The Rise of NFTs and Player Ownership
Blockchain has found solid ground this year with the parabolic rise in popularity and resulting price appreciation. Traditionally the conversation stems from Bitcoin and Ethereum prices but more recently NFTs (Non-Fungible Tokens) have been getting the most attention. With $1.5M virtual property sales (CoinDesk), $1M limited edition 24x24 pixel Punks (CoinDesk), or a $208k digital NBA highlight (Action Network), NFTs are becoming the new art.
This is important in the context of gaming. CS:GO, for example, was doing this before NFTs were popular through a standard exchange where players could sell in-game assets to other players (the highest item sale was for $150k). None of this was done on the blockchain. The issue with not using the blockchain is that Valve (the game maker of CS:GO) controls everything (centralized), they can release any quantity of in-game assets at any time. In theory, Valve could tank the value of any pre-existing assets. In a sense you never really own an asset in CS:GO, you merely purchase the right to use that asset within Valve's own ecosystem.
There are tons of games that offer limited edition assets (think the Black Knight in Fortnite from the Season One battle pass). What games are missing in this model is the ability to actually own your asset. At any time, Epic Games could release the Black Knight in the store and the work every player put in to grind through the battle pass meant nothing. Think of it as a “first edition” trading card and you can see how valuable that would be to the 100s of millions of Fortnite players. This creates a “play to earn” ecosystem that drastically changes how we play games. NFTs would offer proof of ownership, authenticity, and scarcity.
In the era of gaming ownership, I believe the behavioral economic Endowment Effect has relevance. The Endowment Effect describes a circumstance in which an individual places a higher value on an object that they already own than the value they would place on that same object if they did not own it (CS:GO skin). The Endowment Effect can be clearly seen with items that have an emotional or symbolic significance to the individual, which many in-game items often have for players. I am keen to see how player's sense of true ownership changes the way players choose to invest in and play games going forward. Ownership, fueled by NFTs, will help drive ARPU (average revenue per user) in the next era of gaming.
