What NFTs Could Mean For Games And Game Developers

Recently, NFTs have taken the world by storm. I've actually been interested in NFTs for a couple years now, and I'd like to make a post explaining what they are and what I think they mean for the future of gaming. I think they're full of potential and are an area of technology that I'm especially wanting to work on and create games for in the near future.

Disclaimer: This post should NOT be considered investment advice, this is just speculation on my part

NFTs are non-fungible tokens, meaning that they are tokens on a blockchain (usually Ethereum's, but not necessarily) that have unique properties distinguishing them from one another. As an example, a dollar is fungible because it doesn't matter which dollar you might have; they both serve the same purpose. But if you have two Yu-Gi-Oh cards, they aren't interchangeable because two of those cards could have completely different properties. So NFTs have been used to represent these types of valuables (trading cards, virtual pets, in-game items, etc.)

Last month, I created an account on OpenSea for Goldbar Games, to host all of our NFTs on that platform, so if you're interested, feel free to check it out. There's only one NFT so far as a test run, but I'll definitely be adding more. If you're totally new to this kind of thing and have no idea what I'm talking about, it's a little too complicated to explain all in a single post, but you'll want to look into how Bitcoin and Ethereum work, as well as cryptocurrencies in general. You'll also need to use the MetaMask browser extension to trade Ethereum for NFTs on OpenSea. Please be aware that the price of Ethereum is constantly fluctuating and so will the value of any NFT, so never invest more than you can afford to lose.

Indeed, the current popularity of NFTs is somewhat akin to tulip mania, with the average person just now realizing that maybe they shouldn't have bought that $300,000 JPEG of a red square. All of those images are currently stored outside the blockchain because images take up lots of space, which means higher fees that nobody wants to pay. So typically NFTs store image data outside the blockchain and only a pointer to that data is on the chain. That metadata can be stored in a centralized location (like a website's server or cloud hosting) but can also be stored using the decentralized IPFS protocol (as opposed to HTTP). Either way, the metadata is stored off-chain, so if that image file ever goes away, then your NFT won't show anything on it (although it is important to note that the metadata pointer CAN potentially be updated to point to a new location).

However, that really only becomes an issue for vanity NFTs which are only designed to look good and have no other purpose. NFTs for gaming can have much more exciting implications. For example, NFT trading cards can still store their attack and defense points on-chain, so as long as the entire blockchain doesn't go down, you can use those NFTs inside games that are on that same chain (and maybe in the future there can be cross-chain games too). So let's say I've developed a trading card game on the Ethereum blockchain, and you buy some of those trading card NFTs. Now you can use those trading cards in battles against other players, just like real trading card games. If you don't actually own the card, then you can't use it in-game.

We can take these ideas even further with the use of smart contracts and oracles. Smart contracts are basically just pieces of self-executing code on the blockchain, primarily designed for financial purposes but later expanded for just about any use you can imagine. For instance, you can have a smart contract designed to facilitate a crowdfunding program like Kickstarter, except without the middleman. The idea is to eliminate any aspect of mistrust, so that you know for sure where the funds will be allocated, or that if they are not allocated properly, they can be withdrawn by the investors. Or more recently, dapps (decentralized apps) have been invented that allow users to "pool together" their coins to earn interest on their combined assets, then a random winner is picked once a week and the earnings given to the winner. This is accomplished by oracles, which allow smart contracts to access off-chain data in a decentralized way. They can generate verified randomness and access third-party APIs. In one more example, suppose you want to make a betting dapp about who will win the election, but the results are contested. What data source should you believe in order to decide who won? That's the job of the oracle.

I've actually written several smart contracts myself, but so far I haven't used any for gaming. However, crypto-gaming is starting to really take off now, and I've been really thinking lately about its potential. Especially when it comes to monetizing your game development business, I'm starting to think that the "traditional ways" are going to fade away soon (much like the arcades) in favor of this new crypto gaming stuff. It might take another 10-20 years for it to become mainstream, but I really think that is what's going to happen.

