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Reality Check: What Is The Real State Of Blockchain And NFTs In Video Games?

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NFT proponents have made grand promises of carrying in-game items between titles, making money by playing, and selling digital goods. But what's the real story behind crypto in games?

When developer Bungie added the Forsaken expansion to Destiny 2, it also brought several new guns to its live-service experience. One of those weapons, a grenade launcher called The Mountaintop, upended Destiny 2's competitive landscape. It was devastating in fights and became a mainstay of many players' arsenals--and it was incredibly tough to earn, which made it feel like a significant power boost as well as a badge of honor to wield.

Two years later, Bungie "sunset" a number of older weapons by capping their stat levels. With lower stats, those guns couldn't compete in newer or higher-difficulty content, which effectively rendered them obsolete. The Mountaintop was among those sunset weapons, and for many, losing some of the best weapons in their arsenals, guns they'd poured hours of grinding and frustration into earning, was enough to make them abandon Destiny 2 forever. Though Bungie made the change for the health of the game, at least from its point of view, that choice still came at the expense of some of its most die-hard players, who had scraped and struggled to claim The Mountaintop. Something they felt was theirs was taken away. The frustration was enough to drive some players to quit Bungie's MMO shooter entirely.

This Destiny 2 scenario is emblematic of what cryptocurrency advocates point to when they push for the use of blockchain technology and NFTs, or non-fungible tokens, in video games. Lots of talk about integrating the blockchain with games amounts of lofty promises and claims about how the technology empowers players to "own" pieces of games and profit from them. Fundamentally, though, a big part of the appeal is that, in the world imagined by crypto gaming fans, your copy of The Mountaintop would be yours, and once you earned it, Bungie would never be able to change it or take it from you.

Destiny 2's The Mountaintop grenade launcher.
Destiny 2's The Mountaintop grenade launcher.

The idea goes further than just ownership, however. Crypto evangelists claim that integrating the video game industry with the blockchain wouldn't just allow you to own your in-game items, like a copy of The Mountaintop or a character skin in Fortnite, but to take them into other games. Like the JPG files that have NFTs attached to them on the internet, game assets can also be linked to NFTs, allowing players to "own" them outside of the context of a game itself. It's not too fundamentally different from the way video games operate today, with the ability to purchase in-game items with real money. The primary difference between traditional games and blockchain games is verification of ownership apart from the game platform.

One huge looming question about NFTs in games and the blockchain-integrated "play-to-earn" genre, however, is that of what's actually possible with the technology. NFT evangelists' suggestion that in-game items could move between games and other platforms is echoed by other crypto enthusiasts, but decried by traditional game developers as being a nightmare to actually implement. So what's the reality of NFTs in gaming? Will the future really see players moving their favorite skins from Valorant to Fortnite, Call of Duty, or Minecraft? Should you expect to earn your own copy of The Mountaintop and to keep it forever, regardless of what the developers who created it do with their game?

Like crypto, NFTs, and blockchain gaming, the answer is complicated--and often exaggerated.

What the hell's an NFT?

By now you might have a working understanding of NFTs, thanks to the concept being much discussed, but it can still be confusing. Essentially, non-fungible tokens are small amounts of code, and that code can do a variety of things. The code used for NFTs is referred to as a "smart contract," and the idea is that the code shows what the token holder owns and can potentially perform other functions. Some tokens might allow you access to voting rights on the future of a video game project created by the token maker. Other tokens might contain code that points a link to a piece of digital art, while using some of the code to give the creator of that art a royalty payment each time the token is sold to a new owner.

The code of a token's smart contract can be just about anything, although it's a relatively small amount of information, so the smart contract can't be as complex as, say, an app or a program you'd run on your smartphone or computer. Smart contracts have to stay small because they're stored on the blockchain, which is a big ledger that's copied on the computers of its various users so no single person has full control of it, and which keeps track of who owns what.

It's misleading to say that NFTs like those associated with, say, the Bored Ape Yacht Club, are JPGs. The tokens aren't actually the images themselves, but more akin to a receipt that says, "You own this specific JPG file." That weirdness of ownership has drawn a lot of criticism to the space; you might pay for an NFT that says you own your favorite meme, for instance, but that doesn't necessarily mean you have control over that meme, or can stop other people from downloading, sharing, or using the image. After all, what does it mean to own a meme? All you own is, essentially, a URL link to the image in a particular place and a receipt to go with it. There's a lot of debate what exactly you're purchasing when you buy an NFT, in fact, whether it's a particular JPG or just the link, whether you own any intellectual property rights to that JPG at all, whether you can use that JPG in other works like a cartoon, and so on. The possible confusion of just what an NFT is and what ownership of one signifies is important to keep in mind.

Meanwhile, the "non-fungible" part of NFT just means that that token is unique and can't be subdivided. That's unlike, say, a Bitcoin, which is identical to all other Bitcoins and is meant to serve as money, so it can be divided into fractions, just like a dollar is equivalent to 100 pennies. Tokens are meant to be a unique whole--when you buy a token, you own that token and can sell that token.

OpenSea is a marketplace where it's possible to buy and sell NFTs for cryptocurrency.
OpenSea is a marketplace where it's possible to buy and sell NFTs for cryptocurrency.

The big appeal of blockchains is that they're supposed to be decentralized; copies of the entire ledger exist on computers all over the world. As the logic goes, no one can hack and alter the ledger to change the information about who owns what, because the ledger exists in so many places at once, and whether an entry on it is real and correct is determined by the consensus of computers, or "nodes," on the chain reconciling their copies. Just how decentralized and safe blockchains are is also a matter of quite a bit of debate, since access to blockchains often runs through third-party crypto exchanges, but that's at least the ideal picture: No one is supposed to have complete authority over the blockchain because its veracity is determined by the consensus. The blockchain maintains the record that says "you own this" until you transfer that digital item to someone else, when the chain adds an entry to the ledger that now says "they own this." The hands through which an NFT or cryptocurrency passes can be tracked on the ledger, and so proof of ownership is meant to be "immutable."

