The DeanBeat: The NFT debate at GamesBeat Summit 2022

Our GamesBeat Summit 2022 event is over, and I learned so much across the three days of the event. But it struck me that almost every talk or its accompanying Q&A session at the event touched on the controversial subject of using non-fungible tokens (NFTs) in games.

That’s why our main discussion of blockchain games, dubbed The NFT Debate, was so interesting at the close of the first day on Tuesday. NFTs are being used to authenticate unique digital items in games, and NFTs rely on the security and transparency of the blockchain.

Our pro-NFT debater was David Kim, head of game publishing at Wax Studios, which was started by the founders of the Wax blockchain protocol. The anti-NFT debater was Rami Ismail, an independent game developer who has been making games for 15 years. He is the cofounder of Vlambeer, which made games like Nuclear Throne and Ridiculous Fishing. Jon Radoff, CEO of live services firm Beamable, moderated the debate. What I liked about this debate was that they both had a command of the technology, the arguments, and what could be good or bad for gamers and game developers.

Kim noted that he was pro blockchain technology, but he does not necessarily support every implementation of blockchain so far. And Ismail said blockchain might be useful in games one day, but we’re not there yet.

“I think there’s a lot of misconception out there right now among the general public about what blockchain and NFTs are because what people are seeing is the use case and thinking that that is what the technology is for, rather than understanding the underlying technology and all the potential use cases,” Kim said.

Defining NFTs and blockchain

Kim noted that the “beauty of blockchain is that it is a decentralized database which anybody can access to see the information. This opens up a lot of possibilities over what you currently see in web 2, where all data is centralized and controlled by individual entities.”

He added, “When people think of NFTs unfortunately, they tend to think of Bored Apes or the idea of a JPEG with some kind of certificate of ownership. That is not what an NFT is. That is one use case for NFTs. An NFT actually is the storage unit of data on a blockchain. And that data can be all kinds of things, and that can be used for all kinds of purposes, just like any other data can. Blockchain is just the ledger where that data is all collected together and accessible.”

“My position on the blockchain is not as straight,” Ismail said. “I think blockchain might have interesting applications someday, maybe. I don’t think we’re there. Because the idea of a decentralized database, to me, doesn’t sound that interesting because there is no way to trust information necessarily in a decentralized database.”

Ismail added, “Like for any useful application, in software, or anywhere, you need some sort of authority — somebody who can moderate it, somebody can make sure it’s safe, somebody who can make sure it’s dependable, somebody who can deal with legal issues or economical issues or financial issues.”

He said you can make sure that it’s implemented according to the rules of law across the world in different places.

“So just the idea of it being decentralized to me isn’t that doesn’t actually add anything,” Ismail said. “It actually complicates things. If I’m a game developer, and I want to add a decentralized database to my game, or the content from a decentralized database — or I’m on a website, and I can’t trust that what’s on there, if it’s safe for me or good for me in a fair way. I don’t know if somebody’s going to add something that is subject to copyright, or that is illegal, right? How do you deal with that? So, for me, I’m sure there is some sort of application. I think the most obvious application for blockchain already exists, which is for internal use within companies doing asset management or production line management. That’s what blockchain is really good at.”

Ismail said he agreed with Kim on what the technology is — a digital ledger that can save data.

“We both agree that it’s not just the Bored Ape thing. That’s probably the most cynical implementation of the whole thing,” Ismail said.

Radoff asked the audience if anyone owned a Bored Ape. No one raised a hand among the 130 or so who were in the audience.

“A key aspect of blockchain that people don’t always realize is that blockchain is structured so that it is both decentralized and you can trust the data,” Kim said. “That is the main difference. And the purpose of blockchain is so you can have decentralized trust. Now it doesn’t solve the legal issues, right? You can do things with it. But if you are somebody who is accessing data, for purposes of your project, you get to pick and choose what data your project can access.”

