I was searching on Clubhouse again this week for the social zeitgeist about games. On the social audio app, I listened to a session panel on the future of art with rapper and investor M.C. Hammer as a speaker in the room. Gabe Leydon, the former CEO of Machine Zone, was also present. More than 1,000 people were listening. And they were talking about non-fungible tokens, or NFTs, which use blockchain technology to uniquely identify digital objects, so that you can verify authenticity and rarity.
Before your eyes glaze over, consider how the nascent technology of NFTs — which has benefited from the craze stirred by Elon Musk‘s endorsement (and his wife/musician Grimes), Bitcoin breaking $50,000, GameStop shareholders’ grassroots revolt against Wall Street, and NBA Top Shot (listen to this ESPN podcast about it) — could transform games in the same way that mobile did. We know about the hype stirred by Musk and others. Buyer beware.
But NBA Top Shot (a digital take on collectible basketball cards) is giving NFTs an enormous boost, and it’s why Google searches for “NFTs” skyrocketed in the last month. Published by Animoca Brands and built by Dappler Labs, NBA Top Shot has surpassed $100 million in sales, five months after going public to a worldwide audience. Revenue of $60 million has been generated from 60,000 users in the last week alone. By comparison, Dappler Labs’ CryptoKitties — where you simply breed and buy and sell kittens — has sold more than $40 million to date since 2017.
If you remember, many industry people mocked mobile games a decade ago, before in-app purchases and the free-to-play business model turned it into the largest game industry on Earth, accounting for more than half of the $174.9 billion industry in 2020, according to market researcher Newzoo. Animoca Brands and Dappler Labs plan to follow NBA Top Shot with a game that will use NFTs and a major brand. They hope that will give NFT gaming an equally big moment.
NFT assets grew from $40.9 million in 2018 to more than $338 million in 2020, according to Nonfungible.com, which tracks the market. That was with only 150,000 people participating in the market. Some are predicting it could grow to $1.3 billion in 2021, with growth in art, gaming, sports, and collectibles. You could write these people off as NFT freaks, like the GameStop-crazed WallStreetBets kiddies on Reddit. We can make fun of that fact that Genies sold an NFT digital item celebrating soccer star Mesut Ozil for more than $500,000. But what if these crazy people know something that we don’t?
From the mobile game boom to NFTs
In the Clubhouse room, Leydon talked about the long slog through mobile games, and how he had to once sit in Apple’s lobby for 18 hours as he sought to find someone who could tell him how to fix his app. He eventually figured out how to make lots of money through in-app purchases, and Machine Zone’s games made billions of dollars.
Leydon said that NFTs have their challenges, like not being easy to use or display. But he said the market felt like the early days of the iPhone and that he fully believes that NFTs will change the gaming industry.
“The space is really early,” Leydon said. “I would describe NFT space as broken, as barely functioning. I was very fortunate to be at the beginning of the iPhone, and, more importantly, the beginning of in-app purchases. And I rode that wave up all the way up. What mattered was everybody was buying iPhones and Androids. And they all had in-app purchases. Everybody had to put their credit card to connect to their phone. So it made it very, very easy for me to be successful. And with NFT I see the exact same thing going on.”
Leydon believes that we’re in a once-in-a-lifetime opportunity.
“I think NFTs are going to be the first real breakaway crypto that are not necessarily tied to the success of Bitcoin,” Leydon said. “In a few years, if Bitcoin totally failed and went to zero, I don’t think it would have any effect on it. NFTs are going to absolutely explode. This is going to be really, really big, in my opinion. It’s going to end up being bigger than crypto just because it’s going to affect all software.”
Others in the room said it was motivating and validating for Leydon to say that, as NFTs have spent their time out in the cold, and now they’re coming to a warmer, or hotter, space.
“Gaming is going to be big. People spend a lot of money in games. When they quit a game, that money is gone. Your investment is gone. It doesn’t mean anything,” Leydon said. “So if people are willing to spend that kind of money in something where if they stopped logging in, it has no value. What happens when, if they stop logging in, they sell what they bought. It will change the whole nature of video games. It won’t be spending anymore. It will be investing. So it totally changes everything.”
Not so crazy
Leydon isn’t the lone convert. Yat Siu, the chairman of Animoca Brands — the parent company of The Sandbox, Quidd, Nway, and other successful studios — said in an interview that it seemed crazy in 2019 when his company successfully sold an F1 Delta Time racing car with NFT authentication for more than $113,000.
Now, it doesn’t seem so crazy.
“What we’re seeing now is the generation of people recognizing that they’re in a rental economy and they are moving toward property ownership, toward the amplification of money,” Siu said. “If you think of it that way, it doesn’t seem that crazy.”
If you own a piece of property in a game, you no longer have to pay rent on it every month, and you can think of it as an investment. You could make money when you sell it.
“That’s why it doesn’t seem so crazy,” Siu said.
Siu’s company is betting that it can make money from the combination of games — which attract a critical mass of players — and unique assets like virtual real estate.
Animoca Brands is also betting on cryptocurrency in its games such as MotoGP Ignition, as it has created its own currency to offer as rewards to players that are loyal. Those players come back more, and they make the assets like virtual real estate more valuable.