The size of smart contracts are limited because the blockchain itself is a huge amount of data. It contains records of all the transactions taking place on that blockchain, as well as the code of all the smart contracts that are part of those transactions. The whole idea of the chain is that the entire ledger is copied in multiple places, but that also means that a huge amount of data is contained on the chain, so contracts can't be big and complex; the chain wouldn't be able to handle them.

NFTs might be a little strange as applied to digital images--what you're actually buying and what you actually own when you buy an NFT is, uh, not entirely clear. It's a bit easier to follow with video game assets, however. The idea here is mostly that the in-game item is more like a digital trading card with a smart contract that interacts with a game in a particular way, so having an NFT for a particular skin in Fortnite could potentially also use the same code for that skin to work in Valorant.

An NFT of a game asset is meant to be different from the way you purchase items like skins in traditional games today. When you buy a skin in Fortnite, that skin only exists within the framework of Fortnite. What's more, you don't really own it--it's more like you paid developer Epic Games for access to the skin for use within their game, and the record of you paying for that access is part of your Fortnite account, which Epic controls. You can't sell the skin to another player like a physical object that you own, for instance, because Epic makes the rules about what you can do with Fortnite skins. If Epic bans your account, you lose access to the skin, despite having paid for it. Were Fortnite to shut down, the skin would be lost forever, even though you paid for it, because it is part of Fortnite. And like with Destiny, if Epic changes the skin or disables it within the game, you're out of luck. Epic contains full control of the skin; you've just rented its use while playing.

The NFT proposition is that ownership of an in-game object exists outside of the game--the purchase and ownership of the item is no longer centralized with that game's publisher, but rather maintained on the blockchain, and therefore cannot be altered by that publisher. With an NFT, you're meant to be able to trade or sell an in-game item to another player if you want, because, again, your ownership of that item is maintained outside the developer's ecosystem; the code is contained in the smart contract, the smart contract is on the blockchain, and the blockchain allows you to sell things you own within it to others using the blockchain. And as some crypto fans like Linkin Park's Mike Shinoda keep suggesting, you could theoretically move that item between games, because the other games need only read the code contained on the smart contract.

Bringing your digital stuff with you

Is the idea of moving in-game objects between games even feasible, though? Many developers don't think so, for a variety of reasons ranging from technical limitations to legal entanglements and business incentives. As former Vlambeer developer Rami Ismail explained in a lengthy and useful thread on Twitter earlier this year, the mere fact that games use different engines, different lighting software, their own ad-hoc code created to solve problems that crop up during development, and even their own art styles creates barriers against moving a skin from Valorant to Fortnite--or anywhere else.

Sure, you can buy an NFT that says, "I own the Valorant assassin skin." But that doesn't mean that skin would even work in Fortnite, regardless of what code is contained in the smart contract.

The fact is that, today, it is nearly impossible to move in-game objects between games, except under specific circumstances in which the developers involved decide to play ball with one another. Take Fortnite and Valorant again--both games are wholly different, and even if you could somehow transfer a skin from one to the other, that would create a whole set of problems. A Valorant skin was made for Valorant, and works within that game. Fortnite is, essentially, an entirely different universe. Its characters are built differently, with different proportions and animations, and the code to do things like make cloth fall correctly with gravity or to keep skins from clipping through characters' bodies could be completely different from the code that handled those things in Valorant and worked with your assassin skin. And that's the tip of the iceberg of the technical issues at play.

You talk to any game designer and they're going to be horrified of the idea that they will have to design a system so that anybody can bring anything to it."

Technical limitations are, by and large, enough to sink the idea of open "interoperability," the concept of bringing elements from one game or platform into another. But there are also a vast number of gameplay issues that immediately arise when you start to think of moving items between games, as well.

"You talk to any game designer and they're going to be horrified of the idea that they will have to design a system so that anybody can bring anything to it," Ed Zobrist, adjunct professor at the University of Southern California and former head of publishing at Epic Games, said in an interview with GameSpot. "And let's take a practical reality: If I'd make a caveman game and someone brings a laser pistol, what am I supposed to do? They can't bring a laser pistol to my caveman game. So then it's like, Okay, do I say no laser pistols allowed? Well, one developer calls their laser pistol a 'Zapper Pistol.' Someone else calls their laser pistol 'Laser Pistol Ⅰ.' How do I really know what they're trying to bring into my game, or am I expected to vet every single item that every single person wants to try to bring into my game? It seems like a lot of work I'm being asked to do just so that their items can fit within my game."

As Zobrist noted, and as Ismail and other developers have as well, that level of interoperability requires agreement across the entire games industry.

"In the bad example I gave you, people [would need] a common set of norms that everything would translate into," Zobrist continued. "But that assumes all of us agree upon a common taxonomy, a set of values that would be applied to all of this. So there's just so many hurdles--not that it can't be done, not that it wouldn't be cool, just so many hurdles that we have to organize to get to that point, that I just don't see it as a near-term reality, in that sense."

As Zobrist explained, wide-scale interoperability is potentially possible, but it would require a lot of effort from the game's industry to create uniformity, where games and developers agree on what items are and how they work. That means that every time someone makes a new game, they classify their in-game items or weapons on that same taxonomy. Suppose you wanted to make a kind of gun that doesn't fall into the system of laser gun classifications, though? How would that work?

It also means that the agreed-upon rules about and technologies within games can't change much, because changing them has the potential to break all the items that use the current rules.

