Digital technology always moves at a rapid pace. In just a few decades, the Internet, for example, has gone from a niche technology portal only used by enthusiasts to a massive digital space that everyone, all over the world, relies on daily.
And when it comes to digital technology and finance, the advances can often be hard to keep with. The world of stock trading changed dramatically when online investment tore down the old barriers. Now, with developments such as cryptocurrency and NFTs, more possibilities are opening up that take investment opportunities out of the hands of established financiers and let anyone have a chance to make some money and even have fun doing it. But this begs the question, “If cryptocurrency and NFTs can do this, what are they exactly?”
What Are NFTs (Non-Fungible Tokens)?
NFT stands for “non-fungible token.” But what does “fungible” mean? Fungible is the concept of an asset that can be exchanged for something equivalent and identical. If you have one dollar, you can easily swap that dollar for another dollar that someone owns. Or have that dollar broken down into four quarters or ten dimes.
So “non-fungible” means that an asset is exchanged which is not identical to what is being exchanged, even if the value may be equivalent. People have non-fungible transactions all the time, such as when purchasing a home or a car. While money can buy items, you can’t live in a dollar bill or drive it.
More precisely, “non-fungible” also means “unique.” So if you buy a piece of handmade jewelry that is one-of-a-kind, no one else on Earth will have that same piece of jewelry.
However, digital media is similar to print in that while an image is reproducible, special qualities or designations can be given to a particular piece that can’t be replicated.
For example, a famous artist can create a “limited edition” of printed artwork. One thousand prints can be made, numbered, signed, and certified. Only 1000 people can ever own this special limited edition. General consumers can own the cheap, retail copies of the famous print, but the true value is only held by the limited editions that have been verified as such.
NFTs do something similar but in the digital space. They are related to the cryptocurrency phenomenon in that they use “blockchains.” A “blockchain” is simply data widely spread across the Internet so that multiple systems can confirm it. If someone tells you that he has $25 in his wallet but doesn’t show it to you, you would be right to doubt him. But if multiple people can peek into the wallet to confirm or deny whether the money is present, everyone trusts this as a fact because of multiple forms of verification.
Blockchain is a similar concept in that a digital identifier is assigned to something, which can’t be counterfeited or lied about because multiple systems can confirm whether it is true or not. So what does this mean for an NFT? An NFT then is a piece of digital media, such as pixel art, with a unique digital ID assigned to it to verify that uniqueness and protect its monetary value. Regardless of copies made of it, those additional copies do not possess the token that makes the original NFT unique, and that is how it retains value.
How Do NFT Games Work?
Now that’s we’ve got the basics of what an NFT is, how does this apply to video games?
As already explained, NFTs are unique digital identifiers, so no two NFTs are the same, like snowflakes. When NFTs are applied to games, this takes the form of NFTs being assigned to different aspects or mechanics of a game, depending on the game’s design.
For example, some games create NFTs out of game items randomly generated as a reward or “loot” for a player accomplishing something, such as killing a monster. Other NFTs result from the player “creating” something assigned an NFT, such as a Pokemon-style game, where players breed new creatures. The creature that is produced gets an NFT.
Simply put, NFTs can be assigned to different aspects of gameplay. It’s just a matter of how the developers decide to implement NFTs within the context of the game they want to make. A monster breeding game will utilize NFTs in a very different way from a competitive multi-player game involving Player versus Player combat, for example.
The biggest difference between NFT games and traditional video games is that NFT games allow for transactions of goods—specifically tokens and NFTs—from the owner of the NFT to someone that would like to purchase it either for personal use or investment purposes. This is all handled through a “smart contract.”
A smart contract is a secure transactional software that verifies both the authenticity of an NFT and officially documents, verifies, and then encrypts for future verification the transfer of ownership of that NFT. Smart contracts ensure that legitimate NFTs are traded and recognized throughout the Ethereum network to protect value and ownership.
Several NFT games are already established earning out for players, such as Cryptokitties, one of the earliest success stories in NFT gaming, and Axie Infinity, one of the most popular current NFT games, or up and comers like Gods Unchained, which is rising in popularity.
What Are Play-To-Earn NFT Games?
One of the more popular ways to implement NFTs in games is the “play-to-earn” model. Typically, the opposite model, “pay-to-play,” is used, especially in a gambling situation. Participants must first present money before they are admitted into a game such as poker, or a betting situation, such as a horse race or even typical stock trading.
Play-to-earn, however, operates on a typical labor/salary model but more fun. In this case, players put in the time playing by whatever game mechanics are dictated by the game’s design. If they fulfill certain objectives, they may receive NFTs, but the provision of NFTs varies a lot depending on the type of game being played.
Axie Infinity is an excellent example of this. It’s a Pokemon-inspired game created by Vietnamese developers that have smoothly integrated NFTs into its gameplay loop. As with Pokemon, players collect creatures, breeding them into more powerful creatures and engaging in battles with their creations.
