How the Metaverse could change the game for NFT Gaming

One of the most enduring legends in the cryptocurrency industry is that Vitalik Buterin founded Ethereum because his warlock was nerfed.

"I enjoyed playing World of Warcraft between 2007 and 2010," Vitalik wrote in one version of the story. "But one day Blizzard removed the damage component from my beloved Warlock's Drain Life spell. I cried myself to sleep, and that day I realized what horrors centralized services can bring. I soon decided to quit."

This post is part of CoinDesk's Metaverse Week.

The story is a comprehensive allegory for the power of decentralization. If a game skill or item were an immutable blockchain token - what we would now call a non-fungible token (NFT) - a company like Blizzard Entertainment couldn't nerf or weaken your Siphon Life even if it wanted to. This suggests another possibility: since non-fungible tokens live on public blockchains, they can be read by any game software. If Siphon Life were an NFT that lived on a public blockchain, there's a possible future where it could be used not only in World of Warcraft, but also in Assassin's Creed or Uncharted or, who knows, Tetris.

Vitalik would have been about 16 at the time, and the story is more of a tongue-in-cheek joke ("I cried myself to sleep"?) than a serious design proposal. But it was taken quite literally by some, as a call for games to use immutable tokens to represent abilities or equipment. Several rough World of Warcraft equivalents proposed just that during the 2017-2018 Initial Coin Offering bubble, selling things like virtual swords and armor before they had even developed the game.

But the challenges to the "non-fungible item" framework are becoming clearer. Recent blockchain gaming projects like Ember Hearts and Mirandus have dropped the idea. Enthusiasm for the concept remains limited among blockchain gaming leaders, and there is little motive for traditional game studios to move toward interoperability. It seems increasingly unlikely that you'll be using the bow and arrow from Horizon: Zero Dawn in Counterstrike.

However, the advent of the "metaverse" concept has opened up new possibilities. Instead of NFT interoperability between games, pioneers increasingly see a bottom-up model where games emerge from NFT ecosystems: think races between CryptoKitties or platform-jumping Bored Apes.

So while Vitalik's Warlock may not be safe from the Nerf racket, NFT-based game assets could become something even stranger.

Why play on the blockchain?

"A week or two after Elden Ring came out, I got YouTube ads for rune marketplaces," said Carlos Perierra, an investor at Bitkraft Ventures. Runes are the currency of Elden Ring, a huge hit whose multiplayer features allow players to trade or sell items. But these are risky markets.

"You have to go into PVP (player-versus-player) mode, and the seller drops the runes for you," Perierra says, explaining the current convoluted process for buyers of Elden Ring runes. "This behavior has been around for a long time, but you have to go to the gray market, and that can be fraudulent. So why not try to make it more scalable and efficient?"

That's the most basic argument for blockchain's potential to track virtual items: items are already being bought and sold at a rapid pace, and in ways that often leave players exposed. The transfer of cosmetic items such as weapon "skins" between players is already a multi-billion dollar industry (yes, seriously), with much trading and speculation. This practice has emerged without the support of game developers, and only a few, such as Valve, have bothered to legitimize and shape the markets.

NFTs could make buying and selling cosmetics and other items much easier and safer for players, while helping developers get more of the value from their creations. Valve, which has allowed skin trading in games like Counterstrike: Global Offensive, generates tens of millions of dollars in revenue for itself and for independent skin designers.

However, Valve can control and promote this market primarily because it owns the ubiquitous Steam digital game marketplace. Items for other games are also sold through the portal, but Valve takes a hefty 30% cut of third-party sales. These fees are one reason that sellers of items for games like Elden Ring or World of Warcraft often use cumbersome, unofficial workarounds - methods that also leave players vulnerable to being scammed by dishonest sellers.

The problem of "paying to win "

At the same time, there's a

pretty good reason why these markets aren't official: While many players obviously love them, others vociferously reject them. Especially in multiplayer games, players often consider winning rare and powerful items a success, and see selling items for real money as a form of cheating that devalues their in-game achievements.

This is especially true for items that make a character more powerful or competitive: games that involve selling powerful items for real money are often derided as "pay to win." This is one reason why converting powerful game items into NFTs is not necessarily a slam dunk. This would make any game that adopts this model a "pay to win game".

Making skills or items immutable even within a single game is likely to be a failure for similar design reasons. Many games today have multiplayer elements, and character abilities often need to be adjusted to make competition fairer. While Vitalik was frustrated by losing his power as a teenager, toning down "siphon life" made it more fun for other players-and the success of World of Warcraft after Vitalik quit suggests that Blizzard got these and similar adjustments more or less right. (Sorry, Vitalik.)

Cross-platform portability would also present designers with balance and gameplay experience issues. An NFT is little more than a marker of ownership and would not define the actual utility of game items in a consistent way. For example, there is no reason why an NFT for a sword that is moderately powerful in one game could not be completely overpowered in another. "Even if we agree that we're totally okay with interoperability, it's very complicated when I open up the walled garden as a developer," Pereira says. "It then becomes much more difficult much faster."

There are also challenges at the graphical interface level. 3D visual assets for games can be created using a variety of design tools, such as Unreal or Unity. These tools have proprietary data formats that are tied to specific rendering engines," said Joel Dietz, CEO and founder of the MetaMetaverse platform. "It's not easy to make them work together." One goal of MetaMetaverse, Dietz said, is to enable that interoperability for assets across different engines.

