The resurrection of NFT games

What are NFT games?

Non-fungible tokens (NFTs) are no longer deemed a niche technology. It all started with digital art, but NFTs have expanded dramatically over the last couple of years. Millions of users have interacted with NFT technology through social media platforms, Web3 applications, popular brands and gaming. Some of the biggest brands and key figures within the gaming industry have been experimenting with NFT technology. 

An NFT game can be defined as a video game that utilises NFTs as a vital part of their gameplay and inner economy. NFTs represent unique digital assets on the blockchain and demonstrate in-game ownership of digital items.  

NFTs have come a long way since their inception. Now we have the ERC-721 token standard and semi-fungible tokens used in NFT gaming when in-game assets need to be modified. For example, such NFTs include weapons with limited uses or characters that obtain stats as in-game achievements are unlocked. 

To learn more about this novelty, we recommend reading our 'Explaining Dynamic NFTs: A look into the dynamic future' article.

NFT gaming can be considered as a game-changer within the general gaming industry. NFTs have many use cases, but they have been widely used in Web3 games due to allowing gamers to obtain true digital ownership over their in-game assets such as avatars, characters, weapons, potions and digital in-game currency.

How do NFT games work?

An NFT game differs from just holding crypto art or other collectibles in your crypto wallet.These games use tokens in their rules, mechanisms, and interactions between users. For example, an NFT can be your avatar or other items you bump into while playing the game.  

In its simplest form, users can trade NFTs with other users to gain profit. The Play-to-Earn (P2E) model enables other methods of generating income as well. 

To create NFT games, developers lay down smart contracts that make up the rules within the gaming environment for NFTs, and self-execute accordingly. 

For example, the famous crypto game known as CryptoKitties encompasses several main smart contracts that underline the entire gaming ecosystem. The geneScience smart contract is CryptoKitties’ well-known contract that established the random mechanics of creating new cats. 

NFT games differ from traditional video games due to the value of in-game items that can be carried outside the context of gaming. The P2E model enables users to generate a stable income stream through playing the game. It has been popular with users in low-income countries as a boost to their fixed income or earning alternative. 

Generally, a player is rewarded with gaming tokens and occasionally with NFTs; the longer they play, the more they earn. The token method is considered more stable as it can be earned through the play while NFT rewards are more based on chance.

Underlying economics

In the context of gaming, the economic model refers to the possibility to tokenize in-game assets such as characters or skins, providing players with true ownership over digital assets. Before the NFT world laid down a new economic model, decisions have been entirely based on management and not the players. Corporations benefited from revenue, and games solely from gameplay. The novel model provides an interaction between gaming companies and consumers.

Each NFT game provides many forms of earning gaming tokens. Players can trade them or convert them to cryptocurrency using crypto exchanges. NFT gaming utilises the economic features of blockchain technology by adding novel revenue streams to both gamers and developers. All of this opens a new market for digital collectibles. 

An NFT typically calculates its value based on how many users appreciate it; similar to the world of digital art. Similar to other economic transactions, gamers can get or lose money. For example, gaming NFTs could be drastically appreciated by a certain community. If that community declines over the years, the NFT’s market value could become zero.  

The NFT world, along with NFT gaming, is driven by the same market forces and conditions as in cryptocurrency exchanges, the stock market, or any other marketplace where value is determined based on the laws of supply and demand.  

It is important to understand the business and market dynamics of NFT gaming to take advantage of its upper-hands. For example, the scarcity of NFTs can lead to price manipulation, where gamers with more resources buy available gaming tokens and create a shortage which drives the price up.  

On the other hand, the potential impact of gaming tokens on in-game economies is vital. The use of NFTs can lead to the creation of a novel decentralised economy controlled by players, and a transparent gaming industry.

NFT games' demographics

Currently, the market in question is partly fragmented. Still, a few researches laid down interesting statistics that give an idea of the kind of people that are taking advantage of the NFT era. 

The age demographics stated that millennials are the most likely group to purchase NFTs. Regarding the new Gen Z population, it is challenging to find out the actual statistics; while most of them may be underage, nothing prevents them from purchasing NFTs. 

When it comes to genders, research conducted on the territory of the United States found out that more male respondents said they collected NFTs. The same survey demonstrated that e-sports fans were the most interested group in collecting NFTs.