"The only way for this to happen is if everyone agrees to use the exact same technology and never change it," writes Adios and Paratropic developer GB Buford in a lengthy blog post about blockchain gaming. "If you’re doing this, you’re holding back innovation; you’re saying we can’t move from rasterization to ray tracing, or from pixels to polygons. The only way around this is to have to actually spend a ton of money recreating this stuff as technology advances, which is, again, why no one would ever want to do it."

Business roadblocks

Spider-Man was a major part of a recent Fortnite season.
Spider-Man was a major part of a recent Fortnite season.

There's one last major hurdle to keep in mind: the business side of the whole endeavor. Say you have an NFT of a Spider-Man skin in Fortnite and you want to use it in Valorant, supposing that all the technological limitations are sorted out to make that possible. Apart from you, the person who purchased the Spider-Man skin, there are three major players involved in that situation: Epic, which owns Fortnite; Riot, which owns Valorant; and Marvel, which owns Spider-Man. Each works to make money through its platform, and each makes money from the elements that it owns.

As the system exists now, Epic makes a deal with Marvel to license the use of Spider-Man in Fortnite. We don't necessarily know the details of how that deal works, but assume that either a.) Epic pays Marvel a license fee to use and sell Spider-Man skins, or b.) Epic and Marvel make an agreement to sell Spider-Man skins in Fortnite and split the revenue those sales generate. Either way, Epic and Marvel have made the deal on the skin where both make money; Marvel did not make a deal with Riot for use of its property in its game. It quickly becomes apparent what legal issues start to pop up as one company's property starts winding up in another company's property. What happens if Marvel doesn't want Spider-Man in Riot's game, or Marvel asks for money to pay for the association of Spider-Man with a Riot product?

There's also little incentive for Marvel or Epic to agree to allow their skins to show up in Valorant; Epic makes money from Fortnite (which itself benefits by including Spider-Man) and Marvel made a deal with Epic. Riot, on the other hand, makes nothing from Fortnite's Spider-Man skin appearing in its game. Riot wants to sell its Valorant skins, but players have no reason to buy from Riot if they've already purchased from Epic. There might be a system that makes economic sense for all these entities, but like the technical issues for making items work between games, there are a whole lot of economic and legal difficulties to deal with before even the beginnings of a system like that could be created.

With all that in mind, it actually just doesn't make a lot of sense to suggest the entire video games industry should embrace interoperability through the blockchain--and that's to say nothing of other issues related to the technology, such as its currently massive environmental impact (more on that later). Traditional video game companies and their products are mostly set up in a way that means they don't gain anything from interoperability on a large scale. It might be nice to really own your version of The Mountaintop grenade launcher in Destiny 2, but there's little reason for Bungie to allow it, and the drawbacks for the game, the developers, and the game ecosystem at large outweigh the benefits.

"I think when we're talking about these much larger games, they shelled out a ton of money to get to where they are, and then they built, essentially, a moat right around their games, like an entire ecosystem, with esports, with streamers, with Twitch, and all of that," Billy Huang, co-founder of Insomnia Labs, a web3 advertising and technology company Huang described as a "metaverse ad agency," told GameSpot. "But that is just upfront capital investment that they're recouping over time with these digital product sales. I actually don't think that it totally makes sense for Fortnite and companies like Epic Games to do this."

In most practical terms, the dream of a blockchain-enabled games industry where everything is interoperable seems both impossible and undesirable. Moving items between games requires homogenization in the industry, which in turn would stifle innovation and technological advances. It also logically leads to a lot of redundant work and myriad legal hangups, and it's just not clear in most cases what would be the benefit.

That conclusion belies the fact that there are a lot of developers in the blockchain space, however, and that they're making games. There is also a whole lot of venture capital money flooding the industry--crypto platform and decentralized application analytics company DappRadar reports that $2.5 billion in venture capital funding was committed to blockchain gaming in Q2 2022. Even with extreme recent volatility in the crypto markets, there are still a lot of companies in the space, expecting blockchain gaming to blow up eventually.

With these game companies, it's possible to see a version of the NFT interoperability idea that could make sense in the future. It's not quite the idyllic vision of leaping from one monster game to another while using your NFT skin in all of them, however.

A shared blockchain framework

Back in late 2021, Insomnia Labs teamed with basketball star Steph Curry and Under Armour to release the Genesis Curry Flow collection, a batch of just under 3,000 digital sneaker NFTs commemorating Curry breaking the NBA's 3-point scoring record. The digital tokens weren't just the usual JPG or GIF NFTs the space became known for, however; they were interoperable in-game items that token owners could carry between three "metaverse" games: Decentraland, The Sandbox, and Gala Games.

One example of the Genesis Curry Flow NFTs.
One example of the Genesis Curry Flow NFTs.

Those three games operate on the Ethereum blockchain, meaning they already have some commonalities that made interoperability possible. They have the same underlying architecture for verifying user tokens, for instance, which gets around one of the hurdles that would crop up in bringing the existing games industry to the blockchain: They all agree on which blockchain to use. But as noted, the three games in question are different, with their own technological and aesthetic underpinnings. So how do the Genesis Curry Flow NFTs work?

As Huang explained, the Curry sneaker NFT project got around the technical limitations by making not one version of the NFT asset that's carried between games, but four. When a player with the Curry token uses it in Decentraland, the token's smart contract code interacts with the game, calling up the Decentraland version of the NFT sneakers for that player's avatar to use. If they pop over to The Sandbox, the token calls up The Sandbox's version of the sneakers. Each game has its own style, tech, and assets, so each game has its own version of the Genesis Curry Flow sneaker skin. The code for all of those versions is stored in each token's smart contract.

