What are NFT games?

Credit: Epic Games

Imagine this.

You wake up on a Monday morning, fresh off the weekend. You pull up your computer, getting ready for work, but instead of launching Slack and Microsoft Office, you log into the latest NFT game. That day, taking rests for break, you level up your character, defeat monsters, acquire loot, and sell those items for a healthy profit on a marketplace.

At the end of the day, you’ve amassed enough, if repeated, to pay your bills that month.

While that may seem like a far-off fantasy, for people around the world, it is becoming reality. NFT games are changing how we approach fun, pay our bills, and control ownership over digital assets. The end result is simple: Everything we knew about video games is transforming in front of our eyes.

With that prompt, you may have some questions. And in this article, we’ll cover several. By the end of this guide to NFT games, you’ll be able to answer:

  • What are NFT games?
  • How do NFT games work?
  • What is Play-to-Earn gaming?

You’ll also get an overview of the most popular NFT games currently on the market, along with the top mainstream companies looking to integrate NFTs into their games in the future. Let’s start with the most basic question: What is an NFT?

What is an NFT?

“NFT” stands for non-fungible token, a Web3 technology that exploded onto the scene in 2021. In its name lies its meaning, and it can broken into two parts: “non-fungible” and “token.”

“Non-fungible” in a financial sense refers to something that is unique or cannot be swapped for something else without gaining or losing something in value. An example of a non-fungible token in the real-world collectible items scene is a sports card. A sports card has several characteristics that make it unique, including the wear-and-tear and serial number. You cannot swap two sports cards without gaining or losing something in financial value.

The same is true of a digital non-fungible token. These NFTs contain metadata that separate themselves from other NFTs within the same collection and from NFTs in other collections. While it will always be true that 1 Bitcion = 1 Bitcoin, the same cannot be said for NFTs. 1 CryptoPunk does not equal another CryptoPunk, 1 Bored Ape for another Bored Ape, and so forth.

The second part of the acronym is “token” and therein you can understand where NFTs come from and what role they play. NFTs reside on digital ledgers called blockchains, which track transactions. Popular blockchains for NFTs are Ethereum and Solana. But unlike a blockchain’s native asset (called a “coin”), NFTs are kind of like riders: They utilize the blockchain they are created on but are an “extra.”

Here are some examples. “Ether” is the blockchain Ethereum’s native coin. Bored Ape NFTs are tokens. “SOL” is the blockchain Solana’s native coin. Solana Monkey Business NFTs are tokens. And so on, and so forth.

The earliest use case for NFTs (and still one of the space’s most popular) is digital art. But really, NFTs can be just about anything a person can dream of, so long as it fits the definitions of “non-fungible” and “token.” This plays out in games in a variety of ways. That brings us to our next section: What are NFT games?

What are NFT games?

On the surface, the answer is simple: NFT games are simply games that use non-fungible tokens. But, if one were to dig a little deeper, that simple answer poses serious consequences.

Non-fungible tokens create two previously unheard-of possibilities for digital assets: scarcity and ownership. Scarcity simply means that there is a limited supply of a particular token. In terms of a game, that might mean just four copies of a legendary sword or 100 copies of a particular piece of armor.

Because they are stored on blockchain technology, they automatically create a sense of ownership. Everyone knows who has the swords or pieces of armor in their wallets and therefore has the power to sell those items, for whatever the market demands. This means that all the items gamers are used to accumulating over the course of a game are now owned by the gamers themselves. This, rather than the gaming company or no one owning them.

In effect, these items now have monetary value.

NFTs in video games can range from the minute to the detailed. The most obvious examples come from games just about everyone has tried and understands: weapons, potions, armor, creatures, and much, much more. They can also account for relatively new developments, such as skins, which have little to no in-game function aside to make the character stand out.

But what happens when games now employ NFTs that have monetary value?

Players now can earn an income through sales. The ramifications of that little twist are enormous. We’ll cover that in more detail in the section, “What is Play-to-Earn gaming?”

There’s even a line of thought that NFT games need to be interoperable, meaning that gamers should be able to use the NFTs in one game in another. A skin can transfer between characters in different games, weapons can move across titles, and players can retain ownership of them all.

Essentially, NFTs in games (theoretically) would restore power back to gamers, power that has accumulated with gaming companies for years. So, with this big development, “How do NFT games work?”

How do NFT games work?

