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Home / Opinion / Columns /  The use of NFTs by cyber games can explain their utility
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A few months ago, I wrote an article for these pages that took a closer look at the NFT craze. I had noticed the staggering prices that non-fungible tokens (NFTs) were commanding and that article was my attempt at wrapping my head around why anyone would pay so much for a symbol of a title that didn’t even confer on the purchaser any rights associated with ownership.

When you purchase the NFT of a work of digital art, you aren’t buying the artwork itself—you are just purchasing a record on a blockchain ledger that identifies you as the owner of that record, not the artwork with which it is associated. You are neither entitled to rights over the underlying artwork, nor can you prevent others from copying it. I concluded the article by remarking that people will find value wherever they see it and that there is little we can do to intervene—but I couldn’t help feel that there was more to NFTs than that.

In the weeks and months that followed the publication of that article, I continued to read about NFTs. I even minted an NFT of my own, so that I could experience the process myself, going so far as to put my digital artwork up for sale on an NFT marketplace (where it still lies without having attracted a single bid). The deeper I went down this rabbit hole, the more convinced I was that there had to be better use for the assurance of immutability and guarantee of uniqueness that non-fungible tokens offered.

As is often the case with most things digital, it turned out that all the cutting-edge innovation in NFTs was taking place in the gaming space.

The first NFT-based game I chanced upon was Zed.run, a racing game in which players race digital thoroughbreds on a virtual track. The horses are generated algorithmically from immutable virtual bloodlines and use blockchain technology to validate pedigree. All horses in the Zed ecosystem are direct or indirect descendants of one of four “genesis" bloodlines that are inter-bred in order to create new combinations of characteristics in subsequent generations of offspring. Since the pedigree of every horse is validated on the blockchain, the Zed ecosystem assures players of the provenance of their purchase. It also allows for novel game dynamics where unique characteristics can be generated through the careful inter-mixing of bloodlines.

A number of games have been built along these lines, using blockchain to assure players of the novelty of artefacts algorithmically generated within the game environment. CryptoKitties revolves around the ownership of collectible creatures that can be inter-bred to generate entirely new creatures with a blend of “Cattributes" inherited from their “parents". Since each Kitty is secured by its own non-fungible token, players can be sure that it is a unique digital artefact; it cannot be replicated, taken away, or destroyed. Cryptokitties with rare Cattributes command a very high price among collectors, giving players every incentive to put in the effort necessary to play.

Another game with similar dynamics is Axie Infinity, a slightly less cuddly version of CryptoKitties, in which players breed digital creatures called Axies that they then train to go into battle with other Axies. Since this is a play-to-earn game that also has a thriving in-game economy, players have significant opportunities to earn money within the game ecosystem. As a consequence, people have flocked to the game in large numbers, particularly from among poorer sections of society. Over 40% of the players active on Axie Infinity today are from the Philippines, where, thanks to covid lockdowns and pandemic- driven constraints, they find it easier to make money playing this game than trying to hold down a job in the uncertainty of the pandemic.

The use of non-fungible tokens in this manner—to attest the titles of in-game digital assets—feels intuitively more appropriate than simply using them to signify ownership over digital art.

Games are self-contained digital environments that operate according to a set of rules of their own device. Disagreements over the ownership of in-game digital assets can escalate very quickly, particularly when the item in question is rare. When they rise to the level of full-blown disputes, they are often beyond the ability of traditional courts to resolve, given how extraordinarily challenging it can be to accurately identify the owner of a digital artefact that is, at the end of the day, composed of just lines of code. The ability to ensure that a record of ownership of these valuable assets is stored in an immutable ledger offers a self-contained regulatory solution to that problem.

There is another reason why I believe this use of NFTs is relevant. In an earlier article in this column, I discussed the notion of the ‘metaverse’, pointing out that this sort of immersive digital environment was likely to be the next stage in the evolution of the internet. I had described the technologies that are currently being built to allow us to not just access new forms of digital offerings, but immerse ourselves in a virtual world. Lockdowns, virtual meetings and remote work have, if anything, hastened the arrival of this new virtual reality.

In the metaverse, everything is a digital asset. If we believe that disputes that currently plague our game environments will not spill over into the metaverse, we would be kidding ourselves. Before the metaverse is upon us, we need a way to establish title over artefacts in the digital environment. NFTs could well be it.

Rahul Matthan is a partner at Trilegal and also has a podcast by the name Ex Machina. His Twitter handle is @matthan

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