For Insomnia Labs, the upshot of using the blockchain to make the Genesis Curry Flow digital sneakers was that the shared blockchain technology between the platforms eased the entire process. It took only about a month and a half to develop the NFT sneakers for all the games in which they'd appear, Huang said, because they were all ready to recognize the NFTs in their games. It's not that interoperable assets like these, with each game having its own dedicated version, aren't possible with existing tech in traditional games--they very much are. The shared infrastructure of the blockchain, however, made the interoperable assets between games more efficient to create.

"I think from a technical perspective, that's where it's most exciting, because we wrote the code one time, we put it on the blockchain, and then all we really needed to do was that partnership lift to get the different games to subscribe to our smart contract or NFT that lives on [the Polygon blockchain] and Ethereum," he said.

The idea of every game creating its own version of an NFT skin just to facilitate interoperability runs up against problems pretty quickly--again, why would Riot pay to make a Valorant version of a Fortnite skin it didn't sell? But in smaller-scale cases like this, with a few companies entering into a partnership together, NFTs and blockchain interoperability make sense, Huang said. The platforms and Under Armour all got a cut of the NFT sales--each sold for $333, with 100% of net revenue for Under Armour "donated to organizations that support access to sport," according to the NFT collection's website.

"I think where it actually does shift fundamentally is more of smaller- to medium-sized games who can leverage these cross-platform partnerships to gain users," Huang said. "And I think a lot of what we've done is being able to take, let's say a premium brand like Steph Curry, and then being able to port over many different games and they all get visibility and eyesight into the Steph Curry IP. And I think that's one of the value propositions that isn't really exactly financial, but then you also get part of the revenue split."

The different versions of the Genesis Curry Flow shoes that NFT owners could access in different Blockchain games.
The different versions of the Genesis Curry Flow shoes that NFT owners could access in different Blockchain games.

So it's possible to see use cases for the blockchain in certain games and in certain ways, and with some potential benefits. At the same time, it seems unlikely the tech is going to take the entire gaming world by storm--there's just not much benefit to upending the current way of doing things, and most things that can be done with the blockchain are already possible, and in some ways, handled more easily and efficiently.

For players, though, the idea of getting some control and value out of the time they spend playing can definitely be enticing. It's that line of thinking that has spawned the "play-to-earn" genre of games. This is the realm where evangelists make promises that playing games can be more than just fun; it can also be lucrative.

Playing to earn

While a lot of the discussion of NFTs in gaming is about a speculative future, there are already games making extensive use of crypto and tokens right now. Most make up the play-to-earn genre, which are games built on in-game assets that are NFTs. The idea here isn't that you transfer your assets between games, but that once you earn them in the game, you own them, and you're free to do what you want with them--including selling them to other players for real money.

A decent analog to the play-to-earn idea is the collectible card game Magic: The Gathering, at least in theory. To play Magic, you need to buy cards. Purchasing packs of cards allows you to build decks to play with, and because the cards are physical objects, you can trade them or sell them to other players. But you don't own the concept of the cards, the intellectual property behind them--just because you buy a Black Lotus doesn't mean you can reproduce its art on, say, a T-shirt and sell it. Wizards of the Coast, the company behind MTG, owns the IP; you're free to do what you want with the individual card you've bought, but that's as far as your rights go.

Blockchain games operate on a similar situation in video games. In Axie Infinity, a Pokemon-esque monster-battling game and the best known play-to-earn game on the market, the analog to MTG cards are Axies, the monsters you use to fight other players' monsters. Axies are NFTs you purchase from other players with cryptocurrency. As you play the game, you can breed more Axies from the ones you already have, and in theory, sell those, too.

Axie Infinity's gameplay mixes elements of Pokemon and card battlers.
Axie Infinity's gameplay mixes elements of Pokemon and card battlers.

The "earn" part of the play-to-earn in Axie Infinity's case is less about the Axies themselves, though, than an in-game cryptocurrency called Smooth Love Potion (SLP), which is necessary to breed Axies. Playing the game, both in "adventure mode," which you can do alone, or against other players in ranked battles, earns you SLP, which you can spend on your Axies to make new ones or sell to other players in the crypto marketplace just like any other cryptocurrency. It's through these sales that Axie Infinity became well-known even outside of the crypto gaming space--for a while, the crypto value of SLP was very high, and many players were earning SLP and selling it for cryptocurrency, then selling that cryptocurrency for its equivalent in government-issued, or "fiat," currency, like US dollars.

The trouble with Axie Infinity is that very few people seem to play the game for the sake of the game itself--they play it purely to make money, treating it as a job. That's actually in line with the mission developer Sky Mavis outlined in its whitepaper for the game, as detailed in video game research and consulting firm Naavik's October 2021 report about Axie Infinity's economy.

"What’s notable about Sky Mavis is that even though it clearly aims to develop a great game, that’s not its guiding mission," the report says. "The team’s mission is to 'introduce the magic of blockchain technology to billions of players,' while 'believing in a future where work and play become one... [and] in empowering players and giving them economic opportunities.'"

Sky Mavis has since made changes to the whitepaper and its mission, and now refers to the game as "play-and-earn" rather than "play-to-earn."

Gaming as work

Axie Infinity is indicative of a lot of the issues with play-to-earn overall. First, the buy-in to the game is enormous for new players because it requires purchasing NFT Axie monsters, which can cost the cryptocurrency equivalent of hundreds of dollars or more. In order to start earning anything, you need an initial investment to buy in. Axie Infinity gets around that issue with a system where players are euphemistically called "scholars," but they're really just employees of other players. One person buys Axie NFTs and then makes them available to other players, who play the game to earn SLP. Though the scholar is doing all the playing, the owner collects a cut of the SLP the player generates, so owning a big stable of Axies means lots of potential passive income in the game.