Current shortcomings of NFT games

In theory, NFT gaming is a great idea. Supported by main perks of blockchain technology, NFT games have a potential to upgrade the whole gaming industry and provide a sustainable P2E model and new revenue streams for players.  

Taking into account that it is still in its early days; gaming projects may come along with a few flaws. Let’s check them out.

Hype and marketing on the NFT market

2021 was NFT’s year – from multi-million NFT art sales making headlines to being chosen as the word of the year by the Collins dictionary, the hype around NFT was breathtaking. Marketing took over, and the NFT market became a multi-billion dollar market in trading volume.  

As the consumers became different, and demanded more, NFTs needed a few extra utilities. NFTs soon became more than simple digital collectibles; gaming became one of its main use-cases. However, it all happened fast, and now we have several irregularities that stem from hype and rapid marketing tactics.

One scenario of losing money is when users and investors fall into hype cycles and purchase NFTs related to gaming out of fear of missing out. People are going through the hype phase because it is new, and they want to be the first to mint NFTs or obtain a particular NFT collection.

Retail investors typically have high expectations regarding novel gaming projects. Developers need to balance the high expectations of retail investors and their short-term needs while creating a project with long-term value. It is hard to create an economically stable project in a short amount of time.

Flawed tokenomics frequently plague NFT games, involving faulty reward loops or price crashes. An in-game economy may collapse if it isn’t carefully modelled to include sustainability and community ownership. 

If you're interested in learning more about the term tokenomics, why not read this article: 'What are tokenomics?'.

While marketing activities during the hype season made NFTs familiar to the general public, it has been stated a few times that teams fail to understand their products. For example, many gaming projects provide an efficient system of progression, but there is no inherent value tied to low-tier NFTs; common items are plentiful, but they don’t have real value.  

This occurrence has led several MMOs to fail; players advance through the game, and by obtaining superior equipment, they can skip a bunch of additional content. In this scenario, it eliminates the need to own low-tier NFTs.

Incomplete NFT integration and game development

If you scroll through the Internet, you may find claims that current NFT games are basic and shallow. Despite the hype, most projects are still in their early days, and the quality of the gameplay tends to be too basic for experienced gamers. For example, a shorter duration of repetitive gameplay makes it difficult for game developers to keep gamers engaged.  

Another problem is inconvenience; some games don’t have an integrated marketplace, asking users to buy NFTs from outside NFT marketplaces. This is a pain point that should be dealt with. Given that consistent game development and maintaining a prosperous in-game economy is a big challenge for developers, there is no rush for the P2E model, but creating interactive and engaging games in the future may remain a challenge for all projects within this market. 

When it comes to traditional video games, constant developments and updates bring exciting gameplay options. However, this is not the case with P2E and NFT games. Frequent updates can cause economic imbalances within the ecosystem due to the high costs of gaming tokens in the NFT game’s early stages. 

High barriers to entry

This has to be reduced in order to create long-term value for all the users and investors involved in the space. This might definitely take time, but projects have to take baby steps to reach a point where the Web3 games can be as easy-to-use or play as the normal games that are currently available. 

These days most NFT games are plagued with high onboarding costs that limit entry. For example, imagine telling your friend that you have purchased a starter set of NFTs to play Axie Infinity which costs hundreds of dollars. Many players cannot afford such an initial investment, along with the fact that their investment may be crucially decreased over a particular period of time. 

This is a high barrier to entry when compared to traditional computer games that are currently available on the gaming market. Additionally, transaction fees on blockchain platforms such as the Ethereum network remain high, so users need to take into consideration substantial gas fees to trade NFTs. 

Mainstream adoption is also limited because of the required technical knowledge to understand crypto storage options, volatility on the crypto market, and the P2E dynamics; most players just want to enjoy the game.

Raising the bar

While 2021 has been an extraordinary year for the NFT environment, the NFT market has experienced a few turbulent occurrences in 2023. In February 2023, total NFT sales reached a peak, amounting to $1.2 billion. The success was short-lived as the value declined steadily over the next few months.  

September 2023 was a bad month for NFTs as the sales dropped down to approximately $300 million which posed the lowest record since the 2021 bullish run. Come November, the market experienced a significant turnaround, springing life back into the NFT community. As for the market dynamics, an increase in the number of buyers compared to sellers suggested a change is on the horizon. 