Unlike Pokemon, however, there are NFTs involved in different aspects of the game. A resource used to develop creatures, known as a “Smooth Love Potion” of SLP, is actually a token, or NFT. As a result, SLPs, awarded after winning a battle, can either be used to further develop or augment creatures be or sold to others that want them on a virtual marketplace controlled by Sky Mavis, the developers of Axie Infinity. There is another token, known as the AXS, which is much rarer. This is a specific reward granted to players who win all 19 “seasons” of the game. Unlike SLPs, which are tokens that are randomly generated all the time, in infinite amounts for players that win battles, AXS tokens have a finite amount of 270 million that can be awarded to players.
What Are In-Game NFTs?
Another way for NFT games to incentivize players is to assign NFTs to objects or items within the game itself. This design philosophy can be carried out in several ways. Virtual “real estate” such as a home or plot of land in-game can have an NFT and thus carry monetary value outside its usage in-game. This is actually an old practice of sorts in gaming terms.
Massively Multiplayer Online games, or MMOs, have had “in-game” economies for decades. In games like EverQuest or Star Wars Galaxies, players would often earn extremely rare loot or rewards that, if they didn’t want them, would sell for the in-game virtual currency, such as gold or credits. With NFTs, actual monetary value can be given to in-game items via cryptocurrency and blockchain systems. Cryptokitties is one of the earliest examples of this.
Similarly inspired by Pokemon, Cryptokitties is an early NFT game based in the Ethereum cryptocurrency ecosystem. Created by Canadian developer Dapper Labs, Cryptokitties is a simple game of breeding digital cats with different characteristics. The cats, however, have NFTs assigned to them, and so as desirability for specific traits and breeds increases, so does the value as these cats are traded digitally through smart contracts.
How Do NFTs Make Money For People?
There are a few ways that NFTs can help people make money. When transacted through their virtual marketplace, the game’s creators often “take a cut” of sales. Sky Mavis, creators of Axie Infinity, get 4.25% of total sales from every transaction on their marketplace.
However, individual NFT owners can make their money through direct sales. If a player earns a highly prized item in-game, they can sell that NFT. On the other hand, there’s also an investment and appreciation aspect, where earning or buying a rare, highly sought NFT and then holding onto it for some time can lead to an appreciation in value and a higher price when it eventually goes on sale.
Can You Lose Money Playing NFT Games?
Unfortunately, as with anything that involves money, there is always a risk of loss. This doesn’t mean that NFTs are a high-risk way of losing hard-earned money, but it is possible to do so. One of the most obvious ways is if the game itself loses popularity and no one plays it anymore.
A popular game will experience an equivalent rise in value of NFT in-game objects. But this value is only there as long as the game is popular. If few, or no people, care any longer about a game, then having a rare, in-game item subjectively worth a lot in the game loses that value since few people are now interested in making a purchase. Another way to lose money is due to incompatibility issues.
Ethereum is the most popular cryptocurrency and NFT system, and many virtual wallets accept it. However, not all wallets do, so if an NFT is sent to an incompatible wallet, that NFT is lost.
Can You Lose Your NFTs?
Yes, as with any system, nothing is perfect, and it is possible to lose your NFTs, not just the money or value behind them. One of the most common, unfortunately, is due to scams. Scammers can fool NFT owners into sending NFTs, and once the transaction is done, it can’t be undone.
A more unorthodox way is also completely legal, and, depending on circumstances, players must accept it. In some cases, NFTs can be legitimately lost as part of a game’s design. For example, if people are playing a trading card game, similar to Magic The Gathering, but with NFTs, the loser must accept this if a card is lost and belongs to the winning player.
Popular NFT Games
There are already several NFT games for people to choose from. Some of the most popular include:
Axie Infinity
Already mentioned here, Axie Infinity is for fans of the original Pokemon game. Players can collect creatures, breed them, and send them into battles. Tokens are awarded for winning matches and extremely rare tokens for winning entire tournaments.
Gods Unchained
For people that enjoy trading card battle games like Magic The Gathering, Gods Unchained is a free-to-play online version where the cards themselves have NFT value. This means that extremely rare, highly sought-after cards can be won, lost, and sold to others.
The Sandbox 3D
People enjoy building things, as clearly seen in the massive success of the virtual building game Minecraft. The Sandbox 3D uses a rarer form of graphical rendering known as “voxels” to allow participants to create their own items and objects. Of course, this being an NFT game means the objects created now have NFTs of their own, thus, the value that can be traded or purchased.
Alien Worlds
Games of commerce and colonization such as Civilization have always been popular. Alien Worlds takes that design philosophy and adds NFTs to it. This means that as players expand and establish their economies, they can trade NFTs with other players to boost their in-game economies or make money from them.