Ismail responded, “We’re conflating two uses of the word ‘trust.’ I can trust that the data in the blockchain is indeed the correct data. I’m not sure if it’s good for me. If I load in everything from a database ….”

Kim said, “But you don’t have to. That’s the whole point. You get to pick and choose what you load in.”

Ismail said, “But at that point, we’re creating a central authority. So then the decentralization isn’t all that.”

Kim said, “The data is there. You control the data, right? You get to control what data your project or game may use. But the point is that people — so if you think about the real-world economy, the world economy is decentralized. If you own something, you can go sell it in a myriad of different ways in a myriad of different places. On the internet, it’s not really possible to do that.”

He noted you can take physical items and sell them on eBay. But he was referring to digital information or digital goods.

“If you own an item in a game, and you want to sell it to somebody else, you really can’t do it except through a centralized system,” Kim said. “But if I own something in the real world, if I own a car, I can sell the car to somebody else in a myriad of different ways because the whole economy is essentially decentralized. So the point of blockchain is to allow similar decentralized activity. [In this economy], people can sell things in a decentralized way, which gives them choice.”

Ismail questioned what choice people have.

“The choice of who they’re going to sell it, what they’re going to sell it for, and where they’re going to sell it,” Kim said.

Ismail responded, “But there’s nothing technologically stopping us from doing that.”

(This was where I didn’t have much sympathy for game developers or game platforms. If they are capable of doing this for gamers, why haven’t they actually done it already? That’s my question. I think blockchain could force them to do more things on behalf of gamers than they actually want to do.)

Kim said, “It’s a legal issue, not a technological issue.”

Ismail asked, “So how does blockchain solve that issue?”

MMO history

Kim said we should take a step back and look at the past 20 years of game industry history since we’ve had massively multiplayer online games. These multiplayer games have digital items that people want to buy and sell. They have been doing it for two decades but without the permission of the game makers.

Kim said that MMO operators have told him they estimate the gray market economy for digital goods sold outside their games — through private arrangements or gold farming — is three times the size of the actual game economy.

“This is all gray market [sales], right? You have to meet somebody somewhere where you can transfer money, and then you also have to agree to meet in-game so you can transfer the item. It’s fraught with risk,” Kim said. “The chances of getting ripped off are huge. And also, on top of that, it causes problems for the game operators because there is a lot of economic activity happening that affects the in-game economy that they have no visibility into.”

The idea with the blockchain is now you can have of these [prohibited or illegal] transactions happening and make them aboveboard on a blockchain, Kim said.

“It’s a totally open ledger. They can see all the data and then manage their economy appropriately. Now, of course, the question becomes, well, why can’t you just do that? Why can’t you with the game operator just allow it?” Kim said.

Money transmitter licenses

Kim added, “And the reason is that there is something called money transmitter licenses. If you’re not familiar with this, basically, if you want to act as a middleman between two parties who are transferring money between each other, you need a money transmitter license. A money transmitter license is incredibly difficult to get in the United States. You have to get a separate license in each state in the country. It’s a process that takes most companies that try and undertake this over two years to accomplish. It’s just completely inefficient for a game company to try and do this on their own.”

I know this is correct based on stories I’ve written on Second Life’s Tilia and Forte, which have both obtained such licenses.

Kim said, “The blockchain allows you to do it. It allows you to essentially take an item. And keep in mind when you’re talking about an in-game item, it’s not the item itself, it is essentially a key, which is digital access to that item in the game. So it’s kind of like, if you had a Steam Key, except it’s for an individual item. And it essentially acts as a deed for that item, right? But it lives outside the game. So the person who owns it can take it and sell it anywhere. And he will go to a market, which has the necessary licenses. And for them, it’s economical to do this, because they’re not just doing transactions for one game. They’re probably doing transactions for just a lot of different projects.”

Radoff noted that what Kim was saying was that some game companies want to design in marketplaces so they can handle the game-item trading so that it doesn’t happen on the side.

