Will NFT backlash stop the blockchain gaming boom?

Few players seem to want NFTs. But that might not be enough to stop blockchain gaming from going mainstream.

Illustration of a NFT coin in a bear trap
NFTs in particular, and the broader blockchain gaming movement of which they are a part, have elicited a rare level of polarization among players, developers and large game-makers.
Illustration: fairywong/DigitalVision Vectors/Getty Images; Protocol

The non-fungible token debate has moved from the art world to the gaming industry, and it’s morphed into an all-consuming fight about the future of entertainment and what role, if any, the crypto movement should play in the way video games make money.

From microtransactions to crunch culture, the video game industry is full of unsavory business practices that persist in spite of widespread backlash among the general gaming audience and near-constant denunciation from outspoken industry leaders and critics. That’s in part because such practices are often lucrative or steeped in industry norms that are difficult or costly to change.

But NFTs in particular, and the broader blockchain gaming movement of which they are a part, have elicited a rare level of polarization among players, developers and large game-makers. The crypto community is now crowding its way into gaming for its chance at making new fortunes out of well-funded blockchain gaming upstarts. But a central question now facing many in the industry is whether backlash against NFTs may help slow or halt more widespread adoption of blockchain technologies before they’re used to exploit or abuse unknowing consumers.

Or, like free-to-play and the microtransaction model it helped establish, will the financial momentum behind these ideas make them an inevitability — alongside all the scams and nickel-and-diming they might facilitate — for an industry dead set on finding new revenue streams and maximizing profit? As it stands, gaming NFT and blockchain startups attracted nearly $4 billion in funding last year and represent the most attractive investment category in the industry, according to investment firm Drake Star Partners. Big names in the industry — like the heads of Electronic Arts, Take-Two Interactive and Square Enix — have all come out as bullish proponents of combining crypto and gaming in opaque fashion.

“Yes, there are a number of popular NFT-based titles, including the most obvious example, Axie Infinity, but its success is not assured,” Craig Chapple, an industry analyst at game analytics firm Sensor Tower, told Protocol. “It’s one thing for major games publishers to explore blockchain; it’s another for the market to accept this en masse and for it to become a major new and successful segment in the industry.”

Chapple said the comparison to free-to-play is an apt one because the model faced similar scrutiny more than a decade ago, when mobile games were considered casual fare outside the core gaming audience. Nowadays, mobile is the largest and fastest-growing segment in the global games industry. The models that flourished on mobile have become the cornerstone of the biggest PC and console games on the planet, from Fortnite and Call of Duty to Valorant and Genshin Impact, while many of those same games have since expanded to mobile and treat smartphones as no different than any other platform.

“I remember the backlash to free-to-play games (in the West) well. It was a new business model that changed how games are designed and played — and the idea persisted that developers are trying to nickel-and-dime players and are focused entirely on generating maximum revenue out of players,” Chapple said. “Prior to this, it was accepted that consumers would pay up-front fees to gain access to the full experience, or at least pay a subscription for full access.”

While many developers abused the free-to-play model, including countless infamous incidents from major publishers like EA, Chapple said developers eventually figured out how to balance economic incentives with fair and engaging game design.

“Developers persisted because there were obvious positives and they were creating traction on both browser and mobile, making some of the most-loved games around the world, eventually creating fairer economies and refining the game design,” he said. “The market has spoken, clearly, that free-to-play is what consumers want on mobile, a trend that’s becoming ever-more-popular on PC too, though that has a more balanced market with room for premium titles.”

“I think there is good reason to be skeptical in certain areas, If you’re building it around just monetization,” said Mythical Games CEO John Linden, whose company operates a blockchain platform and its own game, Blankos Block Party, that allows players to own, buy and sell NFTs, in an interview with Protocol. “Fifteen years ago, you heard [about mobile], ‘These aren’t real games, these aren’t real players and not real game developers.’ Now it’s 70% of the industry.” But, Linden added, the early days of mobile were populated in part by people “trying to make any dollar they could,” and that “turned off a lot of gamers.”

The backlash among NFTs has taken a similar shape to the initial rejection of free-to-play and mobile. That’s due in part to genuine concerns over the industry’s history of exploitative monetization, but also a general oversaturation of both new startups and traditional game-makers giving the space the appearance of a gold rush filled with get-rich-quick schemes. Ubisoft’s entrance last month with Ghost Recon Breakpoint NFTs sparked impassioned criticism from fans and even some industry developers, who saw it as a shameless cash grab.

“Not only is this ethically dubious, but there's no practical reason to implement NFTs into your game. Certainly not for buying/trading ‘unique’ loot,” Harper Jay MacIntyre, community manager at Psychonauts creator Double Fine, wrote on Twitter in response to Ubisoft’s NFT launch. “It's a scam. The more people in our industry who are willing to say so publicly, consequences be damned, the better.”

Xbox chief Phil Spencer has also cast some doubt on the near-term future of NFTs too, saying they hold promise only if the industry can find real problems to solve instead of creating speculative markets designed primarily to enrich a small slice of participants.

