The controversy surrounding blockchain technology continues to be one of the hottest topics in 2022. And NFTs in video games, as digital art, and their other digital configurations are no exception.
Polarizing opinions on NFTs have been buzzing around the internet for some time now, whether it’s about their carbon footprint or their value as video game assets. So we’re here to give you a detailed account of this trend — everything from the good to the bad of the fad.
But first, what exactly are NFTs, one of the biggest video game trends in 2022? And why are opinions on these digital entities so divided?
What is an NFT?
The increasing attention to NFTs secures its spot as one of the most anticipated gaming industry trends for 2022. But many are still in the dark about what they are.
Simply put, a non-fungible token (NFT) is anything digital minted on the blockchain.
Okay, maybe that requires further explanation. Essentially, the process of minting converts any digital item into an NFT. It adds this digital item to the blockchain or ledger where all cryptocurrencies and NFTs are found. Then, a record of this transaction (known as a block) is ideally kept on the ledger until another valid transaction occurs.
So through minting, you register digital art or video game assets (anything digital, really) into the ledger, and voila! You’ve got yourself a unique and certified NFT. And because it’s a public ledger, anyone and everyone can see you genuinely own the thing.
Now, it’s important to note there are several ledgers or blockchains in existence, the most popular being Ethereum and Bitcoin. And one of the ways in which these blockchains are different from one another is the system they use to carry out transactions (we’ll get to that later).
What is an NFT in Video Games?
In the context of video games, an NFT is practically the same, except you get to experience and interact with the digital asset as opposed to, say, simply beam with pride knowing you own it.
One of our expert software developers said several blockchain-based video games will make use of these tokens “in its rules, mechanisms, and player interactions.” They’re actually material to the video game’s design.
These NFTs can take the form of avatars or game items, which players “can then swap or trade…with other players,” he said.
However, there are blockchain-based games with NFTs that are solely meant to be admired in-game. Louis Vuitton’s recently released mobile game is an example of this. Players can collect the 30 NFTs in the luxury brand’s mobile game for free and appreciate their design.
And then there are NFT-based video games that encourage users to earn as they play. It’s safe to say the idea of earning money — and earning big — through NFTs is the primary catalyst of the craze.
NFT Craze: The Sudden Spike of Cryptocurrency Interest in Video Games
In 2021, unbelievable news broke about an artist earning millions of dollars for their digital art. American artist Mike Winkelmann, better known as Beeple, created a virtual piece dubbed “Everydays: The First 5000 Days”.
It’s a collage of his work in the last 14 years, and it sold at an auction for an astonishing $69.3 million.
Naturally, this get-rich-quick tale piqued the interest of many and sparked a surge of online news coverage. Through this new technology, artists now appear to have a way of profiting greatly off their work.
How Users Earn Money with NFT Video Games
But the digital art industry is not the only one generating money with blockchain. While on a smaller scale, video games have also provided a large number of users a new way to make a profit with NFTs and cryptocurrencies.
For example, players on the NFT-based game Alien Worlds can earn money by mining tokens and NFTs in the video game’s virtual world. It’s a classic example of the play-to-earn business model, which many NFT-based games embrace.
In a nutshell, this model enables players to trade in-game tokens for cryptocurrency, and then convert cryptocurrency into real money.
Alternatively, NFT game assets can at times be created and traded prior to the development of the game for which it’s intended. A factor that draws people into this is the idea of owning these assets independent of the game itself.
Others, however, believe these NFT game assets have cross-platform capabilities, something that’s not only logistically difficult but also nearly impossible to achieve.
At first glance, the modes of acquiring digital art NFTs and NFT video game assets might look different. But at their core, NFTs are all about ownership certified on the digital ledger.
Just as NFTs in the form of digital art are capable of being sold on online marketplaces, so too are NFTs as video game assets capable of being bought and traded there. Once a transaction is made, the public ledger — carefully secured through a complex computing mechanism — will reflect this change by adding a new block.
A single transaction on the Ethereum blockchain is tantamount to “the power consumption of an average U.S. household over 8.2 days,” Digiconomist says. And with the number of transactions miners and NFT enthusiasts make today — well, you can see why this is a problem.
NFT Controversy: Its Contribution to the Already Escalating Climate Crisis
These past few decades, environmentalists have raised the alarm on climate change’s imminent consequences, bringing to light issues such as excessive plastic production and marine pollution. Now, it appears blockchain technology could pile on the list of growing climate concerns.
Reporting for The Verge, environment journalist Justine Calma explains why this could be the case. The process of minting NFTs is not only energy-intensive, but it’s also intentionally so.
Through a system called proof-of-work (PoW), blockchain technology is able to secure and safeguard cryptocurrencies and NFTs.
This mechanism discourages anyone from tampering with the highly accessible and public ledger, granting it immutability.
The problem is, in order to secure, mine, or validate these assets on the blockchain, computers exhaust computing energy to solve “an arbitrary mathematical puzzle,” Investopedia.com says.
And as we said, this takes up a ton of energy. These “arbitrary mathematical puzzles” require computers to expend loads of electricity, resulting in large emissions of greenhouse gases.
So if you’re wondering what’s causing NFTs and cryptocurrencies to be so demanding energy-wise, know the culprit lies in the method of transacting.
Presently, PoW is the popular way to protect NFTs and cryptocurrencies on the blockchain. Ethereum and Bitcoin rely on this system for security.
An Alternative to the PoW System?
A solution is to use renewable energy instead of fossil fuels. Another is an alternative system called proof-of-stake (PoS). It limits those who have access to the blockchain, allowing less computation- and energy-heavy mechanisms to suffice.
The problem with PoS is it somewhat runs counter to what blockchain technology is trying to do — decentralize the power of transacting.
Because in PoS, control over the digital ledger is not anymore public. Instead, it “delegates control of the network to owners of the token,” River Financial explains. So it’s easy to see why several blockchain platforms are slow to convert to this system.
How Much Does it Apply to NFT Video Games?
But how much do NFTs in video games contribute to this problem? Don’t they form only a small fraction of blockchain technology’s total carbon footprint?
Like we mentioned earlier, people mint NFTs in video games the same way others mint NFT digital art. One transaction could be more damaging to the environment than your average American household’s power consumption in a week.
And according to Statista, millions of users have been active on NFT-based games in the past 30 days. That’s potentially millions of blockchain transactions in the span of a month.
However, the same Statista report also reveals what blockchain platforms these mobile games use. The leading NFT-based game on the chart, Alien Worlds, uses WAX and Binance Smart Chain (BSC) blockchains, both of which operate on a PoS system.
In fact, a majority of the blockchains on the report are PoS, with BSC dominating the list. The PoS model supposedly reduces energy consumption by 99%.
Think tank Earth.org reported in 2021 that PoS blockchain Tezos claims its energy consumption was at 0.00006 Twh every year. On the other hand, Ethereum’s is 107.79 TWh annually, according to Digiconomist. That’s comparable to Netherlands’ power consumption, it adds.
So do NFTs in video games contribute as much harm? Perhaps not, but it’s also worth noting this analysis has been limited to blockchain transactions, discounting other factors like hardware.
What do you think? Is PoS the way to go? We’d love to hear your thoughts in the comments.
Transactions on the blockchain, including ones where NFTs are involved, tend to be energy-inefficient. Through the proof-of-work system, where the digital ledger is public at all times, computers are generating so much power it’s potentially accelerating the effects of climate change.
However, NFTs in video games might be telling a different tale. Through an alternative system called proof-of-stake, which limits access to the blockchain, the energy consumed by blockchain transactions can significantly decrease.
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