“But that still brings me back to why blockchain then, because you can do that with a database?” Ismail asked.

“Except if you do it with a database, somebody has to operate that database, right?” Kim said. “The blockchain is decentralized, no one entity controls or owns. If one entity controls or owns it, that means they’re going to extract all the extra rent.”

Ismail said, “If you’re still doing this, you’re still going to be dependent on a centralized entity to manage, run, and deal with the transaction?”

Kim replied, “No, it’s not. That’s the whole point. The blockchain is not a centralized entity. You can choose. If you look at most blockchains, they have multiple marketplaces. You can go to OpenSea, Rarible, or whatever. The Wax blockchain has half a dozen marketplaces. You can go to and list and sell on. So you, as the owner, get to pick and choose rather than being forced to go only to, say Amazon, right?”

Ismail said, “Again, the technology is just asset management. It’s just data. You’re flipping data. So if there is a database or a blockchain from my end, if I have the middleware to connect with that database, what’s the real benefit to me as a game developer there? If I just if I have an interface where my users can sell and buy stuff, and they have that license to transfer money, then I don’t care what I’m connecting to the MySQL database, the PHP script, or the blockchain. For the user, it doesn’t really make a difference.

Kim replied, “All those kinds of databases have to be operated by a central authority, a company. Think of it this way, right….”

Ismail noted, “You’re still dependent on a central authority for that license because I don’t have that license, I don’t have the money transfer license.”

Kim replied, “but you have a choice of multiple different authorities, who are owners of that license that you can choose from, rather than being stuck with one.”

Radoff noted that with the blockchain, services are built on top of it that people can access if they choose to participate in the economy.

The costs of blockchain games

Radoff said it was obvious that the subject is polarized and he asked Ismail why that is.

“I think a large part of it has to do with whether people think it’s worth the cost,” Ismail said. “And this is a developing technology, and there might in the future be applications. But I think for a lot of people, the benefits are unclear. And the costs are more clear. And the benefit right now, as David was referring to, is that right now that a lot of people see pump and dump schemes and other scams, and those might not be representative of the entire space, but they are a reputational issue with blockchain.”

Ismail added, “On the other side, with NFTs, I don’t think a lot of people just see any structural benefit. Like I said, from a game developer perspective, I don’t really care where my data is being stored. I still deal with a middleman that has that license. And how they set up their thing and their integrations and their applications, whether there’s a RESTful API or not. I’m just going to pick the one that works best for my system, right? And if that integrates, that’s great. If there are seven providers logging into the same database, that’s great. We can already do this. So I think the biggest problem that a lot of game developers are seeing is we tend to be engineer-minded people. We tend to be design-minded people. We tend to be relatively aware of what we’re trying to do and what the best way of achieving that is. I think a lot of people don’t see it. And I’m one of them. I don’t particularly see what this brings me as a benefit. But I do see sort of the cost.

He noted the cost includes environmental issues, “and those are obviously they’re being discussed in a million different ways.”

Ismail added, “I’m seeing lots of pump and dumps. I’m seeing this weird discussion about decentralization, even though all NFT seems to be centralized around OpenSea. And if that goes down, then 90%, of the NFT-related apps stop working because everybody’s building on the same thing because that one works.”

On top of that, Ismail said he sees gold farming happening and exploitation of people in the developing world in play-to-earn games (like Axie Infinity).

“I think a lot of people are seeing a repeat of the earliest parts of the free-to-play era, where a lot of people were just very scared of where that would go,” Ismail said. “And I think in some ways free to play has had very severe repercussions on how we design games and how we build games. Some people might argue there is really good repercussions. Some people still think that it was not the greatest outcome.”

Radoff said, “As a free-to-play game maker, it’s very reminiscent of debates we had a decade ago, and it feels like I’m reliving that right.”