Barrier of entry is an issue in a lot of play-to-earn games, in fact. Many require you to buy NFTs in order to play them, or at least, in order to earn money within them. Axie Infinity recently added an early access free-to-play version of the game called Axie Infinity: Origin, which offers a PvE story mode to introduce players to its mechanics and, in theory, excite them to jump into the PvP earning side. It is not especially fun or polished, however; the draw of Axie Infinity is not the game itself, but the prospect of earning money.

To Huang, the barrier of entry problem is something that exists largely because of the addition of NFTs to games is relatively new, and that will decrease as more games come out and compete with each other.

"I hate to say that it depends on the game, but it does," he said. "If you have to pay a lot to get in, that game is probably not going to do well in the long term until [its developers] have simplified the barrier of entry for themselves, which is kind of what we're seeing. And I think as right now, with NFTs in gaming being more nascent and emerging, you have these higher price tags attached to them. But over time, as more games flood the ecosystem in the play-to-earn gaming ecosystem, I think that the price tag is going to drop significantly."

When games become jobs, they often struggle, as well. The same situation played out in traditional gaming with the release of Blizzard's Diablo 3 in 2012. That game launched with a feature called the "real-money auction house," where players could buy and sell in-game items to one another. The trouble with the auction house was that it broke what was fun about the game, which was earning better loot by playing. The prospect of selling items became the driving force behind playing Diablo 3 for many, while others felt that playing the game wasn't enough--the loot they earned was largely inferior to what they could purchase, which pushed them to either engage with the auction house or feel their experience was suffering for choosing not to. Eventually, Blizzard shut down the real-money auction house, which improved the health of Diablo 3 overall. The developer continues to support the game, with its most recent content season beginning in April.

The Diablo 3 real-money auction house infterface.
The Diablo 3 real-money auction house infterface.

In an interview with Ars Technica, the non-profit International Game Developer Association's interim director, Dr. Jakin Vela, called out "the ethical issues that come with NFTs." Vela said NFT-based games can struggle with creating a situation in which it's possible for richer participants to take advantage of poorer ones. There's no regulation in these spaces to protect players who are, essentially, employees, and that creates a situation rife for exploitation, he said.

"Somebody somewhere has to be enjoying it and if nobody's really enjoying it, and they're all just doing it for money, speculating that it's going to appreciate in value, well, to me, then you're managing a portfolio for a hedge fund. It's not a game, this is a sort of speculative investment vehicle," Zobrist said of play-to-earn games. "And from what I just described to you, if the only way you derive enjoyment from it is that 'my asset appreciated,' that means you must constantly be appreciating this asset. And if the only reason anybody else gets any enjoyment from it is that their assets are appreciating, that means you're on a treadmill, and it requires somebody new to come in, who never before did this and wants to appreciate their asset, therefore they will buy it off you and try to sell it higher. In that sort of realm, it strikes me that, well, that's a Ponzi scheme that eventually will collapse if that's all that's involved."

Naavik's report described that exact overall issue: Since few people play Axie Infinity for fun rather than profit, few people use up SLP just playing the game for fun and breeding Axies to become a better competitor. Scholars play purely to generate SLP, and that SLP is then put back into the market so the scholar players can earn money. Without anyone buying SLP just to play, it'll continue to flood the market, pushing down the SLP price until it becomes impossible to earn money by playing, and causing players to abandon the game.

Other forces were at work as well, but essentially, that's exactly what happened.


Zobrist said he thought that games focused solely on the idea of players earning money by playing them probably won't last. However, he noted the idea of games including elements that can give monetary value to players shouldn't be dismissed outright. He mentioned the earlier example of Magic: The Gathering, a game that has been going strong since 1993. While you could describe MTG as a pay-to-win game, where richer players can get an advantage over poorer players based on the ability to buy more cards and to purchase better, more expensive cards, Magic persists because it's such a fun game to play. Just as important as owning good cards is the skill involved with building a deck or executing a strategy within the game.

Video games can land in that space, too, Zobrist thinks, giving players the value of actual ownership of their in-game items, while maintaining enough fun that playing the game doesn't become work.

"I personally think that the psychology of ownership is what's driving this," he said. "In theory, a lot of what we're talking of doing, you could have done without a blockchain ledger or entry. But the existence of the blockchain is a reinforcement of my sense of ownership of this, and I think that's what's different, the psychology. Unlike if I were, say, in a massively multiplayer game and I had a bear pelt, I don't really feel like I own that bear pelt. ...Whereas I think the notion of games on the blockchain is that you own it, and then you can go take it somewhere else if someone else will accept it."

I think when I look at gaming, and specifically metaverse gaming, right now, I think what makes me the most interested is those creator economies."

As for upshots for game developers to create games in which players own their in-game assets, Zobrist likened the idea to the free-to-play model that has come to dominate portions of the video games industry, particularly the mobile sphere. With free-to-play games, Zobrist said, developers give away gameplay--something they'd normally charge for. That lowered the barrier of entry to games, bringing more players in, especially to games that are more social. The investment of giving gameplay away for free often leads to players spending more in free-to-play games than they otherwise would in a traditional game.

"I think a lot of these same kind of principles could apply to blockchain gaming, in the sense that there are all these ancillary factors involved that are largely psychological, that could lend you to have a bigger, better experience with blockchain games than you could without what they're offering," he said.

A lot of the blockchain space also includes games that encourage players to make in-game assets and items of their own and then sell them on the blockchain. It's in metaverse games like these, where players are hanging out and creating things, that Huang's co-founder at Insomnia Labs, Jack Cameron, said he thinks blockchain gaming has a lot of potential.

"I think when I look at gaming, and specifically metaverse gaming, right now, I think what makes me the most interested is those creator economies," Cameron said. "Going into Decentraland and actually understanding how to create an asset and the DAO (Decentralized Autonomous Organization) approval, and those people being a part of the decentralized organization and being paid directly from a Decentralized organization, and the self-perpetuating economy of creators, is super interesting and it's ever-growing. And so I think if games, especially games like The Sandbox and Decentraland, can continue to focus on building those creators out, I think they'll have a pretty successful economy and gaming platform in near two to three years."

