How NFTs Are Transforming Gaming & Why It Matters in 2024

Following-up on our research on the future of NFTs and gaming we invited Álvaro Martín, Studio Technical Director at Wildlife Studios, for an interview, to ask him what he thinks awaits studios in the upcoming years.

The material below was based on the video interview published on our YouTube channel:

NFTs are a hot topic recently. Before we dive deeper into why, could you briefly explain some of the basic concepts behind using NFTs in video games?

In the video game industry, we always had this kind of need for digital property. I remember playing Diablo, where you could sell and buy items from other players, or World of Warcraft. If you ever played WoW, you probably remember the whole mess around gold. Recently that need has grown even bigger, with free-to-play mobile games. But having no alternative way of trading in-game items, people often sell their entire accounts, which are linked to their email addresses.

We moved from paying 60-80€ for x hours of entertainment to paying more when we engage in free-to-play games. And yet we still don’t have digital ownership and all revenues go directly to the game publisher.

What we’re experiencing with blockchain is the real digital ownership of in-game assets like items or land. You can have this very unique item and make sure that there’s only one or five like this in the whole game.

Key takeaway: 

What we’re experiencing with blockchain is the real digital ownership of in-game assets like items or land.

So we will be able to play games and actually earn and own assets in the virtual worlds?

Currently there’s this madness with land prices on platforms like Decentraland or The Sandbox, where a piece of terrain can cost you millions of dollars. Back in the days, companies thought that they needed to be unique sellers that everyone needs to trust. Now we are passing through a model that gives people more freedom with what they do with their in-game assets. It’s much more profitable even than free-to-play, even though some companies still hesitate to embrace it and some players still don’t understand it.

I would say that we are moving past this trust issue. Gamers need to be able to decide where and how they spend their money. In the upcoming years, we are going to democratize the "gamer" as a regular job. But not like the esport people, with tons of money behind them, who can only earn some for a short period of time. It will be a daily job that everybody can join to earn money.

This is going to disrupt the whole market. We’re going to see new companies climbing the top while the big old dinosaurs that don’t want to adapt because they’re very comfortable with their current business model will see their revenue drop. This may happen in 5, 10, or 15 years, depending on the scale. The 80€ for a game model will still exist, as well as free-to-play. But I’m sure that the future of the market is play-to-earn.

Key takeaway:

In the upcoming years, we are going to democratize the "gamer" as a regular job.

Big companies like Ubisoft or Epic are already jumping in on NFTs.

What I believe they’re thinking is “Hey, there’s this new crazy thing called NFT, why don’t we use it as our new weapon, instead of building trust among gamers?”. I bet that’s not going to work, because if it’s not a game that’s based entirely on blockchain, people simply won’t trust them. What the players will see is yet another pay-to-win mechanic layered on top of a game that’s either broken or simply doesn’t give them any chance to benefit from playing it.

So far, the big companies are making tiny steps. The product people want to invest a tiny bit of money and reap crazy revenue. “Let’s adapt our games, but just a little bit, and let’s make it cheap!”. It’s not the proper way and I don’t think it’s going to work. They’re going to be cannibalized by experts and developers who are not afraid to base their games entirely on blockchain. But that’s just my guess.

Recently I engaged in a discussion about the NFT and I noticed that there are some concerns. People argue that digital markets have existed for a long time already – for example in Diablo, which you also mentioned. Why do we suddenly need NFTs, especially if they seem to be consuming more energy?

It’s a problem of trust. If you want to be able to do the same things that blockchain can do right now, that is invest your money into digital assets, you need to come up with your own Coinbase-like exchange service. Basically, you need to build your own blockchain and the cost of that is huge. Plus, the people need to trust you.

Many companies believe they can do all this trading inside. But they will need a payment platform, connection with bank accounts, and many other expensive things that blockchain has already solved. On top of that, in the past, many custom solutions were hacked, allowing people to steal other player’s tokens. So if you’re a game publisher who believes that blockchain is just a database and you don’t actually need it, then well, have fun. You need a lot of catching up to do, since blockchain has been around since 2009 and the first version of Bitcoin. Plus, what you’ll come up with will not be decentralized, which means that you will need to try really hard to make people trust your solutions.

I don’t trust big companies to hold my money. Many people don’t even trust banks aymore, let alone video game publishers, big or small. Their in-game practices haven’t been so great lately, to put it in a soft way, so I can’t really imagine what would happen if I put my money in their balance sheets or their own version of a bank.

A multi trillion-dollar industry, blockchain proved that people trust decentralized technology built in a good, mathematical way. I think the total market capital right now is around 2.3 trillion dollars. The technology works, so people trust it.

So is that the direction you see for game companies? Adapt to the infrastructure and the trust will come?

I think video game companies are going to have to deal with many different blockchains. It’s like when you buy servers on Amazon and put your trust in the technology and what not. They will need to trust a blockchain to provide a specific service, choosing from stuff like Avalanche, subnets, or parachains that allow you to build your own mini blockchain on top of the blockchain. With all the trust and technology the base layer provides, I don’t think they’re going to jump into creating a blockchain their own way. That would be a huge mistake in my opinion.