NFT games function similarly on the surface to many regular games. A player has a character, a task, and different ways of completing the task which determine whether the outcome is a win or a loss. But NFT games function differently because they have an entire economy within the game. Some of the parts of that digital economy include:

  • An NFT marketplace: Simply, a place where players can buy or sell their game NFTs. They generally function like a free market economy with listings, bundle packages, auctions, sales of game assets, and so forth. Think World of Warcraft economies but instead of a currency that is meaningless, actual money is exchanged.
  • Cryptocurrency: The money that is exchanged generally comes in the form of cryptocurrency. Often, NFT games have individual cryptocurrencies to govern marketplace interactions. You can buy with those cryptocurrencies, receive payment with them, and even exchange the crypto for fiat currency (USD, for instance).
  • DAOs. If a game has large factions that govern world play, the game developer might split them up into DAOs. Short for Decentralized Autonomous Organizations, these groups vote to take collective action surrounding an issue. Voting power usually comes from certain metrics, such as how much in-game crypto a gamer has.
  • The blockchain. It goes without saying that NFT games function on the blockchain, the distributed ledger that records transactions. Blockchains are transparent, meaning anyone can read them, and if someone knows the owner of a particular wallet, they can track that person’s every (economic) move.

Some NFT games have start-up costs while others do not. It’s an issue we’ll tackle in the “What is the controversy surrounding NFT games?” section when we talk about “pay-to-win” gaming. Next, let’s highlight the buzz-phrase surrounding NFT games: Play-to-Earn gaming.

What is Play-to-Earn gaming?

“Play-to-Earn gaming” grew out of a natural consequence of using NFTs in games. When players realized that they could earn money from simply playing the game and selling the amassed items or creatures, they found an alternate income stream to their jobs. The games, therefore, became more addicting. A single drop could mean a day’s worth of income.

This accelerated when the pandemic hit. In many developing world countries, wages became depressed, and jobs became few and far between. Players found out that they could play NFT games to earn an income far beyond minimum wage in those countries. In places like the Philippines, which led all countries in NFT adoption due to NFT games earlier this year, people were earning $1,000 or more per month playing NFT games.

Play-to-earn is a spin on traditional gaming objectives because players are not simply playing to become the best or beat the game but to earn a living as well. As such, it has incredible promise (who wouldn’t want to play a video game to pay the bills?) but some downfalls as well. What is traditionally a tool for escapism or enjoyment can become stressful, especially if the items aren’t dropping or the money isn’t coming in.

It can also lead to a lot of hype for specific games, which can overheat that game’s economy. As we’ve seen in certain play-to-earn games, people take a gold rush mentality and jump into the game thinking they can earn a great deal of money. This creates an intense demand, which causes prices for items to skyrocket. When the ball drops and prices fall, there’s a massive sell-off, which can damage in-game economies and the reputations of those games.

Play-to-earn gaming is still in its infancy, with 1990s graphics in some cases or bad gameplay. They are popular, in many cases, because people view them as a tool to make money rather than the enjoyment of the gaming experience itself. But that may change in the coming years with advancements in technology and the maturation of Web3 sectors.

Now, what are some popular NFT games?

What are some popular NFT games?

Our quick list of the most popular NFT games combines titles that not just fit the criteria of NFT games but have stood the test of at least one year. Some date back a couple of years. They run the gamut from battling games to trading card games, and all involve distinct Web3 types of gameplays.

Let’s start with the Pokemon-style game at the top.

#1 – Axie Infinity

Released in 2018, Axie Infinity is a turn-based game where players collect and battle with Pokemon-like creatures. It has had an incredible run, once approaching 2 million daily active users and the company behind it (Sky Mavis) raising $152 million in Series B funding.

Like most NFT games, Axie Infinity has a marketplace where you can buy and sell items. In fact, the only way to start playing the game is to purchase three Axies from the marketplace, a start-up cost that once reached into the hundreds of dollars.

Although it has fallen on hard times in recent months (including being the subject of a huge cryptocurrency hack), it still retains our top spot.

#2 – Splinterlands

A battling trading card game, Splinterlands saw a boost in popularity during the NFT bull run of 2021. It is among the highest games in daily active users and is a strong starting point for NFT gamers because no cryptocurrency knowledge is required.

To gain cards in the game, you can receive them through drops from the company or buy them on the marketplace. The market has other items as well, including potions, booster packs, and card skins. You don’t need cryptocurrency to purchase items on the market and can buy goods using PayPal.

Splinterlands has potential as a Play-to-Earn game as well, with one person turning a $10 investment into $17,000. While other financial gains may be more modest, you can still earn money playing the game, which is more than you can say for most video games on the market.

#3 – Gods Unchained

Gods Unchained is another battling trading card game and bills itself as Free-to-Play-to-Earn. It does so because the company behind the game gifts new players with a starting pack of cards. From there, a player can earn more cards through battling or purchasing cards on the marketplace.

To win a battle in Gods Unchained, a player need to be strategic. Each card has a number of attributes, including health, mana, strength, and others. There are unique features to the game that seek to balance the battles out. Because one player will always be ranked higher than the other, the game developers created a scenario called “bag of tricks” that try to equalize the contests.

Gods Unchained also has released a token called $GODS that will be used in tournaments. The team airdropped the token to early adopters of the game, which opened for closed beta in 2018.

What are some NFT game companies?

