What are NFT Gaming and their Types and Pitfalls
The concept of “blockchain” first appeared in 2008, created by a developer behind the alias “Satoshi Nakamoto”. In short, a blockchain is a type of distributed append-only database. The first application of a blockchain was the creation of the Bitcoin cryptocurrency.
After almost 15 years, blockchains have evolved beyond the cryptocurrency world. Ethereum, in particular, is an extremely popular open-source blockchain that allows running what is called a “Smart Contract” (think about them as a business rule that automatically executes if conditions in the blockchain are met). Leveraging the power of Smart Contracts, developers began creating different forms of digital assets.
This article will focus on a particular type of digital asset: the Non-fungible Token (NFT), and how NFTs enrich the worldwide gaming scenario.
Why are NFTs used in video games?
Video games usually offer different types of items that a player can collect. It could be armor parts in a fighting or adventure game, a nice skin for a character, or an achievement trophy. NFTs can represent anything in-game with unique characteristics, including the player character. A video game where NFTs play a relevant role in representing items or other in-game assets is usually called an “NFT Game.”
Unlike cryptocurrency tokens (usually bought and held in a wallet), users in an NFT game will become in contact with NFTs when interacting with other players, the environment, or when advancing in the game. Regardless of the particulars of the digital asset, a player that gets an NFT will hold the certified token and a link to a public blockchain that proves the authenticity and connection to the said asset.
Different types of NFT games
This type of game rewards users based on how long they have been playing. Typically, play-to-earn games look to engage players continuously, and regularly. Users may be rewarded with both fungible and non-fungible tokens. A typical use of NFTs in a game with play-to-earn dynamics is item crafting; users play until they get a token that will allow them to craft a particular item to move forward in the game.
Given the unique nature of NFTs, they are often dropped to users based on chance, while regular (non-fungible) tokens are used to reward users that steadily play the game. Fungible tokens offered in this way are typically popular in low-income regions, where users attempt to boost their income by playing this type of game.
NFTs and fungible tokens represent in-game elements such as reward boxes, skins, armors, potions, and other everyday inventory items present in video games.
Usually, in-game tokens are collectible items that users can trade whether on in-game experiences like interacting with NPCs (non-playable characters) or outside the game in online marketplaces. The value of a particular item is usually determined by attributes like cosmetic appearance or how useful it is inside the game (think about a sword with more damage points or armor that gives the user invisibility).
As the video game industry and blockchain continue to intersect, newer NFT games offer a mix of earning and finding tokens in various ways.
Economics of an NFT game
Each NFT game offers a different way of earning or finding tokens. In turn, tokens can be traded or converted to cryptocurrency in online exchanges (which usually provide a path to convert them to fiat money – like USD). NFT games leverage the disruptive economic attributes of blockchain to add revenue generation models to both game developers and players.
In particular, an NFT value will depend on how many other users appreciate it, very much like a piece of art. Its value could vary significantly with time. Financial speculation could also play a role in this type of game.
As with any economic transaction, users can both win and lose money. For example, an NFT could be dramatically appreciated by a particular game community. Still, that community could decline over the years, and the same NFT value could become zero (nobody appreciates it anymore). Market forces play the same role in NFT games as in cryptocurrency exchanges, the stock market, and any free market scenario where prices are formed by supply and demand.
Common pitfalls of handling NFTs
NFTs are a form of cryptographic token, and that means users have to help them secure by adopting best practices and using the correct software (whether online or offline) to handle them.
As with any disruptive technology, the less tech-savvy users have a common fear of losing their tokens while trying to use them to interact with the blockchain (inside or outside an NFT game). Users must know that it is possible to lose a token forever if not properly handled.
Common pitfalls that could lead to losing a token could be:
- Being the victim of a scam: a malicious actor could lead users to send them tokens without paying or exchanging them for anything. The anonymous nature of blockchain technologies makes it almost impossible to revert this type of situation.
- Authorizing a malicious Smart Contract to access the user wallet: this is the blockchain equivalent to malware or viruses.
- Technology incompatibility between users transacting a particular token: different blockchain networks exist, and not all are compatible. If a user attempts a transaction between incompatible networks, tokens can be lost.
Another common way of losing an NFT is by losing the game the user is playing. Specific game rules of the NFT game could cause a user to rightfully lose tokens (for example, a token could represent an in-game item that is consumable, like a potion or an armor that wears out in battle.