How NFTs are creating a generational divide between platforms

Today, let’s talk about a fault line that’s beginning to open up in the gaming world, one I suspect will soon be coming to most platforms and app stores. It’s a divide that begins with a simple question: will your platform allow NFTs? Crypto payments? You know … blockchain stuff?

Like it or not, the rise of non-fungible tokens as an engine for fun and profit has been one of the tech world’s big stories in 2021. Using the blockchain to create unique digital objects with verifiable, transferrable ownership has opened up new possibilities in art, digital trading cards, and gaming. At least for the moment, it seems likely that other forms of media will follow.

Recently I’ve written about ways in which NFTs are challenging the current generation’s assumptions about gaming: building a game from the bottom up rather than the top down, as the Loot project is doing; or enabling players to make money directly from their gameplay, as Axie Infinity is. Aleksander Larsen, chief operating officer of Axie’s parent company, told me that he hopes the game will come to mobile app stores, including Apple’s, within the next few months.

But on Friday, it became clear that such games won’t be welcome everywhere. Here’s Mitchell Clark here at The Verge:

Games that use blockchain technology or let users exchange NFTs or cryptocurrencies won’t be allowed on Steam, according to a rule added to Valve’s “What you shouldn’t publish on Steam” list. The change was pointed out by SpacePirate, a developer working on an NFT-based game, who said that the change was because the company doesn’t allow game items that could have real-world value.

Steam, if you’re not familiar, is the largest distributor of PC gaming software in the world. With more than 120 million monthly users, it’s the default place for most PC gamers to buy digital downloads. And last week, as some blockchain-based games had begun to appear on the platform, Steam pulled out the rug from underneath them. Parent company Valve has yet to make a comment beyond its update to the Steam rules.

The developer of Age of Rust, a forthcoming adventure game that will award NFTs to players who solve puzzles, was among those whose titles were removed from the platform. The developer, SpacePirate Games, lamented the move.

“Steam’s point of view is that items have value and they don’t allow items that can have real-world value on their platform,” the game’s official account tweeted. “While I respect their choice, I fundamentally believe that NFTs and blockchain games are the future. It’s why I started this journey with all of you.”

But when one app store door closes, another opens. The Epic Games Store, a Steam rival that the Fortnite maker introduced in 2018, quickly said that it is “open” to considering NFT-based games. Here’s Clark again:

When we asked about allowing games that featured NFTs, Epic told us there’d be some limitations, but that it’s willing to work with “early developers” in the “new field.”

Epic says that the games would have to comply with financial laws, make it clear how the blockchain is used, and have appropriate age ratings. It also says that developers won’t be able to use Epic’s payment service to accept crypto; they would have to use their own payment systems instead.

Among the reasons this came as a surprise is that just weeks earlier, Epic CEO Tim Sweeney had seemed to wash his hands of the blockchain altogether. “We aren’t touching NFTs,” he tweeted, “as the whole field is currently tangled up with an intractable mix of scams, interesting decentralized tech foundations, and scams.”

Sweeney is well within the mainstream of tech commentary when he worries that NFTs are scammy. When I wrote about Axie last week, a lot of you shared similar sentiments with me in the Sidechannel Discord server and in your email replies. Aren’t these NFT projects fundamentally pyramid schemes, you wondered; Why does any of this have to be on the blockchain at all? There are other ways to represent digital scarcity beyond the blockchain, you told me.

In any case, grinding for several hours a day to make money playing a Pokémon clone hardly sounds like most people’s idea of a good time. If it’s a full-time job, can you really even call it a game?

Despite those objections, though, the development continues. Each day brings with it a fresh round of funding announcements for blockchain-based projects, with hundreds of millions of dollars being allocated into crypto-focused startups and VC funds. Games, which have proven to be one of the first crypto projects to attract a user base that does something other than trade money back and forth, often figure significantly in those fundraising announcements. (Here’s $4.6 million for a company that rents Axie monsters to players in exchange for a slice of their income, for example.)

All of which is soon going to put platforms into the same position that Steam found itself in. Do we let these things into the store or not? The easy thing to do is to say “no” — but doing so creates an opportunity for anyone willing to say yes.

To be sure, the sale of in-game items has a checkered history. Blizzard’s popular dungeon crawler Diablo III set up an official in-game auction house a decade ago to let players sell rare swords, armor, and other goods that they had earned in virtual battle. These items weren’t unique in the way NFTs are, but they were rare and had real-world value. Unfortunately, though, Blizzard found that its auction house broke the game entirely: all of a sudden, people could simply pay to win it.

Here’s Bo Moore writing in Wired in 2013, when the auction house was shuttered:

Diablo doesn’t have more dungeons, more bosses, etc. Players just play the same procession of levels on harder and harder difficulty levels, picking up better and better loot. In other words, the loot isn’t just a helping hand towards their ultimate goal – better loot is the ultimate goal. And with the auction house, players found that the best way to obtain it was to just buy it. […]

And the next thing you know, they’re not playing the game anymore. Why would they, when the reward structure that would otherwise motivate them to play was no longer there? Without the promise of better stuff, Diablo was all stick and no carrot.

Games that develop this “pay to win” dynamic are among the most-loathed titles around — but they are very much around. Games that offer free downloads, as many mobile games do, often allow players to pay to gain advantages over their freeloading rivals, even as it worsens the experience for most of the user base. More respectable games, like Fortnite, sell only cosmetic items. But the pay-to-win economy is real.

Of course, there’s no reason that in-game NFTs bought from third parties have to give players advantages in gameplay. A unique Fortnite skin created by a popular artist might have value to both the person who sold it and the person who bought it, and the balance of gameplay wouldn’t change at all.

But even for platforms inclined to support blockchain integrations, there remain a number of hurdles to clear on the policy and user experience side. How and where does the buying and selling take place? Does the platform get a cut of the sale? And if NFTs do affect how the game is played, rather than simply how it looks, how does the developer ensure the game is balanced and accessible to a large number of players?

The questions are coming to gaming first, but it’s easy to imagine them cropping up elsewhere in the new economy. And when they do, platforms will be faced with a choice: shut it all down, as Steam did, and bet that the whole crypto craze will some day fall into the ocean; or be curious about it, the way Epic is, and see if there’s a way to channel all this developer enthusiasm into something creative and profitable.

It’s worth noting that most big believers in the tech world’s other big prediction about the future this year — the metaverse — come down firmly on the side of NFT integration. Mark Zuckerberg described for Facebook employees this summer a world in which people would one day rent NFT art as decorations for parties in virtual reality. The idea of unique NFT skins that people can dress up their avatars in, and take from place to virtual place, is foundational to the metaverse as futurists most often describe it.

Maybe that will all fall into the ocean, too. But one way or another, I think digital scarcity is coming to platforms. And when it does, they’ll have a lot of re-thinking to do. For now, Valve loses nothing by leaving NFTs behind. But there may come a day soon when it’s companies like Valve getting left behind, and developers like SpacePirate laughing all the way to the bank.