Much of that complexity could be mitigated by sufficient industry coordination, such as developing standards for interoperability.

"This is the Holy Grail, this is the dream," said Ahmed Al-Balaghi, CEO and co-founder of Biconomy, which is developing infrastructure for blockchain gaming. "But who is going to create those standards?" The player with the most potential to lead this effort may have squandered its position: "Meta can't lead on standards," Al-Balaghi said of the giant formerly known as Facebook, "given all the criticism they've gotten."

The biggest problem, however, may be finding viable business models for NFT items that completely upend the way many game publishers make money. "From a business perspective, right now [traditional developers] are selling in-game items that people are happy to buy without expecting a reward. That could be a barrier to item tokenization and is a big reason Al-Balaghi says widespread interoperability of game items is "still a long way off."

But it's not clear that the incentives for some current Web 3 projects are much different. Many have spent the last year or two entering into brand partnerships with celebrities and contracts with designers. A major goal of these contracts is to attract users to a particular platform, so asset interoperability may not be attractive.

"Sandbox pays a lot of people to develop on Sandbox," Dietz said. "Even if the object worked elsewhere, they would certainly have defensive licensing to prevent that. That's a difficult thing to fight against when you're pushing the interoperability thing. "

Build BackwardsThe project

that has sparked the most discussion about NFTs that are in-game items is probably Loot, an NFT series launched in August 2021 by Dom Hoffman, who previously founded the video app Vine. Loot NFTs are extremely minimalist: they each consist of a list of adventuring gear like wands and capes. The idea of people paying thousands of dollars for these black-and-white blocks of text was met with incomprehension by the general public, not least because it happened amid a largely irrational NFT craze. And Loot prices have indeed fallen with the rest of the market.

But conceptually, Loot has to be counted among the most interesting NFT projects ever. As Hoffman tweeted at the time, Loot NFTs have "no pictures or stats" because they are "intentionally left out for others to interpret." The idea was that items could be created by a company and then the game would build on those items - a reversal of the usual process.

No game of note has yet emerged from the Loot experiment, and perhaps it is ultimately more of a statement of intent than a platform for games themselves. But the general idea proved compelling and practical long before the current NFT or Metaverse craze.

"The big aha moment for us at CryptoKitties was that within a couple of months we had 60 different apps building things for the Kitties," says Mik Naayem, chief business office at Dapper Labs. "Kitty hats, kitty races." That was in late 2017, when CryptoKitties became the first big NFT fad (so big that it broke Ethereum). The racing game Naayem refers to was KittyRace, a very simple, two-dimensional track where owners could race their Kitties. Naayem still sees that as a much stronger model for NFTs in games than simple tokenization of game items.

"The idea of taking something from World of Warcraft and putting it into Need for Speed is probably not going to happen," he said. "But the moment you have a large enough community around an item, game developers will start developing that item because there is an audience.

That's kind of what's happened with the most popular NFTs in recent years. In April, the creators of Bored Ape Yacht Club, Yuga Labs, announced a virtual environment called Otherside. Not only BAYCs, but also CryptoPunks, Meebits and other collections from Yuga will reportedly be able to be imported as playable avatars. This is different from what happened with CryptoKitties because the game is being developed by the same people who made the NFTs. But it demonstrates the basic premise that NFT "items" can serve as the basis for games, rather than being created for a game.

The fact that Otherside is a complete, immersive "metaverse" is also different from the early, small CryptoKitties add-ons. The rise of such virtual worlds in the last four or five years has significantly changed the conversation about blockchain gaming. And just as Otherside is more vertically integrated than KittyRaces, Metaversen could offer a more streamlined, if less radical, vision of NFT-based gaming.

For Charles Smith, CEO of Metaversum's Nifty Island project, the most important model is the children's game Roblox, in which a large world is populated with mini-games largely created by users.

"Roblox is the first attempt to become the YouTube of games," Smith says. "Individual games in Roblox have more DAUs [daily active users] at any given time than most [big-budget games] titles. The other studios are still acting like old Hollywood, [but] the future is definitely with small developers" building close experiences in a shared environment.

That would make limited interoperability fairly easy, since a controlling entity can set the parameters for how items work in the larger world and transfer between games. Another important factor is that games are being developed in a variety of blockchain ecosystems, and technical interoperability on the back end is still unknown, so limiting things to one chain is probably more practical at the moment.

"Having different experiences within one ecosystem will bring more success," Al-Balaghi said, at least in the short term. "It's easier to start up, it's easier to get to market," he said. But he said these self-contained worlds could become a platform for more openness if users push for it. "Developers need to be convinced to change the code to be interoperable. Do the custodians of these semi-open systems want to be fully open?"

That's the most specific roadmap for the future of interoperable games I've heard while covering this story. But it reflects a more general sentiment: while the theoretical possibilities of using blockchain assets for games are significant, developing good games is the real key. So far, no blockchain game has really caught on with users, aside from so-called "play-to-earn" games that focus on financial elements rather than gameplay.

The looming bear market might be a better environment to focus on substance, explore new NFT-based models, and attract players interested in more than just watching the numbers go up.

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