Non-Fungible Tokens or NFTs prove ownership of digital assets. An NFT assigns a unique and non-interchangeable certificate on the virtual item and confirms ownership via the blockchain. And the use of NFTs to sell digital art worth millions of dollars led to many developers seeing its potential for gamers to make money on their platform.

Now the question is, is this a good thing? Can people now make a living by playing online games? Or is this going to be the rise of mega-corporations taking advantage of the system, illicitly making millions off people?

Investigate the issue of play-to-earn below.

Groundbreaking Technology

Blockchain technology gave birth to the idea of the NFT. By assigning a unique identifier to a virtual object, one can now prove ownership of easily copied files. For example, let's look at the sale of a short looping video called CROSSROAD.

Because it's an online file, almost anyone can download, copy, and share it. But since it was sold as an NFT, the buyer holding that token can prove that they are the sole owner of this file. It's like owning the Mona Lisa and having a certificate of authenticity to verify that your copy is original.

You can look at it this way. Because Leonardo Da Vinci has been dead for over 500 years, the Mona Lisa is considered public domain. So if somebody makes copies of the painting and prints it on a shirt, the owner of the original piece—the French Republic—can't stop that. They also don't get royalties for every sale made.

Related: The Nine Different Types of NFTs

However, since the French government can prove the painting's authenticity via its provenance, the Mona Lisa in the Louvre is considered priceless. In contrast, the Mona Lisa shirt you bought outside the museum would probably be at best worth $10.

The same is true for NFTs. Because it provides provenance of whatever digital asset you purchase, like the CROSSROAD video, you can then prove that the asset you're holding is original—meaning anyone can trace the origin of the file directly back to the artist, as well as confirming who owns it.

How NFTs Went Mainstream

As the pandemic ravaged jobs and businesses worldwide, many people started looking for alternative ways to earn online. One such method of making money is through a title called Axie Infinity. The concept behind this game is similar to Pokémon, where players collect, raise, breed, battle, and trade digital creatures.

Playing this game usually nets around $400 a month. However, this can vary based on the exchange rate of the game's cryptocurrency and the US dollar. But since it's an online game, it doesn't require special skills to play, making it a viable way of earning a living for many.

By June 2021, this game gained popularity in the Philippines. This was due to viral posts of several players displaying their achievements, like purchasing a new house, as a result of playing the game. Several have also started a "scholarship" program, where some players loan out their creatures to those who cannot afford to invest in exchange for a cut of the profits. As of September 2021, most Axie players are Filipinos.

How Players and Companies Earn With NFTs

a gamer playing in a lan party

With most video games, you typically have to purchase a copy to start playing. However, NFT-based games are generally free to download. But to start playing, you have to buy NFTs. For Axie Infinity, these are creatures. For other games, it can be a hero, armor, or weapons.

As you play most NFT games, instead of just earning experience and badges with every achievement, you also get a small amount of cryptocurrency that the game developer uses. You can then use them to buy more in-game items or cash them out and convert them into local currency.

Some games also allow you to buy and sell NFTs to and from other players. That way, new players can get items they desire without grinding for it—they're just trading money for time. And for every in-game transaction that occurs, the developers usually take a percentage cut.

online payment for buying an in-game NFT asset

As more people become interested in the game and invest their money in the game's NFTs, the players who got into the game earlier can sell their NFTs and make money. And for every executed transaction, the game developer also earns.

Meanwhile, other players choose to grind their way into the game and convert the cryptocurrencies they earn from playing to local currency.

The company basically makes money when an in-game NFT is traded from one person to another. And it's just the interest in the game that allows them to keep on earning money and expanding their in-game universe.

Volatility and the Issue of Supply and Demand

However, as experience has taught us, cryptocurrencies are notoriously volatile. If you look at Bitcoin, you can see its prices fluctuate widely—starting from a dollar in 2011 to jumping to $20,000 in 2017 and then dropping to $5,000 in 2020. In April 2021, it rose to $60,000, then dropped to $30,000 in May. As of September 2021, it's currently at over $50,000 a piece.

Random things easily affected cryptocurrencies. For example, when Elon Musk tweeted a photo of his dog, the value of the Shiba Inu (SHIB) cryptocurrency jumped by almost 91%.

That is also the issue with cryptocurrency that most games use. Because they're primarily based on a specific game or have a limited user base, random events could easily cause its value to fluctuate widely.

So if you invested, say, one Bitcoin to buy a substantial virtual property, and then the exchange rate suddenly drops to $10,000 per Bitcoin because Tesla will no longer accept it as payment for their cars, then you would have lost $40,000 overnight.

Furthermore, a game's cryptocurrency would only have value if there is demand. A game developer only makes money if they have continuous transactions in their game. So as long as people are interested in playing and buying NFTs, the developer will make money.

black and white crypto price graph

But since many play these NFT games for the sole purpose of investing their money, if they cannot get reasonable returns from the game, they may lose interest. This could then spiral into the game losing players, which means fewer transactions fees.

As demand for the game drops, this could cause the value of its NFT and associated cryptocurrency to drop further. It will be a vicious cycle that could lead to the game becoming unprofitable for the developer to run.

Worst of all, if you've invested late into the game and then the developer suddenly closes, then you're going to be left holding useless NFT assets.

It's No Longer Just a Game Anymore

In the end, NFTs can be a valuable tool for tracing ownership. But if you're looking to earn money while playing a game, then it's not just a game anymore. It's either an investment or a living, thus raising the stakes a whole lot more.

wasted player

Currently, most players of NFT-based games do so because they're making money out of it. That's the only value they get from playing the game. But if you cross a popular game, like Grand Theft Auto Online, with NFTs, then the mixture of its entertainment value and earning potential would be groundbreaking.

There's potentially a huge market there, where players could potentially turn the GTA into its own vast economy. You could find full-time players grinding day in and day out and then selling the properties they made to other players who don't have the time to spend hours on the game per day.

It's like entering the OASIS from Ready Player One and then finding players selling in-game assets to make your experience in the game better.

However, if you're planning to follow this route of "investing", where you become a seller of in-game NFT assets or by being a "professional gamer", making money by playing, then you should take note of the risks.

In-game NFT assets are only valuable as long as there's interest in it. If the game loses popularity and consequently shuts down, then you're at risk of losing your entire investment.

This is not financial advice. If you're interested in any form of investment, you should approach a licensed financial adviser who can give you the best advice based on your needs and risk appetite.