The Ethereum price has been on an upward rally since the end of 2020, partly due to the Bitcoin-led bull market and partly because NFTs have become the centre of mainstream interest. It’s not every day that artworks, memes, and gifs can sell for millions of dollars. But the blockchain-backed non-fungible tokens—in short, NFTs—have reformed digital asset ownership by turning files into unique, one-of-a-kind collectibles.
As these are minted on the Ethereum or Cardano blockchains, transactions are made through ETH or ADA, essentially creating a full-scale virtual economy that bridges fiat and digital spending. This business model has inspired developers to get a head-start on the hype, innovating the gaming scene for both companies and gamers.
The Early Days of Crypto Gaming
In 2017, CryptoKitties was the first blockchain-based game that gained widespread popularity, prompting users to trade and breed irreplicable NFT kittens for ETH. The game was so popular that the Ethereum network was reportedly over-congested, resulting in astronomical gas fees and opened the discourse for scalability. Regardless, CryptoKitties’ success made a major announcement to the world: people are willing to spend money—in this case, cryptocurrency—on digital PNGs. It marked the starting point for other developers to begin ambitious blockchain-based projects that utilised the same NFT and cryptocurrency-based economy.
The Psychology of In-Game Spending
You might be thinking: what in the world would possess people to spend money on pictures behind a computer screen?
In-game spending has been etched into the industry since the rise of microtransactions. The most common model involves a free-to-play game that houses two currencies: one is free and obtainable through playing, and another is the scarce premium currency that takes plenty of time and effort to accumulate. The only way to conveniently obtain a large number of premium currencies is by spending real-world money. You might be familiar with Fortnite skins and hero loot boxes (a digital form of trading card packs), and even simple games like Candy Crush are known to tempt players with replayability in the form of microtransactions.
In 2020, consumers cumulatively spent $100 billion on apps, of which 80% fell on the gaming category. Most of the games that generated the highest revenue, from Pokemon Go to PUBG MOBILE, are characteristically free-to-play. Their income is derived from players who spend thousands on in-game items, which can grant character customisation and power-ups that elevate the gameplay experience.
The industry for microtransactions is large enough as is, so it doesn’t come as a surprise that NFTs have amassed worldwide interest and gained traction through multi-million dollar spending.
Cryptocurrency And Virtual Products
As digital experiences evolve, so will the value that people associate with virtual goods and services. Even without NFTs in the equation, individual players—known as whales—were willing to spend over $100,000 on microtransactions. But NFTs elevate that value tenfold. Even if a game were to disappear, asset ownership does not. In short, something purchased for a game in 2021 can still be owned by the same person in 2040, even if the game disappears—and granted that the item is not resold.
But how does Cryptocurrency Play into the Equation?
Because NFTs are minted on blockchains that support them (notably Ethereum and Cardano), the only way for them to be bought and sold is to transact on these networks. And for that to happen, you need to use either ETH or ADA. This arrangement is extremely beneficial for the cryptocurrency industry as a whole, as it encourages coin liquidity by intentionally creating a market where the currencies have to be used. Moreover, this model has successfully introduced cryptocurrency use to gaming communities, many of which have been drawn to the play-to-earn aspect of blockchain-based games.
A New Era of Premium Currency
Apart from cryptocurrency liquidity, blockchain games have found other ways to expand the digital economy, turning it into a full-scale operative that involves multiple facets spanning the virtual and real worlds. For instance, the pay-to-win gaming model has been popularized by new blockchain games such as Axie Infinity. The Pokemon-esque game involves collecting, breeding, trading, and battling with Axies, which are unique monster-like characters that can be purchased and sold on NFT marketplaces for ETH. Each player must own three Axies to play the game, intentionally creating a market for NFTs.
But that’s only one pillar of the gameplay. Winning battles grants players small love potions, which can then be traded for the game’s native coin, Axie Infinity (AXS). Afterwhich, players can withdraw the AXS, either as-is or by swapping to another altcoin, to cash out their earnings. This new model has been crucial for providing a lifeline to people in impoverished communities while also enabling a complex gaming economy to thrive.
Other games, like Decentraland, have taken on a different angle by selling virtual real estate for cryptocurrency, earning them millions of dollars over the past few months. Blockchain enables diversity in the gaming economy, offering developers an opportunity to find creative ways of integrating various aspects of the technology into a playable and enjoyable experience, paving a path for the future of gaming.