Tokenomics powering Video Games: NFTs and utility tokens

Videogame

Introduction

The videogames industry has grown at a rapid pace since the first consoles were introduced. With the spread of broadband communication and smartphones, there has been a further evolution towards the use of gaming platforms, which do not require the purchase of specific hardware and allow to play with other players in the global community. Videogaming has thus become a social activity just like sports practised in gyms or on courts.
The market size for the video games industry was $165 billion in 2020, half of which generated by mobile device users.
A recent evolution in the world of videogames is to rely on a decentralised ecosystem in which Non Fungible Tokens (NFT) are playing an increasingly important role.
NFTs, which are used to create scarcity and uniqueness in the digital world, represent a digital property on a blockchain and are not interchangeable. Following their success in the artistic field, video game developers are investing in them to create more innovative business models: NFTs can increase the monetisation of video games and at the same time transform gaming attitudes.

How can Tokens enhance video games compared to traditional video games?

In traditional games, companies develop certain rules and features of the video game that cannot be changed by the players but only by the creators. Characters and other in-game objects are also not modifiable and virtual assets can be inflated or devalued due to unlimited distribution by the producers. Moreover, the owner of the platform has control over user data and assets. On the contrary, in blockchain-based video games, control by the producers shifts equally into the hands of all players, being a decentralised system: the rules of the game are open and recorded in smart contracts and cannot be changed by anyone. In addition, NFTs on the platform offer users the possibility to acquire ownership over their assets and eventually resell or distribute them at will. In fact, game accounts and virtual assets are to all intents and purposes player assets that can be exploited as they wish. The value of virtual assets can also be preserved by setting a limited number of them through the use of smart contracts, which also guarantees the authenticity of non-counterfeit assets.
Typically, each asset is represented by a unique and non-fungible token, such as ERC-721 tokens.

NFTs as a representation of video games elements

NFTs in the gaming world become a key element of the videogame and take the form of game tools such as cards, weapons, objects in general. For example, The Sandbox, one of the video games based on Ethereum’s blockchain, allows players to buy digital lands and populate it with buildings and objects, built as NFTs. The non-fungible tokens can be built by the players themselves, who can then sell them in the marketplace or integrate them into the game. To buy Land and NFTs, the token from The Sandbox, SAND, must be used. Similarly, in Alien Worlds one’s avatar can obtain NFTs in the form of lands and defend them with weapons by purchasing everything using the Trilium Token (TLM).
Finally, in the context of sports, Sorare reinvents fantasy football by combining it with blockchain technology: users can buy players represented by NFTs in the form of limited edition cards in order to participate in weekly tournaments based on matches played in real leagues.
In general, the e-sports world has been receptive to this type of technology: the sale of video moments of the victory of e-sports teams or individual gamers allows those who buy them to feel like owners of a piece of history. This is in line with the phenomenon that is occurring in mainstream sports: a video of LeBron James was sold for $208,000 and NBA moments for about 370 million dollars have been purchased so far on NBA Top Shot.

Tokens and the growth of the video game business

Many start-ups and projects in the field of video games could be developed thanks to the possibility of finding large amounts of funding through crowdsourcing platforms, such as Indiegogo or Kickstarter. The enterpreneur have often sold utility tokens in exchange for funding, tokens to be used in the games once available. This led to the possibility of getting the project off the ground but also to the fact that they already had a number of customers before the game was actually on the market.
With NFT, further sources of funding could be found by selling in advance unique items of the upcoming game.
Contributing to the growth of the video game business is also the ease with which transactions can be carried out on a blockchain. This has enabled the emergence of a market of in game-related assets that has essentially created new gaming-related professions, such as the content creator who produces and sells game assets to producers or players via NFTs.
Then there are the so-called pro-gamers, the ‘champions’ of E-sports who earn huge sums of money, even over a million dollars a year, and help to attract new fans and thus players that make the gaming business grow.

Conclusions

For young generations gaming is a very popular activity, comparable to a sport activity. This is due both to technological developments that have made it possible to create high quality video games that can be enjoyed simply by having a smartphone, and to the fact that gaming has become a social activity.
The consequence of this has been the rapid growth of a market in which blockchain has also found its place, to the extent that special blockchains have been developed such as WAX, Immutable and Enjin.
On top of this infrastructure, NFTs have been added, which enrich gaming in various ways and allow for the emergence of new professions and business models that will induce further growth of the gaming industry in the coming years.
Currently the portion of blockchain-based video games is still limited, but should the underlying business models prove successful, it will inevitably trigger a steady growth trend.

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