Here's the traditional way to monetize your game development: you spend X amount of time and Y amount of money making a game with zero income, and then once the game is released you hope and pray that it makes back the cost of development. The more I think about how this works, the more I realize this makes very little sense for an indie developer to try and follow. You can only be remotely successful with this method if you already have the financial backing of a publisher, an investor, or a crowdfunding campaign, to guarantee that at least you don't run out of money during the game's development. There is little to no guarantee, especially in today's hyper-saturated market, that your game is going to make any profit, or even any revenue for that matter.

As an example, let's suppose you spend 12 months making a game and spend $10,000 on assets and expenses. You decide to sell the game at $20 per copy. After Steam's cut and taxes, that usually leaves you with about only half, so that's $10 per copy. But most of the time, people only buy games that are on sale, so 50% off would be only $5 per copy. In this worst case scenario, you'd need to make at least 2,000 sales to break even on the expenses. However, that's not including the entire year of opportunity cost of not working a stable job, so let's say you're a software developer and could easily make $50,000 that year. You'd need to make an additional 10,000 sales to break even with that lost opportunity. If you're a developer who can make $100,000 a year, then you'd need to make an extra 20,000 sales instead. This is of course assuming that you can make a $20 game within 12 months. Every year you go over is going to add on to those costs. If it takes you 5 years to make your masterpiece, that's 100,000 sales needed to catch up (plus an extra $10,000 per year in expenses). Let's just be real: you aren't likely to make 110,000 sales as a solo indie dev on a tight budget with no connections.

Maybe you can offset some of thoses risks and costs by working with a publisher or going through a crowdfunding campaign, but those aren't magic bullets either. There are countless Kickstarter games that, despite meeting their funding goal, either got stuck in development hell or got canceled. Sometimes even the ones that got finished didn't always turn out to be fun games. And publishers will only want to work with games that can prove they are going to be successful, so you're not guaranteed to find a publisher for your project, either. They're looking at your game from a financial perspective too, and will want a good return on their investment. So your game still needs a certain level of money and effort put into it anyway.

More importantly, keep in mind that this is a massive gamble with your life: if you have a lifespan of 100 years (pretty good) then maybe you only want to work from the ages of 20-70, so that gives you 50 years of working. For a 5-year development cycle, that's 10% of your working life on a single attempt at a game. You could've used those years to accumulate some kind of wealth, perhaps enough to actually open a game studio and hire a team of people who could then make your game! Or take those years, put them into some kind of savings account or investment, and watch the money earn compound interest and give you enough to live off passively while you then work on games at your own pace in your later years. But if you go all in at the very beginning and mess up, you run the huge risk of losing that advantage of compound interest, and missing out on those earnings gives you a massive disadvantage later in life.

This is why most successful businesses go the "lean startup" method: they start earning some kind of income immediately while keeping their expenses low. That way, they can enjoy life while not going massively into debt or missing out on opportunities. A lawn-mowing business is a good example of this, you just have the cost to buy the mower. Then you earn enough income to repay the cost of the mower, and everything else from there is profit you can immediately reinvest into the business. You can buy more mowers and hire employees to cut more lawns, and you don't have to ask yourself whether you'll make that money back or not: it's practically guaranteed, and if you're going to lose money you'll at least know immediately and not years down the road.

Contrast that with the traditional method of game development. You're essentially buying a lottery ticket and then waiting until you're "finished" with development to cash it in. Some games never get finished, so maybe it'll be worth zero. Or even if it does get finished, how much potential will it make back? Some genres are inherently more profitable than others, and some genres are easier to make than others. Obviously, you'd want to make a game that is in the genre that is easiest to make and also the most profitable. When you look at it this way, you might start to ask yourself why you're even making games for money at all. Maybe it's better to just think of games as an art hobby and forget about them as an entreprenurial career path.

To a certain extent, that's probably good advice. If games aren't good at making money, then don't use them to make money. Do something else to earn money, and then make your games as a form of entertainment or personal fulfillment. It's always possible to do both. Whether that means you get a traditional job, or start your own unrelated business, or just live off other types of investments, you're probably better off doing those things than trying to make money from games. At least, in this traditional method.

