When non-fungible tokens (NFTs) boomed in 2020, video game developers quickly realized that they provided a way for gamers to really “own” their in-game assets. Players could enjoy the gameplay but also potentially earn money by selling or trading in-game NFTs — a payoff for all the unpaid hours spent gaming. 

The metaverse promised to bring video games to a whole new level. The 3D virtual world of metaverses, whether centralized or decentralized, laid the path toward more immersive gameplay: virtual worlds with open-plan, spontaneous design and microeconomies of their own. The metaverse would allow players to be masters of their digital universes — to build and alter their virtual world according to their whims. 

The increasing popularity of both NFTs and metaverses tethered the crypto industry to the video game world, giving rise to Web3 gaming. 

How Video Games Embraced Blockchain

The first successful game to incorporate NFTs was a far cry from the flashy video games we are used to: “CryptoKitties” (launched in 2017) was little more than a trading card game, allowing gamers to breed, create, and trade cartoon cats as NFTs. (It was so successful it briefly ground the Ethereum network to a halt.)

Others followed suit, but it was Axie Infinity, which let gamers breed NFTs and battle them, Pokemon-style, that really put NFT games on the map. 

Using Axie’s play-to-earn model, some players earned between $20,000 in a month to enough money to buy two houses, much higher than their regular salaries in the Philippines. The game benefitted too, boosting its revenue by 400% in June 2021 as the prices of its tokens surged multifold.

While NFT games gained popularity, NFTs graduated into affiliations with existing game franchises like Fortnite to convert in-game assets to NFTs. Given that skins are a billion-dollar industry, it was a big deal.

The concept of in-game NFTs is fairly simple — they represent assets with unique features and qualities, and are logged onto the blockchain, which supposedly allows gamers to truly own and monetize them. It also adds a greater sense of personal investment, and perhaps danger, into a game — if your expensive NFT is on the line, you might not be so cavalier with your in-game decisions. 

Metaverse 

Running in parallel to the NFT craze was the metaverse craze, in which vast “open-world” games would feature digital objects that could be transferred, theoretically, from one game to another, facilitating a kind of coherent virtual life. The first of these games was Etheria, which sold plots of land as non-fungible assets in 2015. 

Then, in 2020, the COVID-19 era produced a boom in virtual worlds promising escape from plagues and lockdowns. Open-world games Decentraland and Sandbox — a crypto rebrand of a previously popular non-crypto game suit — gained huge traction, hosting fashion shows and selling “digital real estate” NFTs at inflated prices, often to brands intent on making inroads into the buzzy new industry. 

Cryptoversy

The most vocal critics of Web3 games are the gamers themselves. 

Some gamers believe that crypto adds a layer of unnecessary complication to the simple gaming experience they crave. They don’t want to get tied up in the process of creating a crypto wallet or managing private keys. 

But there’s a bigger reason — a conflict of interest between gamers and developers. Players want to pay as little as possible to keep playing the same game, while developers are always on the lookout for ways to earn more money. Previously, developers have tried adding premium content, subscriptions, microtransactions, and loot boxes to fill their pockets. 

But that only served to infuriate the gaming community, and NFTs seem to represent an unfortunate logical endpoint, making games more expensive to play while sucking out the fun part, as some gamers believe. 

The extreme was perhaps Axie Infinity, which drew criticism for pioneering a system of  “digital feudalism,” in which poor players would take out NFTs on loan for richer players and kick up a share of their winnings.   

Wealthy gamers started paying for the starter NFTs to “scholars” for anywhere between 30% to 50% of the profit, while the scholars did the actual hard work of playing six to eight hours a day. This caused the profit of the players to drop below the minimum wage in the Philippines, where most of the Axie Infinity players were located. More importantly, it affected the mental health of the scholars while the Axie owners set the terms that suited them.

Besides, while the metaverse seemed like the next new thing, and the biggest brands, like Nike and Starbucks, wanted in, the industry declined drastically after the 2022 collapse in crypto prices. Decentraland and Sandbox saw only 38 and 522 daily active users in October 2022, respectively, according to DappRadar data. 

The Future of Web3 Games

Many gaming giants, including Electronic Arts, have had to backtrack on their NFT plans after receiving flak from their users. Games like Dark Forest, created by the Ethereum community, have experimented with using zk-SNARKs to produce unique gaming experiences that use cryptographic techniques but don’t rely on tokens. 

The gaming community is a long way from embracing NFTs in games with open arms. However, with venture capitalists investing heavily into crypto games, they’re not quite dead yet.