There are many Web3-native gaming companies, those that live on the blockchain and create addictive, Play-to-Earn titles. But in this section, we’ll focus on something different.

Here, we’ll turn our attention to some of the biggest mainstream gaming companies that are entering the Web3 space. These three have been the subjects of news articles over the past several months, building NFT collections, entering blockchain gaming, and riling up the industry.

Let’s start with one of the most notable: SQUARE Enix.

#1 – SQUARE Enix

SQUARE Enix is a Japanese entertainment company best known in the gaming world for its Final Fantasy and Kingdom Hearts series. It has entered the Web3 world in two big ways in 2022, creating an NFT collection and selling off a popular franchise to give it more money to pursue blockchain gaming.

Two months ago, it announced the pending launch of a Final Fantasy VII NFT collection. It partnered with ENJIN for the collection, which will officially become public in 2023. The NFT drop is a mix of digital and physical, with physical trading cards and an action figure associated with the drop.

SQUARE Enix also made news five months ago when it sold its Tomb Raider franchise to Sweden’s Embracer Group for $300 million. As it said at the time, it did so to allocate more money towards blockchain gaming.

#2 – GameStop

GameStop has been one of the largest mainstream gaming companies taking steps into Web3. Just in 2022 alone, it has launched an NFT marketplace, created a non-custodial NFT wallet, and built a loyalty rewards program using NFTs. Here is a recap of two of the largest stories.

Just a week ago, GameStop announced that it had partnered with Immutable X Studios to create a rewards program based on NFT trading cards. The NFT cards are part of a game we have already mentioned (Gods Unchained) and loyalty members can build out their deck with this airdrop and battle the competition.

Two months ago, GameStop’s official gaming NFT marketplace launched. Although it is starting with simple NFT artwork, it hopes to add gaming NFTs in the future. There is a preview section for gaming NFTs, which include Illuvium, Gods Unchained, and Guild of Guardians NFTs.

#3 – Krafton

Seven months ago, Krafton, the creator of popular title PlayerUnknown’s Battleground (PUBG), announced that it was investing in companies with the intention of entering the NFT and metaverse industries.

Although Krafton’s full plans are not yet known, it marks another instance of a big-time gaming developer jumping into Web3 waters. Krafton is also notable because it has a headquarters in South Korea, which has gone all-in on Web3.

In fact, the entire country of South Korea is investing in the metaverse, with a focus on the gaming and educational sectors. Time will tell what Krafton has planned but given its success with PUBG, it could be very interesting.

What are some pros for using NFTs in games?

Rounding out the last two sections in this guide. We’ll focus on the big topics: What are some pros for using NFTs in games and in the next section, we’ll touch on the controversy surrounding NFT games within the gaming community.

When it comes to the pros of using NFTs in games, it really breaks down into a couple of categories: ownership and Play-to-Earn. Let’s take them one by one.

Because NFTs allow gamers to own in-game items, gamers have a much larger stake within games than previously. They can transport items between different games, sell items when they are finished playing a game, and even start micro-businesses within a game’s unique economy.

Along with that comes the buzz phrase “Play-to-Earn.” Gamers can now take a front seat in participation within games and earn money while playing. They can buy and sell items, earn money from in-game or developer drops, and supplement income during a time when money is hard to come by.

All-in-all, it helps level the playing field across the world as well. Because some of the money earned in these games is quite lucrative, people in developing countries can quit their jobs and focus on playing the games to earn a living. This ability creates a whole new sector within gaming.

Now, for the controversy.

What is the controversy surrounding NFT games?

Criticism of NFT games generally breaks down on two lines: damage to the environment and the creation of a new class of games that are “pay-to-win.” Like in the previous section, let’s take the criticisms one-by-one.

Much of the complaints surrounding NFT games imply that blockchain or NFT games are bad for the environment. That is because blockchains are thought to use a ton of energy, which speeds up damage to the environment. Much of this criticism is based on misinformation, as most blockchain games function on proof-of-stake protocols, which require significantly less energy to operate. And many blockchain teams purchase carbon offsets as well.

The other criticism is a little more accurate and represents a fear that many gamers have of NFT games: that the genre could create “pay-to-win” dynamics wherein the people who beat the game or come out on top are buying the best items, weapons, and gear rather than earning it. This would dilute the central premise of gaming and tilt the balance of power to people with deep pockets. It’s a valid criticism, one that NFT game creators will have to work to avoid in the future.

Now, some final thoughts on NFT games.

Final Thoughts on NFT Games

NFT games represent a new field in gaming, in which non-fungible tokens create ownership of in-game items for players, who can then do with the items what they please. This sense of ownership allows for players to make money playing the game and levels the playing field around the world so that people from developing countries can earn top dollar competing in contests.

They do come with controversy, specifically for possibly creating a “pay-to-win” gaming industry future, but pose innumerable benefits as well.