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Valve stirred the hornet’s nest around blockchain games when it announced a ban on games with nonfungible tokens (NFTs). We discussed the controversy around the new tech and business models of blockchain games in the opening session at our GamesBeat Summit Next event.
Our discussion included Chris LoVerme, CEO of SpacePirate Games, and Witek Radomski, chief technology officer at Enjin, one of the first companies that built an NFT platform. (We invited Valve to participate but got no answer.) Radomski said the company’s goal is to make blockchain easy to use and accessible for game developers and players. Enjin’s Efinity is a cross-chain network built for NFTs, and it has a $100 million fund to support metaverse NFT projects for Efinity on the Polkadot blockchain.
If you don’t know what that is, that’s one of the obstacles to mainstream blockchain games. NFTs, cryptocurrency, and blockchain games have been tough to understand for developers, and consumers often have no clue how to use things like cryptocurrency wallets. NFTs use the transparency and security of the digital ledger of blockchain to authenticate one-of-a-kind digital items, and that makes it easy to create rare collectible items in games and new business models around that rarity.
The NFT boom
After years in the wilderness, NFTs exploded into popularity. If you look at Google Trends, you’ll see that NFTs started picking up in February and skyrocketed after related NFT sales like digital art and NBA Top Shot took off. Dapper Labs has now seen sales and resales of those NFTs top $780 million. In March, an NFT digital collage by the artist Beeple sold at Christie’s for $69.3 million. It sounds so dumb. The popularity of NFTs have exposed some serious drawbacks too in numerous scams where people steal art and sell it as their own NFTs. NFT sales hit $1.2 billion in the first quarter, $1.3 billion in the second quarter, and a whopping $10.7 billion in the third quarter as games such as Axie Infinity took off.
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Last week, both Strauss Zelnick, CEO of Take-Two Interactive and Andrew Wilson, CEO of Electronic Arts, both responded to investor queries on analyst calls about NFTs. And they both said that NFTs represented an interesting new way to monetize digital collectibles in games, which players have enjoyed for many years.
While many NFT projects are still dismissed as scams or overhyped schemes to get rich quick, companies like SpacePirate Games and Enjin want to drive mass adoption of ownership in games through NFTs. They view NFTs as part of a broader movement dubbed Web 3, the decentralized internet, built around blockchain tech.
Pre-blockchain, players invested billions of dollars into digital items in other online games without a tangible way to benefit from it beyond occasional gameplay advantages; content remains locked behind their account because their purchase is really just a lease or licensing agreement, with no capability to transfer or sell. And while other secondary marketplaces have existed in the form of gray markets and black markets, players who participate are exposed to unsafe transactions, scams, and even the threat of losing their accounts for terms of service violations.
Blockchain games — particularly those like Axie Infinity where players can buy unique NFT characters, level them up, and sell them to other players — have soared in value alongside crytocurrencies like Bitcoin and NFT art during 2021. And a whole movement, dubbed “play-to-earn,” has risen around such games and their potential to enable people to earn a living by playing games. That’s because NFT resales can easily be tracked and credited to either the original creators or the owners themselves. Under this sharing of revenues, players and game developers can get a larger share of game item sales.
Blockchain games are relatively new, and the use of NFTs within games opens up interesting possibilities for users to interact and collaborate. They also have the potential to make games more decentralized, democratic, and player focused, the group said. Just generally, the coalition said it didn’t think that a platform like Steam should be using gatekeeper power to crack down on an entire category of exciting new games.
Getting back to Valve, the company’s Steam digital distribution service told LoVerme that his Age of Rust game would not be allowed, alongside other NFT games, on its platform because of concerns around the “real world value” of NFT items.
Fight for the Future, a group formed by Enjin, The Blockchain Game Alliance, and 26 blockchain game studios, sent an open letter calling on Valve to reverse the ban, partly because it serves Valve’s own interests of protecting its 30% share of purchases.
LoVerme said that he talked to Valve over a long period of time as the game was being developed, starting in 2019. At first, they seemed fine with it.
“I had a really good conversation with them,” he said. “They were very open with it.”
The game was approved. But as time went on, LoVerme had to explain the blockchain part multiple times.
“The same question would come up again,” he said. “We get these kinds of questions all the time in this space. It wasn’t a red flag.”
A couple of months ago, the conversation got more serious. Valve’s queries about the matter got more detailed and made it seem clear that it was concerned about the ramifications of gambling laws. The state of Washington in particular has more strict laws that can classify games as gambling if they offer real-world rewards in games.
