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Research Paper on Non-Fungible Token (NFT) Games

Research PaperTechnology

NFT games have become a popular medium of entertainment. These types of games have garnered the interest of video game enthusiasts as well as individuals that are looking for investment opportunities. The effects of the coronavirus pandemic have led many individuals to stay at home and utilize their smartphones and computers to keep them entertained and also earn profit. NFT games provided a balance between the two factors which led to their continuous popularity. However, since the concepts of NFTs and cryptocurrencies are fairly new to most of the public, individuals may be unsure of their definition and overall impact on society. This research paper aims to provide a holistic understanding of NFT games as well as discuss a few titles that showcase the NFT game experience.

Definition of the Term “NFT”

Understanding the definition of “NFTs” is integral to learning about NFT games. The term “NFTs” stands for “non-fungible tokens” which individuals will mostly find in a digital space, such as a crypto blockchain. According to Merriam-Webster, a fungible item is an object that an individual can easily replace with another object with equal value. Resources like paper money, wood, and oil are fungible objects since individuals can easily exchange them for similar products. An individual can exchange a $5 note for another $5 note that possesses the same value and quality. In contrast, non-fungible objects are items that are unique and individuals cannot find another item with the same value. Common non-fungible objects are family heirlooms and collectible objects. These items possess unique characteristics that are distinguishable and separate them from other similar objects.

NFTs or non-fungible tokens are then unique digital assets that possess a distinguishable characteristic. NFTs can be in the form of digital art, GIFs, videos, collectibles, video game items, music, and even tweets (Conti & Schmidt, 2021). The uniqueness of the digital assets does not only refer to their visual characteristics but also includes factors like item ID and hash codes. This means that two NFTs can be visually indistinguishable but possess different IDs and codes. In a digital space, these factors are integral to an asset’s identity as it contains significant data regarding the object’s history. In a transaction regarding NFTs, a token owner acquires the NFTs hash code which is proof of ownership of the token related to the digital asset (What Is, n.d.). This implies that purchasing an NFT refers to the acquisition of the hash code and token. Non-owners can still download NFTs like digital art, music, and videos from the Internet, however, they do not have access to the NFT’s hash code, which is an identifier of its owner.

Defining NFT Video Games

Video games are common mediums of entertainment for individuals in various age ranges. The introduction of NFT video games led to the development of a more diverse audience. NFT video games incorporate the concepts of cryptocurrencies and NFTs to engage their players. Since NFTs are digital assets, video game developers can easily create NFTs through coding. They put these NFTs in their video games and allow players to purchase, sell, or trade through built-in marketplaces and blockchain. NFT video games tend to operate within certain blockchains like the Binance Smart Chain and Ethereum Blockchain. Players will need to possess or own crypto wallets to store the NFTs and transact within the video games. Additionally, NFT video games allow individuals to generate tokens and earn a profit from playing a game. This feature led to the genre’s popularity as it enticed individuals that were not interested in gaming.

Most NFT video games utilize a play-to-earn model that requires investment before players can start playing. These play-to-earn NFT games require players to purchase cryptocurrencies, exchange them for crypto tokens associated with the game, and purchase the NFTs that are necessary for playing the game. For example, the video game Axie Infinity requires its players to purchase a minimum of three Axies or in-game characters before they can start to play and earn. Most NFT video games provide a low investment cost during their initial public offering. However, as an NFT video game gain popularity, the token associated with the game will increase its value. The cryptocurrency market dictates the value of the token which leads to the volatility of the token value. This volatility results in either an extremely high growth percentage within a short time which benefits early investors. The volatility can also result in a great decrease in token value which can lead investors to lose money.

Examples of NFT Video Game Titles

Axie Infinity

The NFT video game Axie Infinity is one of the pioneers in the industry. The company Sky Mavis released Axie Infinity in March 2018. However, the NFT video game became popular in early 2020 when most of the world was in lockdown due to the pandemic. Axie Infinity is a play-to-earn NFT game that made it popular in various countries, especially in Asia. Countries like the Philippines, Venezuela, and Thailand have a large player count. According to playercounter.com, more than 40% of Axie Infinity players are from the Philippines. The high player count percentage is due to the game’s play-to-earn feature which allowed individuals to earn more than the minimum wage. This led many individuals to invest in Axie Infinity to take advantage of the financial benefit that the game offers.