“There's a near-term kind of hysteria around NFTs, which I think is as much driven by speculation as real end-user benefit. And so I'm just leery of that,” Spencer told Protocol last month. “In the long run, I think there is a real benefit to players to having open standards for digital entitlements, so that I don't have to buy the same content multiple times on different devices, so that I can gift the things that I own to different people.”

Spencer’s point about virtual assets and item trading is important, because those do seem to be among the more acceptable implementations of blockchain technology in gaming and an easy way for developers to dip their toes into crypto without building full-scale blockchain products or dabbling in more dubious markets like cryptocurrency trading.

Secondary markets for virtual items and in-game currency have long thrived, sometimes out in the open and with the blessing of the developer but often underground and against the online game in question’s terms of service. Still, as Vice reported this month, some gamers found themselves attracted to Ubisoft’s NFTs because they were free and seemed like a safe way to explore their curiosity of NFT cosmetics and whether there could be any financial benefit to owning them.

“We’re seeing a new generation of gamers. Gen Z gamers have grown up digitally and put a lot of value on their in-game items,” Linden said. “It’s important to the psychology of those players, that digital is as important as physical to them.”

“Hype around NFTs and success stories such as Axie Infinity mean many AAA publishers — and their shareholders — are striving to legitimize play-to-player trading. Results so far have been mixed,” wrote market research firm Newzoo in its 2022 trend report released earlier this week. “Players have been vocally against NFTs in games, as shown by the backlash to Ubisoft's Ghost Recon NFT announcement and S.T.A.L.K.E.R. 2 backtracking on NFTs due to player outrage.”

Still, ”despite these challenges and discontent among some players, the crypto scene is eager to get involved, many non-vocal gamers are likely unbothered by NFTs, and skin trading on Steam's CS:GO marketplace remains popular,” Newzoo continued. “What's more, results from our consumer insights suggest a strong desire for players to trade their in-game cosmetics, highlighting an opportunity.”

The use of in-game cosmetics and virtual assets from one game to another remains mostly a pipe dream, at the moment. And attempts to justify NFTs in gaming by pointing to future interoperability between games or opportunities to earn money off in-game items like one does on cryptocurrency speculation have resulted in harsh condemnations from seasoned game makers.

“Once again, you cannot take a ‘skin’ from one game, drop it into another, and expect good results — even if they were made in the same engine. The scales won’t match. The rigs won’t match. The LODs won’t match. The hitboxes won’t match. The shader budgets won’t match,” explained Riot Games developer Jules Glegg, who works on Valorant, in a widely shared Twitter thread from last weekend. “Solving these problems would require a much higher level of gameplay standardization across games, and bluntly — that’s a super hard sell. Dev teams are very [focused] on making their game the best it can be, and standardization sits in the way of that goal.”

“I think it’s important to remember that some of the examples we see now are not necessarily how NFTs will be borne out in games years from now, if indeed it does become more popular across the industry,” Chapple said. “There are a myriad of reasons for the negative reaction to NFTs. There’s a lot of fluff out there, opportunists looking to make money, implementations that don’t make much sense, etc. On the latter, I think there are some use cases that don’t need to be NFTs, where they mimic what the market already offers.”

Chapple added that, unlike free-to-play, NFTs right now aren’t offering players immediate benefits, like a new game they can download and play at no cost. And the promise of future earning potential around blockchain gaming and pay-to-earn titles like Axie Infinity are undercut by the current steep cost of entry. Just to play Axie Infinity, for instance, requires that you own one of the game's NFTs, which can cost hundreds to thousands of dollars.

That’s created a whole secondary market of so-called sponsorships, where well-off crypto stakeholders in more-developed countries are now providing the up-front cost of playing the game to lower-income players in the game’s primary markets, like the Philippines, for a cut of future earnings. These economic dynamics aren’t helping demystify NFTs and blockchain gaming, and in fact may be contributing to the general public consensus that such technologies are just schemes to enrich early adopters and crypto enthusiasts off the backs of the less fortunate.

“I don’t think consumers widely see the actual benefits of NFTs in general or to games. There needs to be more proven, fun titles where NFTs enhance the experience and prove their worth to players.” Chapple said. “To reach critical mass, these games ultimately have to be fun and worth playing, representing good value to users in a sector where they face competition from other types of gaming.”

“This is not a get-rich-quick mechanism because it won’t feel good or genuine,” Linden said. “But when you have authenticity and when you have value creation plus authenticity, it’s a really cool experience.” Those who crack that code, Linden said, will find that five to 10 years from now, they’ll have more loyal player bases than any game does today.

A visitor plays a game using Microsoft's Xbox controller at a flagship store of SK Telecom in Seoul on November 10, 2020. (Photo by Jung Yeon-je / AFP) (Photo by JUNG YEON-JE/AFP via Getty Images)

On this episode of the Source Code podcast: Nick Statt joins the show to discuss Microsoft’s $68.7 billion acquisition of Activision Blizzard, and what it means for the tech and game industries. Then, Issie Lapowsky talks about a big week in antitrust reform, and whether real progress is being made in the U.S. Finally, Hirsh Chitkara explains why AT&T, Verizon, the FAA and airlines have been fighting for months about 5G coverage.

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