Ismail said, “The main difference that a lot of people are seeing is when it comes to blockchain technology, there is a real cost outside of just we’ll try and if it works, it works. If it doesn’t work, it doesn’t work. I think a lot of people are just kind of tired and worried about this these experiments, and also worried about the direction for the industry because free-to-play worked. And you might argue that it went okay. And in your case, it definitely worked out. But I think a lot of people are worried that the games industry might go towards the direction of play to earn, and I think a lot of people in games are not super excited about that.”

Radoff said he wanted to come back to play to earn. But he asked Kim to talk about the benefits for game developers.

“The practical benefits that they’re seeing is that game developers — a lot of them who are making more traditional games — realize that if they don’t implement some sort of legitimized system, the gray markets will appear. And they will be robust. So their choice is about how am I going to implement a system that’s going to allow people to do this? I can make a deal with the central authority who will operate this marketplace, and I will connect my game directly to their systems, except that central authority doesn’t exist at the moment. Nobody is running that kind of service, or I can connect to a blockchain, which is fairly easy to do. And then once I’m done there, there’s a slew of services on those chains that provide everything that people need to be able to do these transactions. It might not be the easiest UI and UX at the moment. But that will improve because technology improves over time. So that’s the main advantage that most companies are seeing.”

As for the environmental concerns, Kim said most environmental concerns are because of Bitcoin and Ethereum.

“Bitcoin can’t even have NFTs on it anyway. So it has absolutely zero value to gaming. Ethereum doesn’t have a lot of value because its capacity is too low. And by the way, Ethereum only accounts for less than 5% of most blockchain transactions every day. So you’re talking about, you know, a small portion of what blockchain uses are at the moment.”

Ethereum can’t run enough transactions fast enough to accommodate a game, which is why most games use a Layer 2 solution or alternative blockchains like Wax, Kim said.

“The reason they have much higher capacity is that they don’t use proof of work, which also means they’re much more environmentally sound,” Kim said. “The Wax blockchain actually does not utilize any more energy than traditional game servers to process transactions and operate the chain. So in that situation, the energy problem is essentially solved. What people see right now, in terms of what has been implemented so far, are the simplest implementations because this technology is really only been really widely adopted for less than a year now.”

He said the tech has been available for games for perhaps six months, and you can’t build outstanding games in that time frame, Kim said.

Play to earn and exploitation

Radoff brought up play-to-earn games like Axie Infinity. Ismail said it was “horrifying.”

“I find it terrifying. I’m a game developer, and I know how people play games, and people will always maximize for getting as much as possible, right. And the easiest way to do that is to have somebody else do that. And we’re already seeing that we’re already seeing in the earliest play-to-earn games. People outsource it, and they outsource it to more vulnerable people who are in more vulnerable economies, and then you get this weird replication of capitalism in our video games.”

He said you create an extrinsic incentive of obtaining money. And Ismail thinks making money is a bad reason to play games.

“That’s kind of the worst way to have a video game exist,” Ismail said. “To me as a game developer, play is sacred. The playfulness of a game. And then tying that to real-life money in that way, where you can perform well to earn money. Of course, people are going to game that system. They will stand in Destiny. People stood in front of a cave and shot into the same place for six hours straight to get better loot. They’re gonna do the same thing with this. And it’s either going to tank the economy immediately, right? Or it’s going to create these horrible scenarios. You have already seen that in some of the play-to-earn games.”

Games are a form of play and that’s a healthy place for games to be, Ismail said. He is concerned about the social cost of blockchain games, the mental and ethical costs, and the notion of how it’s not sustainable as gamers always find ways to exploit games, as they did with the Diablo III marketplace.

Kim said, “I mean, you’re not incorrect. So players will always find ways to exploit games. And interestingly, what people right now understand as play to earn, we’re kind of actually I think, starting to see that die out. It was an initial implementation that could be done quickly. It wasn’t a great implementation. A lot of economies were very poorly designed, which is why one you had the problem of rapid asset price valuation inflation, right, which was never intended by any of these game designers. It just happened because they didn’t balance the economy correctly initially.”