Axie Infinity utilizes the tokens Axie Infinity (AXS) and Small Love Potion (SLP). Players utilize the tokens to purchase NFTs as well as convert them to fiat money. The game allows players to generate Small Love Potion (SLP) which they possess a dollar value. During the early stage of the game, players can begin playing the game with an investment of around $100. This investment will allow a player to purchase three Axies, which are NFTs that players can sell on the in-game market. During the first few quarters of 2021, the price of Axie Infinity tokens peaked which resulted in a significant increase in the initial investment. New players had to invest around $900 to purchase three Axies and play the game. With this investment, the average player can earn around $45 per day by playing the game. Since its peak, Axie Infinity’s token values have experienced a decline. As of writing, the initial investment for playing the game is around $450 with one Small Love Potion (SLP) having a value of $0.07. Despite this decline, players are still able to profit from Axie Infinity and the developers continue to improve the game.

Cryptoblades

Cryptoblades is a play-to-earn NFT video game that became popular due to its high return on investment and easy gameplay. Cryptoblade’s popularity was a result of the hype over NFT games which began after Axie Infinity became popular. As mentioned earlier, Axie Infinity’s popularity resulted in the high investment requirement to play the game. This led individuals to look for upcoming games that required lower investment. Cryptoblades was one of the upcoming NFT games that offered low-cost tokens. The SKILL token, which was Cryptoblade’s token, initially cost $.69 in July 2021. This low price allowed players to start the game with only an investment of around $20 which was significantly cheaper than Axie Infinity. During its peak, the SKILL token had a value of around $100 per token. This meant that early investors more than doubled their initial investment in the game. This increased Cryptoblade’s popularity which attracted more players to the game.

However, the increased surge in player count led to the collapse of Cryptoblade’s game economy. Cryptoblades allow players to generate SKILL through simulated fights and withdraw the tokens in the reward pool. The high player count resulted in a high withdrawal amount which eventually resulted in a drastically low reward pool. In NFT gaming, tokens like SKILL and Small Love Potion (SLP) are limited resources. The developers will establish the value of the limitation and cannot modify it once the tokens are released. To avoid losing all the SKILL in the reward pool, the developers lowered the SKILL reward that players can earn. This resulted in an unprofitable game where players can even lose money if they decide to play the game. As of writing, one SKILL has a value of around $15 and players can earn around 0.00017 SKILL per fight. This low reward value along with gas fees results in a net loss for players that decide to play the game. Cryptoblades showcase the risks involved in NFT gaming as players can easily lose their investment due to the crypto market’s volatility and unpredictability.

Splinterlands

Splinterlands is a popular NFT video game that started in 2018. It is one of the earlier successful NFT games that established its brand before Axie Infinity. Splinterlands has conducted various tournaments with cash rewards from 2019 up to the present. Despite its success before Axie Infinity’s popularity, Splinterlands garnered more players due to Axie Infinity’s impact on NFT gaming. According to DappRadar data, Splinterlands is the most popular blockchain game in the market (cited in NFT-Based Splinterlands, 2021). Like the previously mentioned NFT games, Splinterlands has a play-to-earn model that allows players to earn a profit by playing the game.

Splinterlands is a trading card NFT video game. The NFTs available in the game are digital trading cards. Players can purchase, sell, and rent the cards to other players which provides them with additional earnings. They can generate the token Dark Energy Crystals (DEC), which possess a dollar value. The token along with the trading cards provides players with valuable digital assets that they can sell for profit. According to DappRadar, a player’s earnings in Splinterlands is dependent on the player count, their ranks, and other in-game factors. This profit difference is also present in Axie Infinity and Cryptoblades as these NFT games try to reward higher investments with higher rewards.

Advantages of NFT Video Games

The increasing popularity of NFT video games provides benefits for players, investors, developers, and other businesses. According to medium.com, the advantages of NFT gaming include the transfer of ownership, security and uniqueness, transparency and probable scarcity, investment opportunity, and branding and creativity. These advantages refer to both the NFT gaming process and experience. The advantages of transfer of ownership, security, uniqueness, transparency, and probable scarcity pertaining to the NFT gaming process while the remaining factors are related to the NFT gaming experience.