A few critics have stated that NFTs in terms of gaming refer to a place where an explosion of innovation is predicted. Due to adding more to consumers’ passion, gaming may be just the right market opportunity for NFTs to prosper. After all, gaming and digital assets combined have earned enough attention so far, and more companies are joining the bandwagon.

What is Sony's patent about?

The well-known entertainment and gaming company Sony Interactive Entertainment has filed for a patent that would make NFTs smoothly transferable between divergent consoles and games. The patent would enable players of Sony products such as Playstation to have an interoperable Web3 gaming experience.  

Additionally, users would be able to transfer items between different devices such as tablets, computers, smartphones and Virtual Reality (VR) headsets. It has also been stated that tokens could be used cross-generationally; for example, from Playstation 4 to Playstation 5. 

The patent filing explains thoroughly how NFTs could be used in the esports context for tournaments and achievements, along with a novel function to prevent users from repeating tasks and earning the same tokens with divergent games or platforms. 

This is not the first time Sony has been making moves within the Web3 and NFT world. The company has already released motion-tracking wearables, and forged a partnership with blockchain networks to provide an incubation program for companies specialised in creating NFTs with real-world utility. 

However, Sony is not the only brand that aims to monetise on NFT games. Let’s check who else is out there.

Who is stepping in the world of NFT gaming?

Even though a part of the traditional gaming community has expressed their reservations concerning the integration of blockchain technology, Epic Games, the creator of the notorious Fortnite game, decided to give it a go. The company expressed a strong interest in the crypto gaming sector while separating it from its flagship products such as Fortnite. 

Additionally, the return of the games Gods Unchained and Striker Manager 2 with in-game items tied to the native cryptocurrency GOD and NFTs presented an important step in the direction of a more immersive gaming landscape. 

FIFA has been very progressive with its NFT integration; the NFT rollout started with several rare collectibles in the initial phase with many more to follow. When it comes to gaming, FIFA revealed a novel AI-controlled game featuring cartoonish characters; the game plans to integrate fully tradable NFTs and an in-house NFT marketplace. 

Nike has already entered the Metaverse in 2021, and in 2023 the famous brand announced the integration of its NFT platform Swoosh with EA Sports games, enabling virtual clothing and footwear to appear in games. The company referred to NFTs as ‘virtual creations’ that are going to unlock new business models and experiences for the esports community.

Are NFTs making a comeback?

It is claimed that the lack of real-world value has caused the NFT industry to experience a severe downfall which shrunk the industry by approximately two-thirds. Many game developers and industry experts believe that it happened due to driving up asset prices to gain short-term profits. 

Even though the NFT environment has experienced a few sharp declines, projections indicate growth with the market forecasted to reach $3.1 billion by 2027. The number of NFT users is forecasted to expand dramatically by the same date. 

Strategic partnerships between famous companies, brands, artists and communities assumed a significant role in extending NFT adoption, and enhancing long-term engagement and a stable business model.

The comeback is tightly connected to the gaming industry and it provides a real-world utility with the gaming skin market. These tokens have the potential to transform the gaming skin market as well as the entire digital assets’ market; the current model is based on the fact that digital assets are possessed by their issuers, and that is something that the NFT comeback is going to change.

NFT gaming is still in its early stage of development, and there is still a lot of progress that needs to be made in terms of economic stability and game-related capabilities. However, it is expected to become a long-term phenomenon and bring true digital ownership and revenue streams for users.  

Is Web3 the key to the resurrection of NFT gaming?

The Web3 gaming environment is still trying to find its place within the gaming industry; a few critics claim that Web3 games need a ‘wow’ moment to obtain mainstream adoption. 

Web3 is one of crypto's new frontier. If you're interested in gaining more insight, check out this article: 'Crypto's new frontiers'.

The third generation of the Internet brings to the table plenty of advantages, along with a more immersive gaming experience. Instead of saying that Web3 can resurrect NFT games, it is more accurate to state that their relationship is symbiotic.  

While Web3 can upgrade and enhance the development of NFT games, NFT gaming represents an important step toward the mainstream adoption of Web3 technologies. 

Immutably proven digital ownership, player-oriented economic models, and P2E mechanics present significant incentives for new users and the ultimate adoption of blockchain technology on a higher level.