There are also alternative methods that have come up in recent years. Early-access games allow players to pay for "early access" to the game, although in practice this tends to just be releasing an unfinished and unpolished game in exchange for money, with some games staying in this mode for years. As such, it's gotten a bad reputation for "greedy" developers who don't want to put in the effort to finish a game and just make a quick cashgrab. Early access really only works for certain types of games (multiplayer, sandbox) that would have been at a profit advantage anyway, and so the less profitable genres can't actually benefit from this.

There are also "freemium" games which allow people to start playing for free but offer in-game purchases, and these games also really only work for a handful of genres. Of course, players also don't like these types of games because they feel that the game becomes unfair and "pay to win", that is the winner of the game is the person who has the most money in real life, as opposed to being actually skilled at the game.

So a developer trying to take advantage of these alternative models can potentially end up earning a worse reputation with at least a substantial portion of (hardcore) players, and so you often see these models working out for large companies who target a large enough audience (of casual gamers) that the loss doesn't actually impact their sales. Indie devs that misuse these alternatives (for games that don't fit them) will quickly be run into the ground with little chance to recover.

Ultimately, these alternative models place the developer in opposition to the player, which is really no good when it comes to running a business. You want to be on the same side as the customer, not working against them. Freemium games have a reputation for taking advantage of flaws within human psychology, turning players into addicted pigeons in Skinner-boxes looking for the next dopamine hit. It becomes the job of the developer to get players addicted to their games, so players continue playing for as long as possible to extract the most revenue. Is this what is necessary in order to run a game business? Do I just need to bite the bullet and accept that I have to destroy the livelihoods of others in order to sustain my own livelihood?

Let's go back to looking at the crypto-NFT world. But first, a short aside.

As a game developer, I've noticed that as the years go by, I've played fewer and fewer games each year. I still find games fun, but I don't play them for as long. This is because I know the value of time and opportunity cost. Every hour I spend playing a game is an hour I could spend working on my game. Or at least, I could be working and making money to contract out work for my games. Because games require massive amounts of time and money to make, it always feels like I shouldn't be indulging in lesiure activities, because they always set my development back. Yet at the same time, I can't say I've really made much money from game development (yet) either, so can I really justify the absence of leisure time in my life for something that has barely gotten me any returns?

More importantly, how could I justify the creation of games, when I know that they are ultimately a distraction that are designed to take away productive hours from those who play them? Rather than creating a productive tool that can improve the lives of others by speeding up processes or generating revenue, I'm creating things that ultimately ask for an investment of time that can't ever be recovered.

Perhaps if I had the usual 9 to 5 job where I worked during those hours and then set aside the rest of time for leisure, I'd feel a little more balanced in my life. I wouldn't feel like every second matters as much, and I could enjoy setting aside a few hours for gaming each night. But to be fair, I think it's still important to value my time, and that every second really should matter. The problem is just that the act of playing games doesn't generate any form of value (money) that I can spend in exchange for something else, so playing them feels like a waste of time.

But if I could play a game for a few hours and then exchange the items I earned in that game for real-world value, then I could spend those items to contract out work for my own games, and I'd feel as though I had an especially productive time.

This is the importance of NFTs, and it's one of the biggest reasons why I care about them.

Let's go back to the example of trading cards. You purchase a starter deck and start playing games with others. But let's say that there's a special rule in this game, where the loser has to forfeit one of their cards to the winner (chosen by the winner). Now whenever you succeed at the game, you've earned a new card.

If that card is represented on the blockchain as an NFT, then you've earned something that can be re-sold for real-world value. Maybe you defeated an opponent who has a rare card, and you choose to take that card. And maybe you don't care too much about the card itself, so you sell it to the highest bidder. Then you defeat that bidder in a battle and take the card back, and then you sell it again, or something like that... You can see how this actually flips the "freemium" model on its head. The highest skilled players can actually get PAID money to play the game!

How can developers benefit from this? Simple, there is just a small fee hidden in the game somewhere, such as on the transaction of two items. So every time someone trades those items, the developer earns a 1% commission on it. Add these up over time over lots of players and lots of transactions (at least one per battle) and you've got yourself a stable source of income for as long as the game continues to be played. And if you've done your job right and made the game truly decentralized, then even if your servers shut down, the game can actually still be played on the blockchain. As long as there is at least one person who wants to play that game and runs their own blockchain node, then that game can always be played!