Advantages Regarding NFT Gaming Process

The advantage of the transfer of ownership in NFT gaming refers to an NFT owner’s ability to sell their digital assets. NFT owners can easily connect with other users through blockchains and engage in secured transactions. Transferring NFT ownership requires an individual to transfer the NFT’s hash code to the buyer. NFT games allow an easy way to complete these transactions through built-in marketplaces where players can post their NFTs for sale. The advantage of security and uniqueness as well as transparency and provable scarcity complements the transfer of ownership. Security and uniqueness pertain to the non-fungible characteristics of NFTs. Hackers and scammers cannot create fake NFTs and sell them in-game as original copies. Blockchains store data regarding NFT IDs and codes which ensures the uniqueness of each NFT. Additionally, the decentralized characteristic of blockchains allows for transparency and provable scarcity. A network of computers oversees the transactions regarding NFTs and cryptocurrencies which secures the integrity of transaction data. The computer network can easily identify discrepancies regarding fraudulent transactions and halts the process. This ensures that cryptocurrency transactions within NFT video games and their blockchains are secured and authentic.

Advantages Regarding the NFT Gaming Experience

Playing an NFT video game provides a player with an investment opportunity. As mentioned earlier, play-to-earn NFT video games require an investment but also provide a profitable income from playing. Individuals can approach NFT gaming as an investment option similar to purchasing a small business or choosing stock options. They can spend a considerable amount of money to invest in an NFT video game and potentially gain a return on investment in a month or two. Most NFT video games feature simple gameplays and concepts which make them easy to play. Individuals that do not occasionally play video games can quickly learn NFT game mechanics. Additionally, since NFT gaming is a new genre, it provides developers with a lot of space to exercise their branding and creativity. NFT game developers like Axie Infinity and Splinterlands develop unique brands that are distinguishable from other NFT games. NFT games like My Defi Pet and MIST are utilizing creative gameplay and mechanics to introduce unique gameplays and contribute to NFT gaming innovations.

Disadvantages of NFT Video Games

While NFT gaming offers multiple advantages for developers, investors, and players; it also has disadvantages. According to Bonheur (2021), NFT gaming’s disadvantages are the uncertainty in the industry and the environmental issues related to blockchain technology. The disadvantage of uncertainty refers to the volatility of the cryptocurrency market. Crypto coins and tokens have high volatility which makes the market unpredictable. A crypto token can cost $400 and quickly drop to $50 within 24 hours. This makes investing in NFT video games a high-risk option that not everyone can afford. Also, scammers can utilize the simplicity of releasing a crypto token and creating fake NFT video games. Some players may choose to invest in these fake NFT video games that promise continuous updates and rewards. Fraudulent developers can take their investments and suddenly abandon the game. This makes investing in unpopular and new NFT video games risky.

Lastly, NFT gaming involves the adverse environmental effects of blockchain technology. NFT gaming development requires developers to utilize high-end computers to maintain servers to ensure a game’s stability and track transactions within the system. This will require a lot of energy consumption which can have detrimental effects on the environment. An example of the high energy consumption of blockchain technology is in the area of Bitcoin mining. Bitcoin mining utilizes around 91 terawatt-hours per year which is more than Finland’s annual electricity consumption (Kim, 2021). This high energy consumption contributes to world issues such as global warming and the energy crisis. Due to this, different experts are attempting to find solutions to address the environmental effects of blockchain technology.

Conclusion

NFT video games are a new form of an entertainment medium that allows players to earn a profit by playing. This new genre of video games utilizes the concept of cryptocurrencies and NFTs to engage their audience and provide a unique experience. As individuals rely more on the Internet for their entertainment as well as financial income, NFT video games will continue to increase their popularity. NFT video game titles like Axie Infinity, Cryptoblades, and Splinterlands have showcased the different advantages and disadvantages of the genre. They highlight the investment potential of NFT games through large growth percentages and quick returns on investment. One title also exhibited the risk involved in investing in NFT games as market volatility and the scarcity of tokens can lead to a low supply of financial rewards. Since NFT gaming is in its early stage, it will take time before the genre establishes a stable system that benefits all the parties involved.

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