There is one criticism that has long-plagued the discussion around blockchain, cryptocurrency and digital assets: They “don’t have value.”
Maybe there’s some truth to what geriatrics in their equity egos and bond complexes have to say, but their assessment of blockchain and crypto being a “smokeshow” doesn’t matter. There are people making millions whilst old-fashioned folks are sitting on bonds that can’t even beat inflation.
In truth, digital assets have flexed a growth curve that is unprecedented in the world of finance. Suddenly, the banks and agencies that warned of “Bitcoin: The financial antichrist” are starting to lighten up on crypto. In fact, some banks are really leaning into it. Cryptocurrency is still pushing convention, yet few folks are acquainted with it. This is part of why non-fungible tokens (NFTs) are turning so many heads.
NFTs are tokens which represent ownership of collectables and “limited-edition assets” on the blockchain. They’re being used to tokenize digital art, music, trading cards, shoes, land and items from video games. But unlike your Pokemon cards or vinyl records, NFTs are not real. You cannot physically hold an NFT. Unless, of course, we’re talking about holding it in a crypto wallet like Metamask.
This is where agitated finance traditionalists become inexorably mad: “You mean to tell me that a crypto or a token has any worth? That’s outrageous.” For some people, the idea that anything I’m talking about means anything breaks down completely. They’re dismissive. They’re unconsolable. They shake their heads and say “this is ridiculous.” And I’ll admit, they may have a point. What compels someone to spend $333 on a piece of digital art that they cannot even touch, feel or physically hang on their wall? And in what logical world do people spend the price of a small home to acquire a digital Lebron James trading card?
The answer lies in video games. For the handful of gamers out there who have sunk hundreds of hours into online games, they know perfectly well what I’m talking about. But for the unacquainted, maybe some context might help. And what better way to provide it than through my favorite game of all time: Team Fortress 2 (TF2).
Team Fortress 2, at its core, is a comic first-person-shooter game with a lot of gamemodes. I also consider it the litmus for in-game economies. I sunk hundreds of hours into TF2, playing it the way that it was intended. But when I grew up, I realized that you could essentially be paid to play TF2 thanks to its incredibly robust virtual economy.
When gamers play TF2, they’re rewarded with random drops like in-game guns which could be melted down into metal. That metal could be used to buy other in-game weapons, gear, items or keys. Keys were considered the most stable and prized asset in this economy. In order to get one when playing the game alone, you’d have to sink a lot of hours into the game — which I did — because they could be used to open in-game crates.
By opening a crate, you’d essentially be lending your fate to a random number generator. In exchange for the value (a key runs about $2), you’d get a “strange” item such as a gun, hat or clothing item. Sometimes an object in TF2 had varying rarity, with some having more buying and selling interest than others. The same was the case in other games like Counterstrike: Global Offense and ROBLOX.
In some ways, this is the perfect way to frame the discussion around NFTs. Marketplaces for digital games are real, successful and blossoming. There are virtual guns and in-game items in the gaming ecosystem that are worth hundreds, sometimes thousands of dollars. People already swap currency for digital goods — and yes, there are concerns about liquidity. When you spend money on an item in a video game, you may never be able to sell it again. This can either be because you can’t find a buyer, a certain game doesn’t allow you to trade it or you lose access to your account. Those same concerns are plentiful in the NFT market, which is very similar to the digital economies of video games.
People who haven’t played video games (or spent some time online) might not be familiar with these paradigms of value. They might look upon people spending money on virtual games as “wasteful” or “stupid.” They might say that purchasing a virtual golden frying pan for $3,600 is “pointless.” However, people spend money on a lot of frivolous things: Sports cars, lofty homes, expensive meals, expensive jewelry and more. Why? Because they can.
At the end of the day, the reason why people spend money on “pointless” items is because they see value in having it. Maybe it makes them happy. Maybe it’s something they want to flex about to their friends. The main thing that invigorates the economy is a pursuit of social status, perceived wealth and happiness. That’s the case when you’re playing a game, shopping beyond your means or burning money on NFT trading cards.
Throwing Caution to the Wind
In many ways, NFTs right now are a huge trend. These early investors are part of a segment of unorthodox folks making extremely illiquid investments in collectables and digital assets. They are investing in ethereal concepts; things that evade the corporeal. Most of this is happening in benefit of early-adopters, artists, creators and blockchain-centric companies. In many ways, the future of NFTs is uncharted territory. Ultimately, I’d like to remind everybody that the roots of NFTs as we know them today were planted in gaming.
For that reason, I’m quite bullish about applications for NFTs in games like NBA Top Shot, which allows people to collect trading card “highlights” of their favorite NBA players and moments. I’m bullish around the applications of NFTs for representing ownership of real and intangible assets like land, intellectual property and stock. I’m bullish about the possible applications it could have for creators, companies, and charities looking to monetize their presence. These conclusions are informed by years spent playing sandbox games and shooters, spending time in digital communities and monitoring the digital economies of video games. In that sense, I would say that NFT naysayers could learn a few things from playing a game or two — or from keeping an open mind.
Disciples of blockchain, cryptocurrency and NFTs could learn a few things themselves. As crypto nerds from the 2017-2018 bull run learned from altcoins, not all investments in this space are sustainable or valuable. In some cases, holding your bag will result in greater appreciation than buying into these unique investments. There is at least one thing to be learned from crypto-skeptics and financial elitists who turn their nose to crypto enthusiasts: value is arbitrary. Who will take that $208,000 Lebron James trading card off investors’ hands when they want to unload their investment? How many crypto art investors will be able to sell their intangible, ethereal art pieces at the end of this craze?
NFTs: The New Digital Economy
We’ve framed the world of NFTs against the backdrop of gaming. So it’s only fair to flip the script and frame the NFT market as a game all its own. Some players in this game will play to win (to make money), and others will play for fun (to support artists, have a good time or flex a little). Some players will come with fat pockets — namely the miners, investors and crypto fanatics.
A handful of new players will make an incursion into the world of NFTs and blockchain with pocket change. But regardless of how smart or dumb your money is, very few players in this game will be investing. Nearly everybody will be speculating.
Although there are people who have made money playing video games and selling the items they accumulated whilst playing, there are far more people who have burned money in the pursuit of entertainment or fun. That doesn’t matter too much when you’re dropping a few bucks on a hat for your ROBLOX character. In the world of NFTs, real money is being exchanged for many different kinds of assets – and only a handful of those assets will end up being more valuable in the near future. In that sense, NFTs is the newest game in town – and I’m genuinely curious who will win. However, I am increasingly convinced that most will lose.