The card game example is really just the tip of the iceberg. Imagine an RPG game where you can slay monsters to get items, then re-sell those items to other players. Better yet, imagine you can level up your character to get certain stats, and then you find out you're overdue on your rent payment. You could actually sell your entire character to pay off your rent, or perhaps an entire mortgage if your character is truly desirable!

And as technology improves, the possibilities will only get wilder. Imagine a game like Pokemon Go, where you physically move to a location to capture monsters. Only certain monsters spawn in certain areas, so lets say there are monsters exclusive to New York that aren't available in Tokyo. So if you live in New York, you can walk around and capture monsters (as NFTs), and then sell them to players in Tokyo, and vice versa. You could actually be making a living from playing this kind of game, as long as the monsters local to your area are in high demand (and this could actually get really crazy if the game takes off in popularity and impacts the housing markets in those areas). This kind of game can already be created right now, and I'd be surprised if somebody isn't already working on it.

Lastly, thanks to universal specifications for NFTs such as ERC-721 and ERC-1155, NFTs can also be traded for each other across games. So just imagine a world where you can catch a Pikachu and trade it for a Rune Scimitar. I would've never imagined that kind of world as a kid, but the possibility is already here! If the big companies in gaming start adopting NFTs for their own games, I don't see how the world could go back.

This is where I see NFTs heading. They shouldn't be valued for their off-chain data, but for their on-chain data. We can actually create games that provide re-sellable value to the consumers. You can spend your entire day playing a game and potentially make a full-time income from it if you're good at the game. That's the kind of world I would want to see, and it's something that I'd want to dedicate my time toward developing.

Back when I started my other game projects, Ethereum didn't even exist yet, so I hadn't made those games with this kind of technology in mind. But as time moves forward, I think the traditional models of creating games and just hoping that they make their costs back will be an ancient process nobody will use. Why would someone play a game that's not on a blockchain when they can instead play a game that actually earns them money? Where they can trade items in one game for items in another game without a middleman? Where the game is massively multiplayer but isn't stored on a centralized server that can be shut down in a moment's notice, along with all of the time and effort you've poured into it?

For developers, we'll be able to have access to a steady income: as long as the game is being played, we'll earn revenue. Developers can also do their own crowdfunding in exchange for in-game items that hold real-world value, rather than items that backers can't trade or cash out. I think in general, this will lead to the development of games where profitability is significantly less guesswork and where games can be monetized as they are being developed without the use of a middleman. In the absolute worst case scenario, developers can play their own games to make money, or play the games of other developers. Either way, it'll incentivize people to play games they otherwise might not play: early-access games would seem more like an early adopter's investment -- accumulating NFTs that are mostly unknown with the intent to resell them as they gain popularity.

There are so many possibilities that I really don't even know where to begin. The biggest thing holding me back so far is that these blockchain games are all browser-based, so that you can interact with it using the MetaMask plugin, and I've mostly stuck with developing desktop apps using C# or C++ until now. Even if you use the Unity plugin (yes, there is one) you'd still have to export it as a web game to interact with the user's wallet. I'd really like to see these types of games on computers or even consoles, but that technology just isn't there yet. And from this post I've already mentioned three entirely different games; it's hard to just pick one idea and roll with it. All I know is that I'd want to start with something small but with the potential to scale. I also wonder if there's a neat way to incorporate blockchain with the games I'm already making, and I've been working behind the scenes on trying to get that to work as well. Anything that can be quantified can be turned into an NFT, so that could very well include things like any type of in-game item, characters, achievements, or even the levels themselves.

Anyway, I hope this has been an informative post. It's a much more relevant topic and was quite longer than what I usually blog about here, but it's something I've been really interested in for a while now. If you think I am wrong or totally off-base, that is fine -- just to be clear, I am not committing to anything right now. I just wanted to get these ideas out there in the open, because I would probably regret it if I did not. What's funny is that I could have written this exact post two years ago and no one would have been interested, but now that NFTs are everywhere and people are talking about them all the time, it wouldn't have been such a bad idea to have made a blockchain game by now. Feel free to let me know what you think about these ideas, and if you'd like to see something similar created by Goldbar Games!