A Bored Ape Yactch Club NFT.
A Bored Ape Yactch Club NFT.

A speculative bubble

The Genesis Curry Flow NFT collection suggests situations in which NFTs work for some games, and there are likely to be those where earning and owning items can be part of the gameplay appeal. The blockchain is, potentially, another way of solving some of the problems that crop up in making and playing games--and it might work for some games and game developers, and not others.

That's maybe an optimistic view of the technology to some degree. A lot of developers have logged their opposition to blockchain tech overall, and many treat the topic as odious. It's easy to see why; while there might be a version of blockchain games that develop in the future that work, much of the crypto and NFT space right now is a fraught, unruly mess.

Cryptocurrency has always been volatile, while never being especially useful. You can't actually really buy much with, say, Bitcoin or Ethereum. While the future might see a shift in which cryptocurrency becomes more widely accepted as a payment method, right now, that's not really the case. Slow transactions, high transaction fees, and massive volatility that can drastically change the value of a currency even before a transaction has been completed, mean that crypto isn't great for paying for things like a sandwich, a bus ride, or your rent.

Thus, since crypto can't provide value as actual currencies, the spaces have instead become a hotbed for financial speculation. People buy into crypto now, hoping that, sometime down the line, their cryptocurrency will increase in value. But that speculation relies on someone else wanting to buy that crypto at a higher price, and since it's tough to actually use crypto to buy things, the new crypto owner is essentially hoping that someone else will come along to buy the crypto at a still-higher price. Eventually, someone is left holding the bag when no new buyers materialize, and while some early adopters have apparently made huge amounts of money, right now, those gains always rely on having someone else to pay in.

We aren’t touching NFTs as the whole field is currently tangled up with an intractable mix of scams, interesting decentralized tech foundations, and scams."

The same has very much been true of NFTs. Though the NFT space garnered a great deal of media attention in 2021 because of monster NFT sales--many of them to buyers who have a stake in raising the cultural cache of cryptocurrency overall--the market was and is built on speculation. The NFT art market has cratered since its height in January, when it hit $12.6 billion in sales; in June, that number had fallen to $1 billion. That mostly seems to be because nobody buying NFTs was really buying NFTs; they were investing in NFTs in hopes of making money by selling them later. If nobody is actually buying NFTs simply to own them, eventually, someone gets stuck owning an NFT that nobody wants to buy. Case in point: An NFT of Twitter founder Jack Dorsey's first tweet sold for $2.9 million worth of Ethereum in March 2021. When it was relisted on NFT trading platform OpenSea a year later, the high bid on the NFT was for the crypto equivalent of a mere $9,968.

The speculative bubble also means that the NFT space has been infested with fraud, especially during its explosion in popularity last year. There's no shortage of stories of NFT holders having their tokens stolen in various ways, including through social engineering scams and by other tokens with smart contracts that contain malicious code. Sometimes, the creators of crypto products offer them to buyers, gather up all the money, and then just disappear, a scenario that even has its own colloquial name: a "rug-pull." That was the case with Squid Coin, a crypto product that used the popularity of the Netflix show Squid Game to garner attention and which allowed its creators to abscond with more than $3 million. And that's to say nothing of numerous cases in which artwork was stolen and sold as NFTs without the knowledge of the work's creator.

Games that use NFTs and rely on crypto tokens for their in-game economies are vulnerable to many of the exact same issues. Epic Games' founder and CEO Tim Sweeney put it pretty succinctly in a September 2021 tweet about whether the Epic Games Store would support blockchain games.

"We aren’t touching NFTs as the whole field is currently tangled up with an intractable mix of scams, interesting decentralized tech foundations, and scams," Sweeney wrote.

Crypto crash

Sky Mavis recently released a free-to-play version of Axie Infinity in early access, called Axie: Origin.
Sky Mavis recently released a free-to-play version of Axie Infinity in early access, called Axie: Origin.

Speculation is a huge part of what drove the popularity of Axie Infinity, driving the game to a $21.1 billion market capitalization in October 2021. Axie gained attention because it was full of players, mostly located in the Philippines, who were using it to make a living wage by selling the crypto tokens they earned from playing. The game was billed as lifting people in poor countries out of poverty by allowing them to earn more than their local minimum wages by playing a game. However, the majority of those players were the aforementioned scholars, who played with Axies owned by other people, generally from wealthier nations.

Fueled by market speculation in the NFT and crypto spaces at large, the prices for Axie Infinity tokens skyrocketed in 2021, bringing more attention to the game, which led to more players joining in a hope of making money, which inflated the token prices even more.

In the last few months, Axie Infinity's economy has tanked; the value of SLP, which had hit a level as high as the equivalent of $0.40 at the game's height, is valued at $0.0034 at the time of this writing, according to crypto exchange Coinbase. That means that some people who relied on the game as a job no longer can do so, and that others have lost significant amounts of money they invested into the Axie Infinity ecosystem.

What's more, immediately before the wider crypto economy took a nose-dive this summer, Sky Mavis's Ronin Bridge, its "side chain" attached to the Ethereum blockchain, was hacked, with the culprits stealing crypto tokens amounting to about $600 million in value at the time. That's just one example of hacks, heists, and stolen crypto in the space, though; software engineer Molly White compiles news stories critical of crypto for her Twitter account Web3 is Going Just Great, and there's no shortage of items detailing how people have lost money to the vulnerabilities in the space.

Gamers shouldn't have to think about the state of the crypto economy when they are gaming."

