The gaming industry is one of the biggest growth sectors in recent decades, now estimated to be worth more than the movie and North American sports industries combined. However, adding blockchain, and particularly non-fungible tokens (NFTs) into the mix, has the potential to level up even this impressive growth. The gaming industry and its investors are now beginning to take notice of the vast opportunities to increase engagement, open up new revenue streams, and solve legacy problems with both blockchain and NFTs in gaming.

In the first half of 2021 alone, funding for blockchain in gaming reached nearly $500 million across 24 funding rounds. Forte, which raised $185 million, and Animoca Brands, which netted $89 million, were two notable winners.

Evidently, investors believe in the long-term potential of blockchain and NFTs in gaming. So what are the changes that we can expect to see as blockchain begins to transform the sector? Before we deep dive NFTs in gaming, let’s explore how blockchain technology as a whole can revolutionise the industry.

The Benefits of Blockchain in Gaming

Despite its impressive growth, traditional games have evolved with their own set of problems, many of which blockchain can effectively address. On the most fundamental level, blockchain networks are more resilient against attacks such as DDoS, which plague centralised game servers. Because the blockchain is operated by a distributed group of nodes, it’s far more difficult to penetrate.

Blockchains also increase trust and transparency between game operators and players, which is a significant issue in particular segments of the industry, such as casino gaming. The smart contracts that underpin a blockchain-based game are transparent and visible to everyone, as well as all the associated transactions. So a player of a blockchain-based game has no reason to question if there’s an unfair house edge working against them.

This transparency also extends to blockchain-based payment systems. When payments are automated via smart contracts, they can be settled faster, often in near real-time. Such systems offer significant value in segments such as e-sports, where players may often end up waiting for tournament organisers to distribute winnings, and there’s a lack of transparency around the money that changes hands.

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Furthermore, blockchain-based payment systems allow players to keep custody of their funds at all times and free up game operators from the responsibility of running accounts that hold significant value.

Blockchain also facilitates the “play-to-earn” model, popularised by crypto games such as Axie Infinity. In fact, this model has become a source of legitimate revenue to people in developing economies who found their livelihoods affected by the pandemic. It demonstrates how blockchain-based game developers are pioneering innovative concepts that can reach entirely new audiences.

A Gaming Multiverse

Taking the concept a step further, blockchain can help break down some of the walls that exist between centralised games. Currently, a gamer might have dozens of accounts for different games, holding different assets. They have no way of moving any of this value between the different games.

Cryptocurrency-based payment systems are one way to overcome this, as they would provide a common medium of exchange, allowing users to transfer value between their game accounts. However, the ultimate vision for blockchain and crypto-based gaming systems is the idea of the digital metaverse.

Still in its infancy, the metaverse is a digital universe akin to the centralised game, Second Life. One of the biggest projects pioneering this space is Decentraland, a decentralised virtual world where the MANA token is the currency. The imagination is the only limit when it comes to developing for the metaverse. Decentral Games, the developer of Decentraland, operates a virtual casino, for which it was hiring real croupiers earlier this year who could earn a salary paid in MANA. Sotheby’s has opened a virtual auction house, and even luxury brands are exploring ways they can offer high-end, digital attire to our metaverse avatars.

This brings us to the particular class of digital assets that’s about to blow up the world of gaming – NFTs. NFTs have been undergoing a surge of popularity in the digital art space this year, fueled by headlines about multi-million dollar sales and celebrity backing. However, in gaming, NFTs offer a unique set of possibilities.

How NFTs Power Up the Gaming Experience

Digital collectibles are one of the first and most obvious use cases for NFTs. In 2017, shortly after Ethereum released its ERC-721 non-fungible token standard, the craze for CryptoKitties, NFT-based collectible cartoon cats, blew up the crypto sphere and demonstrated Ethereum’s scalability challenges for the first time.

While digital collectibles such as CryptoPunks are now pulling in millions for the art sector, NFT-based collectible games are now also becoming more mainstream. One example is Doctor Who – Worlds Apart, a digital trading game based on the TV show and featuring artwork licensed by the BBC. Think Magic: The Gathering, but based on blockchain, so that the cards are indestructible, untamperable, and (provided the owner takes good care of their account credentials) cannot be lost or stolen. They’re also provably scarce and can’t be counterfeited.

Another use case is in-game assets – a huge segment for game studios. Epic, the company behind the game, was valued at $17.3 billion in 2020, up 15% from the year before. Epic generates a significant proportion of its revenue from the sale of in-game assets such as skins to its 350 million players worldwide.

Unlocking New Revenues from NFTs in Gaming

Offering in-game assets as NFTs could make them exponentially more valuable to gamers. Assets as NFTs provide the user with provable ownership and portability: they can move their assets to an external wallet and potentially even between different games. The additional factor of supply and demand on secondary marketplaces can create a compelling value proposition even for non-gamers who may be interested in trading in-game NFTs for profit.

While NFT-based art has tended to grab the headlines this year, NFTs for gaming have also been changing hands for some eye-popping sums. LAND NFTs, which represent virtual real estate in the Decentraland game, have sold for close to $1 million.

The Challenges with Bringing NFTs in Gaming to Life

Given the vast opportunities available to game studios, one may wonder why more of them aren’t diving into NFTs and blockchain with gusto. There are some instances where traditional game developers are making a foray. For example, Sony has licensed the blockchain-based RPG game Six Dragons for release on the Playstation 5, although it’s still currently in development.

Nevertheless, currently, the biggest titles in NFT gaming are crypto-native, with Axie Infinity, the clear leader of the pack. There are a few reasons why this may be the case. Firstly, it’s taken some time for scalable platforms to emerge that can match centralised servers for the ability to keep pace with the volume of transactions in a typical game.

However, perhaps a bigger challenge lies in the fact that most game developers aren’t experts in blockchain technology. Conversely, the typical smart contract programmer isn’t necessarily skilled in developing compelling games or the sophisticated front-end needed to compete with big titles. This is where a provider such as Protokol can help to bridge the gap. We work with game developers and studios – not just on building a blockchain solution for their portfolio but also help to flesh out a comprehensive strategy for including blockchain and NFTs in their games. We focus on ensuring that the blockchain strategy adds value to the developer, the gamer, and other stakeholders such as sponsors.

If you’re interested in finding out more about blockchain gaming use cases, NFTs for gaming, or exploring how NFTs could level up your digital collectibles or in-game assets; contact us today for an initial consultation.

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