Valve eventually came back and said that it would not allow NFT games on Steam, LoVerme said. Radomski objected that companies can use NFTs in games in a wide range of ways, not just those that could be classified as gambling. To close off the opportunity to all game design types just because one type might be classified as gambling is pretty shortsighted, he said.
“I truly think it has to do with competition with their Steam marketplace,” LoVerme said. “It’s about insulating themselves with their walled garden approach with the Steam marketplace and controlling their APIs and how games work with a centralized model for the games that they host.”
Many blockchain games are bypassing the platforms. Axie Infinity, for instance, is downloadable as a mobile game on the web and it isn’t on iOS or Android.
Radomski said the blanket ban was overly aggressive on a major game platform since developers have so many ways to build blockchain games.
“I don’t think the world understands exactly what blockchain games are yet,” Radomski said. “It would have been a better move to investigate games that are more like specific casino games or those that focus on the crypto aspect of it.”
Skill-based games, for instance, are not considered gambling 41 states in the U.S.
“We’ve seen many games with modding platforms and open APIs that grow so much bigger,” Radomski said. “We think Valve should work with game developers and see what the concerns are. We have seen the problem with mobile platforms as well with cryptocurrency. But I don’t think it is something they can fight for very long. There will be a huge influx of game developers wanting to use this technology.”
The key to coexisting is making the games useful for users, Radomski said.
“The education that goes with it is very important, as well as making sure that game developers create next-generation games with NFTs in them,” LoVerme said. “Those things need to make their way into triple-A games.”
Radomski said that we still have ways for the distribution platforms to share revenues with the game makers even in the decentralized games, if they’re distributed on those big platforms. Facebook, in particular, gets it in citing its interest in NFTs as it changed its name to Meta, he said.
“Facebook is absolutely doing the right thing here in floating this,” Radomski said.
Most people are viewing blockchain games as merely crypto-centric, as that is how many games have started out, Radomski said.
“This tech can be used in so many ways, from opening access, opening data, opening history,” he said. “You can weave it in with XR and AR, having actual collectible experiences. Imagine Pokemon Go with NFTs that you can get with your Pokemon. We haven’t even explored in the mainstream space what can be done.”
In other words, NFTs don’t have to be associated with crappy games or scammy games.
“We’ve spoken to a lot of triple-A companies, and a lot of it was about the uncertainty around the technology,” Radomski said. “We’re getting there. There are gameplay enhancements. We build these platforms around these games, it’s data everyone can see, it’s open source, the whole world can build around it. That makes the game so much more rich.”
To overcome this resistance, big game developers will probably just wait to see how the smaller games succeed with NFTs, Radomski said.
The tools so far haven’t been that helpful in that they’re not easy to use. It’s not easy for users to create wallets for cryptocurrency. People still see NFTs as tradeable items only.
One more point of contention is that Bitcoin and Ethereum transactions were slow and used a lot of computing power because they were based on “proof of work” systems. Instead, more of them are being built now on “proof of stake” systems that don’t use a lot of computing power. Sidechains are offloading the transactions so that they can do more transactions per second, and again reduce the computing load from transactions on the blockchain.
Perhaps the best thing about the ban by Valve is that it has drawn even more interest to NFTs, LoVerme said.
Ubisoft generated maps based on a blockchain database in its early experiments. LoVerme said his Age of Rust is an action-adventure puzzle game, and he thought it would be cool if you got something if you solved a puzzle. He thought of Bitcoin rewards, but it had high transaction fees. So he considered NFTs instead.
“What if we can take that outside of the game and make it something players can trade or use for other things or other games?” LoVerme said. “NFTs completely opened that universe.”
LoVerme suggests developers think about weaving it into the game (as Core Loop is thinking about) so that it adds value. The point of making the game is so it’s fun for players, he said.
“It’s like you have design, art, sound, and everything else and now you have NFTs on top of this,” LoVerme said. “You have something new to drive developers forward. Think about game design in a new way and make something new and fun for players.”
The triple-A game companies will take a “crawl, walk, run” approach to NFTs. They will have things like social items, collectibles, promotional items, and see how that plays out, Radomski said.
“We see connections between physical brands and sports and gaming,” Radomski said. “We’ll see player-crafted items, like Valve had with hat crafting in Team Fortress 2.”
It could also lead to stronger creator opportunities, he said.
“This is where it’s going to go,” LoVerme said. “I have no doubt in the future we will see more triple-A studios building platforms and titles based on blockchain and issuing NFTs.”
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