He noted that led to guilds like Yield Guild Games, which Kim said raised the issue of exploitation. (My own note here is that Yield Guild Games says that it invests money on behalf of guild members and so offers them a chance of owning rather than just farming.)

“What we’re starting to see with a lot of these games are players are learning how to exploit the mechanics to maximize their return as quickly as possible, which is making these games unviable essentially,” Kim acknowledged. “So what I think is going to happen is you’re going to see the current crop of play to earn, which is essentially farming and mining gamified, is going to die.”

He added, “What you what I do know is coming down the pike, as I talked to developers all the time, is the whole breadth and gamut of gaming. Blockchain is going to be incorporated in all different kinds of ways. You know, it’s amazing how many different implementations people find. They’re truly games that are meant to be played, right? I mean, you have to really play them. These are not games, you can just sit there and click. They’re real games.”

And Kim noted that players will play these games and gain ownership of the items in the game.

Ismail said, “I’m not seeing what NFT/ blockchain is adding here. Because if we as an industry agree to do that, we can just do that.”

But Kim noted they will need to have a middleman. And Ismail noted middlemen already exist among the platforms. (Again, Kim addressed this point earlier.) Ismail said we’ll need moderation anyway.

Ismail asked what would happen if someone uploads something illegal to the game. But Kim said that the developer can choose what data from the chain it actually acknowledges. Ismail noted, “We can’t even recognize genitals in Roblox. This is an unsolved problem.”

Kim noted that the only games that your game will recognize are the ones that the game minted.

Then Ismail asked what was the advantage? Kim said you can take the NFT out of the game and sell it to somebody on a secondary marketplace where it can be converted to real money.

“And you as the game developer do not need to deal with money transmitter licenses, know-your-customer (KYC) and [anti-money-laundering laws] AML,” Kim said.

Ismail said that was the same thing that would happen if the game dev hired someone who has that license.

But Kim said nobody is out there really doing that. And he said that with blockchain, consumers will get a choice of secondary market services. If you go through a centralized service like Amazon, and you are a game operator, you are subject to Amazon’s terms and fees.

With the blockchain, the services will have competition, Kim said.

“They are going to dictate what the terms are,” Kim said.

The player side

Radoff asked about the player side.

“I think, again, there are myths and misinformation or misunderstanding of what blockchain and NFTs are,” Kim said. “Most consumers when they think NFTs is they automatically think like JPEGs as certificates of authenticity. They don’t think of it as a game key that gives you access to an item in a game. So I think what will eventually happen, and I think what needs to happen to try and separate some of this is game companies should not go out and say we’re going to do blockchain and NFT.”

He added, “You should launch a game, you should let people play a game, and then say, ‘Alright, now we’re going to have this functionality that’s going to allow you to buy and sell items with each other. And we know you want to do this because people figure out all kinds of crazy ways to do it.’”

He pointed to Fortnite, where you can’t trade items in the game. But if you Google fortnight skins, you will see a bunch of sites that are selling Fortnite skins for real money because they’re just selling the entire account.

“People will figure out a way to do this, they want to do this right now,” Kim said. “They don’t like the idea of NFT and blockchain because they have all these negative perceptions that have nothing to do with the use of blockchain games.”

Ismail said the negative perceptions among players are there for a reason.

“A lot of that is the industries or the people doing NFTs and blockchain’s own fault. I think there might be future implications or applications. For now, the way I’m listening to you really what we’re doing is we’re waiting until blockchain is bound to the same laws as money because eventually, it will be. It is something that trades a lot of money, it will get regulated in the future, and if the biggest advantage is that it’s unregulated now, I’m not sure if I want to invest a lot of future into that. That’s kind of where I’m at.”

Radoff said we didn’t get to a total agreement or solution in the talk, but he found it helpful to hear the spirited debate.

Originally appeared on: TheSpuzz