Beyond what's happening in specific games, the crypto market is currently in a deep downturn. Major cryptocurrencies such as Bitcoin and Ethereum have lost a huge amount of value. Bitcoin's price peaked at around $68,000 in November, but as Time reported in this week, it has recently dropped beneath $19,000. Though its price has been up and down throughout that period, Bitcoin has lost nearly 70% of its value in total. Meanwhile, Ethereum's price had been on the rise lately, climbing up to nearly $1,700, but Time reported this week that it's down to around $1,300. That's from its peak price of nearly $4,900 in November, a loss of more than 70%.

While the crypto and NFT markets have taken a big hit, the impact on blockchain games is lesser, according to a report from DappRadar. Major tokens have lost a huge amount of value--upward of 80% or 90%--but those loses haven't hurt trading. DappRadar reports that sales volume of gaming tokens has risen by 97% in Q2 2022.

"Just like when an economy's currency takes a hit, all sectors within that economy struggle. It is the same for crypto and its relationship with blockchain-based games," Cameron said in an email to GameSpot in July. "But I don’t think it's just the downturn in crypto that has hurt blockchain gaming. A handful of issues, such as security (which we saw with Axie), all the way to inability to deliver, as many blockchain games remain in beta.

"I think that if blockchains games aren't able to create a barrier between themselves and the crypto market, they will never be successful," he continued. "Gamers shouldn't have to think about the state of the crypto economy when they are gaming. That's why I think it's so important that blockchain and NFT tech be synonymous with [coding languages and other gaming technology such as] Python, JavaScript, Unity, etc. It's just the layer of technology that we are building on, rather than the defining factor of the game."

A wider impact

There's one last elephant in the room to discuss when it comes to blockchain games: their environmental impact. Blockchains are, in a word, terrible for the environment. The Bitcoin blockchain infamously uses so much energy each year that it's comparable to the electricity consumption of Argentina.

The reason for all that energy consumption is the way blockchains work. Most current blockchains use a system called "proof-of-work" in order to confirm new transactions on the ledger, which has the nodes on the chain competing to confirm the transaction by completing cryptographic math problems. The node that wins and confirms the transaction is random, so while all the nodes themselves are doing a small amount of processing, the vast majority of them are doing redundant processing, and wasting energy. That's the system working by design--it requires a lot of wasted effort, and wasted energy, in order to function and keep the blockchain secure. Games that use blockchains for buying, selling, and verifying their in-game items are contributing a large amount of that energy waste--52% of all blockchain activity is in gaming, according to DappRadar.

Electricity is mostly generated by the burning of fossil fuels, so blockchains are a major contributor to carbon emissions, and therefore climate change, with blockchain gaming making up the majority of that contribution. In July 2021, the IGDA issued a call to action encouraging developers not to use blockchain technology in their games for that reason.

That's the golden ratio, if you will, that I think the space is going to solve when ETH 2.0 comes out. ...it's going to be the critical turning point for gamers in general to want to support this type of architecture from an environmental perspective."

The IGDA calls on developers to stop using proof-of-work blockchain tech for creating new games because of its massive, redundant power consumption. Whenever possible, the IGDA says, developers should use existing database technology over blockchain technology to help keep down power requirements, and if you have to use blockchain tech, you should use "proof-of-stake" blockchains. The proof-of-stake tech eschews doing cryptographic math problems, and thus wastes processing power and energy, as part of the transaction verification process, in favor of the chain choosing nodes based on their "stake" of crypto tokens. It's an approach that has its own problems (for one, it favors wealthier users), but it eliminates much of the redundant work of verification for blockchain transactions, and thus greatly lowers energy costs.

While there are proof-of-stake alternatives such as Polygon and Solana, the most popular blockchains are proof-of-work. The Ethereum chain, on which many games, including Axie Infinity, are built, finally adopted a proof-of-stake model with the merge to Ethereum 2.0 just this month, the culmination of a years-long process. That move should have a substantial impact on the blockchain's power consumption in the future--according to crypto news site CoinDesk, the reduction in Ethereum's energy use could be more than 99%.

Huang said that, as blockchain tech advances and matures, he thinks the environmental impact will become less of a problem, especially with advancements such as Ethereum 2.0. Blockchain technology still needs to solve the "blockchain trilemma," a phrase coined by Ethereum founder Vitalik Buterin, Huang said; blockchains currently can offer security, decentralization, and speed, but only two of the three at a time. Part of that tradeoff, too, is the energy cost; the idyllic vision of decentralization, where nobody has full control of the chain, ends up requiring a lot of energy.

"That's the golden ratio, if you will, that I think the space is going to solve when ETH 2.0 comes out," he said. "So I think there's a lot of talk around just being able, from a layer-one blockchain perspective, to solve that, it's going to be the critical turning point for gamers in general to want to support this type of architecture from an environmental perspective."

Taking the gaming industry's temperature

GameStop recently went all-in on NFTs, launching a dedicated online marketplace for buying and selling them.
GameStop recently went all-in on NFTs, launching a dedicated online marketplace for buying and selling them.

The crypto market might have experienced a major crash of late, but that doesn't seem to have deterred evangelists in the space or blockchain game developers.

As for the wider and more traditional gaming industry, at best, developers generally don't seem interested in the technology. The Game Developers Conference surveyed 2,700 developers for its "State of the Game Industry 2022" report; 72% of respondents said their studios were not interested in cryptocurrency as a payment tool, and 70% said their studios were not interested in NFTs. (Conversely, about 27% said they were somewhat or very interested in crypto payment tools, and 28% said they were somewhat or very interested in NFTs.)

