Cryptocurrency and Computer Games

The virtual worlds of computer gaming are a burgeoning market for the Blockchain.  The game system is monetised through the sale of in-game items, which may in turn provide enhanced gameplay and player advantages.  Within the game system it can take many hours of repetitive gameplay to earn these rewards.  Gamers are looking for a quicker return for their time investment and are willing to purchase instant upgrades or to hack existing accounts to achieve this.  If the gamers are confident that their purchases are secure then they have more incentive to invest in them.   Once the game environment system is in place additional tradeable goods can be produced with comparatively little coding effort.  Many will be created by in-game algorithms.  The creator can bring in additional income by hosting the in-game NFTs on their own cryptocurrency Blockchain.  They will be paying any gas fees to themselves and with influence over the related currency they can control how much is available and its related market price.  The game players can trade their game NFTs and invest in the underlying cryptocurrency.  The game host will be taking a commission on these trades and investments.

It can all work out for both the player and creator but it can also all go horribly wrong.

Bitcoin and Ethereum are the big cryptocurrency players but the full list extends to over 9,400.  400 plus out of the 9,500 total cryptocurrencies are linked to the computer games industry.  Any in-game NFT is linked to some object that only has real value in the game world where it can interact with other elements.  Outside the closed world all that exists are graphics and code snippets.

Axie is a world of creatures not unlike Pokémon who can be bought sold and mated to produce new Axie progeny.  The related coin is AxieInfinity (AXS).  The Axie model is tarred by the reputation of its previous business model and of a $620 million theft of its cryptocurrency in March 2022.  An economy had evolved with gamers buying Axies and renting them out to others while keeping a percentage of the game funds these virtual creatures generated.  The goal is a ‘play to earn’ economy; gameplay could bring in more income than a regular job.  One problem with this model is that it is a pyramid scheme with each upper layer taking a cut from the one below; eventually there will be very little profit left for the lower earners.  The other is that all the income is in in-game cryptocurrency.  As long as that builds in value or even maintains a constant exchange rate with real-world money; investing in or holding that coin makes sense.  The hack tore the bottom out of the coin value, Axie investments became negligible and its whole work economy collapsed.  It should be noted that with some changes in the business model the Axie metaverse survived and is still trading although the value of AXS has dropped from $1.20 to $0.11 in the year from October 2021.

A more successful example is Sandbox, trading with SAND coin.   In the Sandbox users can create games using elements called assets that can be bought and sold.  The virtual world  Decentraland boasts that it is owned by its users.  In-game items including clothes and fashion accessories are traded in MANA coin.

All these NFT specific coins can be bought and sold outside of the host engine although the total number of coin units in play is under the control of the engine owners and that will have an effect on their liquidity.

Trading in NFT assets that are specifically designed for a game or virtual world makes most sense only for those with a strong knowledge of that world.  It allows the user to get some use out of the asset apart from looking at it on screen and estimating its current trading value.  A knowledge of how and where the asset will be used allows more valuable items to be crafted for the same design input.  There is also the better chance of spotting undervalued assets in the marketplace.  The long term future of this sort of asset is limited because the system that houses them is unlikely to last long in its current format.  The list of long running computer game franchises is short.  Even there the changes in technology and graphics mean there is little in common between say World of Warcraft in 2007 and now.

This does not preclude the potential income to be made from creation, buying and selling in the medium term.  As the NFT coins used by many of these systems depend on the viability of those closed worlds it is best to transfer any surplus funds into old style cash rather than leaving them as NFT coin and trusting to the market.