The Cryptocurrency Shaking Up the Gaming Industry

All about the GameStop transformation process

Image by Milad Fakurian

What is an NFT?

NFTs, or ‘non-fungible tokens’ prove ownership of a particular digital asset. While any traditional digital asset can be replicated easily, NFTs are a technological achievement allowing users to prove ownership of an original file. The name is cumbersome but it’s caught on! What does it mean to be a non-fungible token? Let’s break it down.

Let's start with "tokens". Like Bitcoin, blockchain technology is used to track the transfer of tokens from one user to another. Think of them like digital arcade tokens: each token is identical except for a unique serial number to keep them from being duplicated. "Non-Fungible" is what differentiates NFTs from tokens, and is a bit trickier to explain, especially since fungible wasn’t a commonly used word before NFTs were created and started to find application. To be fungible means to be easily interchangeable, such as a dollar bill or other traditional currency. Fungible currencies have existed in society for centuries, and allow for trade to occur smoothly. Imagine; a farmer has cattle, and wants to buy jewelry for his wife. The jeweler has no need for cattle, though, and so they would be stuck. The introduction of a fungible currency or token allows these parties to trade. A dollar bill is a fungible token because you can trade it in for goods and services; you can use it as an intermediary so you don’t have to go to the store and trade things around your house for food; and one dollar is interchangeable with any other one dollar.

Okay, so NFTs are unique digital tokens, (almost like a deed of ownership) that can’t be used like the dollar, but can be transferred from one person to another using blockchain technology.

DollarFungible.PNG
NonFungible.PNG
Fungible2NonFungible.PNG

So where does the value on an NFT come from?

All things digital are essentially 1s and 0s, but what allows your computer to differentiate a movie file from an audio file is the sequence of those 1s and 0s. Since every digital file is unique, you could use an algorithm to reduce any digital file to a unique standardized line of code. At its core, this is what an NFT is, which means the value of an NFT is derived from the value of the digital file. How much are digital files worth?  Largely, their value is sentimental. Like rare baseball cards, artwork, or Elvis’s guitar, the value comes from what people are willing to pay for them. How much would someone pay for the first YouTube video ever uploaded? What about the first ever tweet?

 

A second factor which builds value is in simplifying complex legacy systems. Remember, NFTs are used to represent digital ownership of items, but they could be pegged to real assets like a deed to a house. How you might ask? That deed to a house most likely exists as a PDF somewhere. You could use the same algorithm to turn that PDF into an NFT and go from there. This also allows users to differentiate copies from originals. All digital files are unique so only one NFT for the original YouTube video can exist. Much like how the Mona Lisa can be copied, you aren’t paying for just the image, you’re paying for the original. The digitization of these traditionally granular structures of organization comes with many benefits such as decentralized security, ease of remote access to information and data, and ease of customization with programming.

This brings up a common misconception that NFTs are a scam because you could just copy and paste digital artwork and not pay a cent for it. Why pay money for the NFT of the first YouTube video when anyone can watch it for free, or anyone can mint their own NFT of the first YouTube video? Because you’d be purchasing THE first YouTube video, the actual original file (much like someone could make a fake deed to your house, but they would not actually own your house). You would own the rights to that file. NFTs act as a convenient intermediary between money and original files.

FileTrade.PNG
FileTrade.PNG

A third factor is built in new revenue streams and direct ownership. As with all crypto assets, NFTs are owned by the person who controls the private keys of the wallet they are in. The owner can buy and sell their assets to others on the same blockchain. However, NFTs bring the customization of ‘smart contracts’, or the ability to further instruct what to do during transactions. Perhaps the best application of this is for resales of NFTs to have a percentage of safe revenue earmarked to return to the original minter of the NFT automatically (royalties).

 

So How Can NFTs Be Used In The Gaming Industry?

Untitled.png

Graphic by catsinbranches

A common surface level criticism of a decentralized gaming marketplace where gamers own the game keys themselves, as opposed to a modern centralized marketplace like Steam, is that publishers would be disincentivized to sell products there. If 100 gamers want to play, but they only sell 50 copies because those 50 keys are passed around, that’s far fewer sales in the long run. However, using NFTs and taking a portion of sales on the marketplace, developers themselves can mint and encourage a secondary market and treat it instead as a new revenue stream entirely.

im-343974.jpeg

The great thing about NFTs is that they can be used to represent any digital asset, even in-game items from video games. Does your friend have a cool set of armor that you want to buy from him? NFTs make that possible. Did you download a game that you’re no longer interested in and want to sell it back to the highest bidder? NFTs make that possible. The truth is, nobody knows exactly what GameStop’s plans for an NFT marketplace are, but what people do know is there is innovative potential for NFTs in the gaming industry.

Everything listed is really only scratching the surface of what is possible with this new technology; NFTs would also be applicable to things like the metaverse and virtual reality. GameStop is one of the few large tech companies making big moves in this space. An NFT marketplace for gamers opens up a whole new world for trading rare items, or even buying and selling games themselves.

Screenshot 2022-09-22 183449.png

The opening of an NFT marketplace has ensured GameStop truly becomes a technology company with a retail component. There’s a lot to be said for getting in on the ground level of NFTs, and being the first public wide scale adoption. NFTs and blockchain are technologies with a wide variety of uses that can revolutionize the way we use the internet and game with each other.