Speaking of trust, I recently received an interesting comment. I argued that NFTs are still in their experimental phase, where companies and users are trying to figure out the best way to implement the technology in a way that would benefit both the players and publishers. Some guy replied with: OK, but on the other hand, to me this looks like a giant Ponzi scheme.

That’s a very typical response. And sure, it’s not hard to imagine big companies that don’t want to fully embrace blockchain technology trying to use it as a Ponzi scheme, where they always win. But they’re going to fail.

The thing is, the intrinsic scam of a Ponzi scheme is that you enter your money and you can’t freely decide to take it out at any point. In order to do that, you need the scheme to continue: you need more people paying more money.

“People are going to do Ponzi schemes and really bad stuff to scam people” is an argument we see every day. But with developers being able to build a proper economy, that’s not going to happen. After all, it’s not only about the NFTs. At the end of the day, they are just a safety measure, a number to identify something that’s unique. If you build an economy that’s robust enough and not broken from the start, that thing will work. We know that because we have proof: Bitcoin. Nobody can argue that Bitcoin doesn’t work or that it’s a Ponzi scheme, and if they do, they’d better review their arguments. It’s important to understand the value Bitcoin brings.

Take Axie Infinity, for instance. I think its economy is completely broken because of the mechanics of the game. It’s not a Ponzi scheme, but it’s still a scheme where people can earn tokens in stupid ways and there’s a huge amount of tokens that are not really well supported by an intrinsic value. So in the end, you need tons of people buying in order to have a countermeasure for that liquidity you’re giving to players that don’t bring value to the in-game market themselves. But Axie Infinity is still a case of success we can learn from. After all, this was the first game that passed many technical challenges and proved to be really successful. In the future of gamification or whatever we want to call these crypto games, we should be very grateful for what the team behind this game managed to accomplish.

I understand when some people say “it might be a Ponzi”, or even more than a Ponzi – a snowball that, if not well balanced, will sooner or later explode. But again, intrinsically it is not a Ponzi scheme. You decide when you buy, you decide when you sell. You are free to do whatever you want the moment you make a decision.

So what you’re saying is that basically it's all about structuring the economy in the right way. And by understanding Bitcoin and using it as proof, it’s possible to recreate similar structures in games.

I think so. I will give you an example, but first we need to talk about how Bitcoin generates value.

So you have all these machines doing approval work. It’s pretty complex. Whenever I want to send you my Bitcoin, the machines are going to validate whether or not I have the assets and am a trusted person and not a scam. Whichever machine will “win” the block, it will add a specific ID to the transaction, then take Bitcoin from my wallet and move it to yours, with the network fee accounted for. Networks give miners extra rewards to incentivize them and allow them to pay their electricity bills and grow their business. The more miners, the more secure the network is. Transaction fees allow them to survive, because with the growing Bitcoin rate even small fees will gradually become very valuable.

In one of my game designs you have a land, which acts as a source of a dynamic value tied to a crypto currency. Your NFTs are the robots that harvest the land. They’re unique and can get very different, because you’re able to attach new tools which allow them to mine faster or defend themselves.

So the miners are like GPUs and the players are doing proof of work. Why? Because they spend money and invest their time and effort to manage and direct their mining units. The units themselves will get more valuable, depending for example on the amount of resources they are able to harvest. It’s a strong game mechanic that can be further built upon. For example, once you reach level 10, you will be able to attack other lands and can also be attacked by other players. So it’s better to have more people working with you on your terrain and create a guild to defend it and plan attacks. And that’s when the economic structure begins to grow. You can hire people, make agreements with players who work for you, outsource work, invest in new technology or manpower for your guild, allow other players to use your NFTs, etc. All that to compete on a free market, in a free world of the game.

The fundamental here is building your tokenomics, which is like the economy that comes before the game’s economy. In this example, the more the robots drive the supply and demand, the better the game’s economy. Without tokenomics, terrible things can happen, just like with Axie Infinity. When you see a project with 70% of token allocation owned directly by the developer, that doesn’t smell very well. Instead of applying monopolistic practices, developers need to keep in mind that it’s the players who generate the liquidity for the game – by mining a token or trading it, so the token’s value goes up. Through exciting and engaging game mechanics, you’re able to take that liquidity from the players.

Key takeaway:

NFTs will allow players to build a virtual economy, where they will be able to attack other players and their lands to win additional resources. This will become the basis for hiring real people to defend and grow the virtual wealth of guilds'.

Here’s another concern: won’t the drive for profit kill the fun?

OK, so we have all the difficult topics. I don’t think that monetizing incentives will take the fun away. Let me give you an example that everyone should understand.

Think of your favourite game, be it World of Warcraft, Call of Duty, whatever. Let’s imagine that people start to hate this game because suddenly it’s packed with pay-to-win mechanics. You might not see it, but most AAA games released today are pay-to-win and publishers even buy whole mobile game studios to master the monetization practices. Now let’s imagine you can just sell all your tokens. The price of that token would tank and the company behind it would be dead the next day.

You don’t have that power today. But soon you might, with blockchain. Players will be able to change games and sort of “vote” with their money for the most fun ones. Because once they stop playing, they will directly affect the revenue.

Good games with good fundamentals will be profitable for long years. Companies that will fail to make their games fun and engaging for their communities will quickly go bankrupt.

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