — was never attempted on a full-scale again. Well, of course, until crypto happened. In the words of Mark Twain: History doesn’t repeat itself, it just rhymes.

But why exactly did the P2E market in Second Life fail? Certainly there are good reasons for the game falling in general popularity, but in the ideal P2E future even an obscure game can net a power user a hefty profit. It is here, my dear reader, that we get to the crux of the argument presented in our title — why NFTs don’t work for games.

Foundations of Economic Value

I had mentioned the idea of economic value somewhat offhandedly in my Metaverse article, but I did not go into it as the economy is really only a small segment of the Metaverse puzzle. VRChat, Roblox, and Meta currently do not have any virtual-to-real economic system in place, despite being Metaverse frontrunners. But now that we’re talking about P2E and NFTs, it’s time for the “economic value” keyword to come out in full force.

Economic value, a keystone in economic theory, is the value that defines a market’s existence. People buy and sell things that give them value in some way — make things easier for them, make them happier, etc. etc. For example, there is a market for computers because they are nifty little things that provide a lot of utility and entertainment for our daily lives — they provide economic value.

The best way to explain why gaming NFTs/P2E doesn’t have economic value is to start with things that do and slowly add on derivations until we can see why P2E is the major breaking point.

The games themselves, of course, have plenty of economic value — the ability to entertain, to inform, to teach, etc. etc., depending on the purpose the game serves. But, one might ask, what about experiences external to these games — primarily, livestreaming them or playing them as a sport?

Well, these two concepts provide pretty clear economic value as well, and a big reason why they do is because, if they are external to the game, then they do not rely on the game to function. In other words, people do not usually watch a livestreamer because they care about the game they’re playing — they watch a game because they care about the livestreamer. Similarly, esports typically revolve around genres of games rather than games themselves. Take the FGC, for instance — EVO tournaments are many mini-tournaments for many different fighting games. There are certainly big tournaments for individual games, but the idea is that a person who is skilled in League of Legends can easily, if needed, transfer their skills to DOTA 2. Or a Fortnite player to PUBG, CSGO player to Valorant, etc. etc. Thus the economic value comes from the external factor, NOT the game — it comes from the livestreamer’s ability to entertain, or the esports event’s ability to be engaging.

But what about internal derivations? For example, we can talk about a market for user-generated content, or UGC. Well, markets for UGC work to an extent. Within a game, people are willing to pay real money for a user-generated item (a developer-generated item (DLC) counts also) dependent on their enjoyment of the game. So yes, UGC does provide value as it may help someone enjoy the game better, but it is moreso dependent on that game’s own economic value. The technical name for this is a “complementary good”.

The initial success of Second Life’s play-to-earn system was marked by these complementary goods — more specifically, the real estate which was designed and bought (ironically this falls more under UGC than P2E, more on that later). When Second Life was very popular, this market boomed. But once its popularity dwindled, the market became almost nonexistent. So UGC provides economic value, but it’s fickle and oftentimes ethereal to boot.

And now we’ve reached play-to-earn.

The thing that differentiates UGC from play-to-earn is that UGC is taking concepts outside the game and making them internal, whereas play-to-earn is deriving value specifically from the game. Let me say that in English: an example of UGC is someone making a rigged model in Unity and selling it for use as a VRChat avatar, whereas an example of play-to-earn would be killing mobs in Entropia Universe, gaining credits, and then converting those credits to USD. You are literally playing to earn, not creating to earn as in the case with UGC.

The problem with this is that there is no value generated from playing a videogame. Nobody really needs you to kill those mobs, or craft those items, or grab that “Immaculate Orb of Brilliance”. You are not benefitting the world in any way by doing these things, beyond giving yourself some enjoyment in doing it. All it boils down to is the videogame developer itself giving you some incentive to keep playing, which can only keep going as long as the developer’s coffers are full.

Some would argue that illegitimate item farming — for example, in Diablo — is an argument against this idea. It’s why Blizzard tried that aforementioned “real money auction house” idea in the first place. But, of course, we know that failed. It failed because in practice there’s no real reason for me to buy someone else’s loot that I can just get myself, and especially so if I can just buy a level boost straight from the developer.

And then, of course, there’s the point that I made at the very beginning of all this: people don’t want to make money playing video games. Video games are meant to be fun, and if you’re playing them in order to work then it’s a job. Sure, you can create a job out of making stuff for games — livestreaming, esports, UGC, etc. — but not out of just playing them.

The NFT Angle

Now, I sense that some of you might be getting a little impatient, as I have been talking primarily about “play-to-earn” and not about NFTs, which are not inherently the same thing. The example which Vereecke originally gave does not necessarily have anything to do with making money playing a game, but rather just creating an interconnected ecosphere between many different games. What gives?

To be fair, NFTs, crypto, and play-to-earn are all separate concepts. They do not really have anything to do with one another, at least if you were to split them up into their separate definitions. However, my view is that when you do one of these for a game, you’re essentially doing all three.

Let’s go back to the Vereecke example. His business and investing background aside, there are hints within his post that seem to point to the idea of not just a crypto or NFT gaming future, but a pay-to-earn one as well. For example, that enthusiasm for grinding that I made fun of begins to make a lot more sense when there is a real, tangible value to the item at play. The value of an “Orb of Brilliance” likely doesn’t just come from the fact that it’s glorified preorder DLC — you could probably sell that in some sort of market, too.

Oh, speaking of preorder DLC, those are turning into NFTs also. The idea with Ubisoft and Square Enix’s NFT ideas (which, to be fair, at the time of writing are both in limbo) is that not only would they make profit on the initial sales, but then gain royalties on every sale after. That system doesn’t work unless there is some sort of concept of play-to-earn in place (or perhaps you could be bold and argue that this is “investing”). And so, if you have crypto and NFTs, and you put them into a game, you inevitably have a P2E system in one way or another.

Anyway, I’ve reached the end of my great lecture. If you disagree with me (or perhaps agree but would like to add some more wood to the fire), you can put it down in the comments so that people know about the other sides of this. The next post on here will be equally large but on only a tangentially similar topic. Sorry for the wordwalls, we should be back to short posts after that.

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