But the cryptocurrency trend is very different from the NFT. While cryptocurrencies such as Animoca’s REVV are interchangeable (or fungible), the NFTs are not. Each NFT is different, and so it introduces the idea of a one-of-a-kind property, something that can be considered valuable because of its rarity.
NFTs got started on the Ethereum cryptocurrency platform in 2017 with CryptoPunks. But it was put to the test as Bitcoin’s collapse took the whole cryptocurrency market down in 2018. The advantage was that NFTs are unique and, because the full description is embedded in the blockchain, it is easy to verify its origins and its uniqueness.
How transformative will NFTs be?
Siu believes that NFTs will affect the way that we will work, live, and play.
“If you can play for something that is valuable to you, then why would you choose to play in a game where there is no value,” Siu said. “We are not saying traditional games will go away. But we do believe in this thesis that it’s better for the player to play in an environment when you have some ownership.”
Siu believes every game company will be forced to participate in NFTs because the attractions are so strong for players.
In the past, players were more like serfs, working for the lord of the estate. These walled gardens generate money for the game company, and its shareholders, but nothing goes to the players. Those walled gardens could make the rules and kick out the players who broke the rules. And the players didn’t get to take the things they bought with them when they left. Now, if a game shuts down, the player can’t take their assets and move to another game.
“There was ignorance. But the moment people see something better, they realize they want it,” Siu said. “We’ve seen how history has played out that way. They saw America. And the French Revolution became an unstoppable movement.”
To get to a bigger audience, Animoca Brands and others are experimenting, putting the items on new chains such as Flow. Yield Guild Games announced this month it had bought 88 plots of Savannah land in Axie Infinity, and it also bought a 12×12 estate in Sandbox. The total price for the transactions was more than $100,000.
Last month, Polyient Games bought a citadel in Mirandus, a fantasy game operated by Eric Schiermeyer’s Gala Games for more than $800,000. I spoke to Craig Russo, director of innovation at Polyient, about NFTs, blockchain, and cryptocurrency in June of 2020. That feels like ancient history.
“We’re in a series of inflection points, and we’re definitely in one right now,” he said this week in an interview. “It’s a very exciting time.”
He credits Bitcoin’s rise for some of the excitement, but he’s also aware that Bitcoin’s fall is what dragged NFTs down for a while as well in the past.
“What we’ve seen is that NFTs have served as a true digital alternative asset, and the capital inflows are a function of the broader bullishness of the market,” Russo said. “It’s an alternative to traditional cryptocurrencies, and it’s not just limited to social or gaming. It can be applied to financial markets and real-world assets, like owning a piece of the Red Sox or real estate. It’s a flexible asset type and that’s why things are really starting to take off. In another six months, I can’t imagine where we will be.”
But something is behind this passion, as Akash Nigam, CEO of Genies, told me this week. The people who bought the soccer star’s NFT items were emotional because he was returning to a team in his home country of Turkey. And he announced this through Genies, which makes virtual avatars that people can use to represent their own personalities.
Siu also sees passion in those who want to preserve special moments, like sporting events where they met celebrities. As with the NBA Top Shot app, you can memorialize the moment with an NFT, which proves that you’re the owner of that moment. Rather than looking at it as an investment, people look at collectibles as a kind of emotional memory, one they’ll cherish. I can see this in how I’ve never brought myself to sell pieces of my Amazing Spider-Man and Star Wars comics (as you might in Animoca Brands’ Quidd digital collectibles app). In a game, I could buy an NFT that memorializes my completion of Red Dead Redemption 2, where it captures everything I did in the game and follows my unique path through that game. I could show that to people, maybe, sometime in the future and recount it with pride. I would pay for that.
“It’s more about the fact that the value of the assets are part of the experience,” Siu said. “What makes it valuable as a collectible is that it’s an emotional and cultural moment. I can go deeper into the experience, and the more connected I become to it. I can express myself, and have a sword with 50 kills on it, or maybe it’s something my son used, and we had a great moment with it. We’ve just scratched the surface of that.”
He added, “Within the generations or the family where that item is held, it is priceless. And this is a power of non-fungible tokens because every object has some scarcity. It’s like your wedding ring. It’s not that valuable to others, but yours is your dream, your story.”
Animoca Brands has been acquiring companies to get ready for this day, picking up properties such as The Sandbox, whose CEO Arthur Madrid spoke about blockchain and games at our recent metaverse event.
The Sandbox is a virtual world where players can build and monetize their own gaming experiences. The user own their creations as NFTs.
“I think people are truly blown away by the amount of money that players spend in digital assets — hundreds, thousands, and probably millions of dollars spent on digital assets,” Madrid said. “I think making those assets NFTs, building an NFT economy, is going to add a new layer on top of the existing digital economy.”
Sandbox has created a user-generated content world like Roblox and Minecraft. It is far smaller than its rivals, but it has NFTs. It recently sold more than $1.49 million worth of virtual land in a part of the game sponsored by Atari. Such brands can be very powerful about bringing in more mainstream consumers into the market, as we saw with the popularity of NBA Top Shots, Siu said.
“What Top Shot did amazingly well is they brought in the crypto audience, but they also brought in the non-crypto people,” Siu said. “I think the moment has come now. Six months ago, people didn’t even know what an NFT was.”
So I leave it to you. Are they all nuts, living in a simulated reality? Or are the rest of us the crazy ones?
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