The biggest digital game sales platform in the industry, Valve's Steam, currently bars blockchain games from its service. "You have to separate the underlying technology versus which actors are utilizing that technology," Valve president Gabe Newell said in an interview with Rock Paper Shotgun, when asked about his view of the role of blockchain tech in the future of video games. "...The underlying technology of distributed ledgers, and the notion of digital ownership, and shared universes, are all pretty reasonable. The people in the space, though, tend to be involved in a lot of criminal activity and a lot of sketchy behaviors. So it's much more about the actors than it is about the underlying technology, or the rationale for what we're doing."

For its part, Epic Games' Tim Sweeney has said the company is open to blockchain games on its store, but as mentioned previously, Epic is also currently hands-off about the space because of its various issues with scams.

Longtime video game retailer GameStop has gone in a different direction, creating its own NFT marketplace. Already, however, there are allegations that NFTs are being sold on the marketplace without the consent of the creators of the original work.

As for players, many have reacted negatively to developers making pushes into the NFT space. Stalker 2 developer GSC Game World canceled NFT plans for the game after blowback from fans, and Worms developer Team17 also canceled plans for an NFT art project following a negative fan reaction. Developers have reacted just as intensely; following Team17's announcement, Aggro Crab, an indie developer that partnered with Team17 on its 2020 roguelike Going Under, released a statement condemning the NFT project.

"We believe NFTs cannot be environmentally friendly, or useful, and really are just an overall f--king grift," Aggro Crab's statement on Twitter reads.

Ghost Town Games, the developer behind Overcooked, which is published by Team17, issued its own statement that NFTs would never be included in its games, and wrote, "We don't support NFTs. We think they carry too great an environmental and social cost."

One of Ubisoft's Ghost Recon Breakpoint NFTs.
One of Ubisoft's Ghost Recon Breakpoint NFTs.

Following negative reactions to the prospect of adding NFTs to games, some developers and publishers have explicitly noted that upcoming releases will not include blockchain implementation. The newly announced PlayStation Stars loyalty program offers digital collectibles, but Sony has expressly noted that they are not NFTs and do not work with blockchain technology. Developer Mojang blocked NFT support in the massively popular Minecraft, saying NFTs were "inconsistent with the long-term joy and success of our players."

Still, several major gaming corporations have made overtures toward using blockchain technology and NFTs in games. In an open letter in January, Square Enix president and representative director Yosuke Matsuda expressed an eagerness to incorporate blockchain technology into future games, although he didn't mention any specific plans. Electronic Arts CEO Andrew Wilson said on an earnings call in November 2021 that he thought NFTs and play-to-earn will be "an important part" of the future of the games industry, although in February said EA is not "driving hard" on any NFT or blockchain projects. Take-Two Interactive's CEO, Strauss Zelnick, has also expressed optimism about NFTs and blockchain tech in games. In January, Konami released Castlevania NFTs on OpenSea for the series' 35th anniversary, although they were not integrated into any games.

Going furthest is Ubisoft, which is the only major game publisher to have actually implemented NFTs in its games. It launched its Ubisoft Quartz program in February, which allowed Ghost Recon Breakpoint players to purchase or earn NFTs that correspond to in-game items. The tokens, which Ubisoft calls Digits, were stored on a proof-of-stake blockchain, according to the company. Player reaction to the program was largely negative, and Quartz sales were low. Kotaku reported that Ubisoft developers are also not happy about the company's NFT push. Ubisoft discontinued the Quartz program in April and has since announced Project Q, an arena battler it noted would not include NFTs.

An uncertain future

In looking toward the future, Zobrist compared blockchain gaming to other major changes in the industry, like free-to-play games--another model that definitely has its major ethical issues and drawbacks, as well as positive implementations that have made some games not only possible, but massively popular.

"I think that there's a lot that has to be sorted out, but I think it does have potential," he said. "I have friends who are huge naysayers, 'It's never going to pan out.' I have friends who are probably too rosy in their estimates of how this is a brave new world and it's going to just change everything and disrupt everything. I've been through these moments--the closest example I can get to is the free-to-play revolution that happened in the last 10 to 15 years, and I would say that it didn't make console games die, it didn't make PC games die. What it did was, it just created a new way of playing with games, and if anything, it just expanded the audience of people that could participate in it. And it didn't kill other fun things, it just became another choice, another option. And that's great for all of us when there's more choice and more options in how you play, and also giving game creators a new way to think about games they could make and new techniques that they could take advantage of to increase the enjoyment of the game."

Months of research for this piece have turned up a great deal of elements to be skeptical about and wary of in blockchain technology and gaming--as well as things to outright reject. It's possible to be optimistic about some of the ideas related to blockchain games, but as Huang, Cameron, and Zobrist noted, in a lot of cases, the technology needs to advance further, and a lot of issues need to be sorted out, from environmental impact to consumer protections. In any event, the blockchain is not set to remake the video gaming landscape, and you do not need to hurry and invest in crypto to be ready for a new Web3 gaming future.

It would be nice to have my copy of The Mountaintop back, outside of Bungie's control, with the freedom to earn money for the time I invested in it by selling it to someone else. Right now, though, the pie-in-the-sky ideas about NFTs, play-to-earn, and blockchain gaming in general feel are just that.

Got a news tip or want to contact us directly? Email news@gamespot.com


Phil Hornshaw

Phil Hornshaw is a former senior writer at GameSpot and worked as a journalist for newspapers and websites for more than a decade, covering video games, technology, and entertainment for nearly that long. A freelancer before he joined the GameSpot team as an editor out of Los Angeles, his work appeared at Playboy, IGN, Kotaku, Complex, Polygon, TheWrap, Digital Trends, The Escapist, GameFront, and The Huffington Post. Outside the realm of games, he's the co-author of So You Created a Wormhole: The Time Traveler's Guide to Time Travel and The Space Hero's Guide to Glory. If he's not writing about video games, he's probably doing a deep dive into game lore.

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