At the beginning of 2021, humanity has found a new reason to go crazy. The very first post in the history of Twitter, made by platform founder Jack Dorsey, allegedly went under the hammer for almost three billion euros. A short highlight from an NBA match was “sold” for $208,000, and a rainbow GIF with Nyan Cat suddenly became someone’s property and not just to belong, but to cost a whooping 600 thousand dollars.
Behind these, without exaggeration, strange and even absurd news lies the same abbreviation – NFT. Cat GIFs, LeBron James videos, memes, mashups, tweets, Reddit posts, everything can be instantly linked to an online token that will categorically confirm your ownership of that particular file, picture, web page, or even an actual physical one. an object. Or not?
In this article, we will analyze the phenomenal success of NFT, explain the basic principles of the sensational tokens and find out how to distinguish an honest NFT project in the world of video games from PR and swindle.
What is NFT and how do tokens play with our instincts
To understand how this works, you should literally parse the abbreviation NFT. NF stands for “non-fungible” or “non-interchangeable”. The word Fungible in English is used as a specific economic term for goods that are absolutely indistinguishable from each other, which means that they or their parts can be painlessly replaced.
For example, when we want to buy a smartphone, we find it on the website of an online store or on a real shelf and place an order. We can choose a brand, a colour, a specific model, but in the end, we don’t care which particular box with a gadget out of hundreds of the same ones will be taken from the warehouse in order to later give it to the checkout. A brand new smartphone from the store is absolutely interchangeable.
However, after a year of active use, the same gadget will change its status. Now our personal memories are connected with it, our photos and videos are stored here, our contacts, bank details, business correspondence and nudes are attached to it. We can apply a pattern to it to our taste, customize by replacing individual parts and adding new ones and it will become unique, only ours and no one else’s. It will become Non-fungible.
The concept of the uniqueness of a particular product follows from the phenomenon of non-interchangeability and if the product has no analogues, it costs much more. That’s why original memes and man-made highlights from basketball games are so expensive – the buyer himself determines the degree of their significance and pays for it in accordance with his own ideas of artistic value.
Here comes the last letter in the abbreviation – T (token). To understand what it is, one should clearly understand how blockchain technology works. In most transactions, the process of verifying purchases and sales and money transfers is centralized – we trust banks to do this. Employees and algorithms check our account data and decide whether our current balance allows us to make this or that transaction.
The decision on the transaction is made by a legal entity – a bank, which directly carries out the transaction on our behalf. Blockchain technology excludes banking structures from this chain – the load on money transfer calculations is transferred to hundreds of thousands of computing systems scattered around the world but included in a single network.
Each of these computers registers transactions and publishes transaction data in the public domain. Absolutely every person can enter the network and, knowing the buyer’s data, trace the entire history of his transactions from the moment of registration in the network.
Total transparency and publication of data on all transactions without exception provide an increased value of NFT. You declare your “acquisition” of the same gif with a cat to the whole world and, once published, this information cannot be changed in any way.
When buying a funny animation using blockchain technology, you forever leave in the digital space a certificate of your unique right to it – as a result of each successful operation, you receive the very token that contains data about the transaction, the seller, the buyer and the amount that was on goods spent. The most important thing in transactions using NFT is the ability to claim an indisputable right to use. At least, we are already accustomed to thinking so, but more on that below.
The hype around NFTs is pure psychology. Humanity has received a tool with which it can claim its rights to a particular asset in the public domain, literally announce purchases to the whole world. Speculation in non-fungible tokens can easily be interpreted as manipulation of our vanity.
Thus, NFTs can perform several functions at once: a means for claiming rights to a digital object or work, an object of exchange and speculative trade, as well as a kind of virtual exhibit – a digital token, due to its properties, can store data about a work of art indefinitely and acquire additional value over time.
How NFT works and how to create your own token
Most non-fungible tokens operate on the ERC-1155, ERC-20 and ERC-721 standards of the Ethereum blockchain. ERC-721 was originally created specifically for NFT and contained unique identifiers that made it possible to track all transactions involving the token, all its owners from the moment of creation, and the objects that are attached to it. After the resounding success of NFTs such as CryptoPunks and CryptoKitties, it has become the most popular format for registering new tokens.
However, now the ERC-1155 standard is gaining more and more popularity. It allows you to create smart contracts (algorithms responsible for the transaction) containing several tokens of different types at once: both NFT and fungible ones. ERC-1155 was a breakthrough in the field of blockchain technologies: thanks to the new standard, the so-called gas fee – an analogue of the commission for making a transaction – has significantly decreased.
To create and subsequently sell your own token, you need at least three things: directly the “object of the transaction”, an online wallet in the necessary cryptocurrency and intermediary service. As an experiment, you can take any photo of yourself, upload it to the Mintable service, which allows you to create NFTs without a fee, and then add the resulting digital token to your own wallet.
The uniqueness of the NFT is ensured by the file to which the token is linked, and the wallet itself. By creating his own account in the system, the user automatically generates an individual key, which will subsequently be put as a signature on all tokens that will be placed here or passed through it. It is thanks to these signature keys that the system allows tracking all NFT owners without exception from the moment they appear.
By itself, the token does not equate to the object that you wish to sell. This is only a certificate confirming the unique rights of the owner associated with a particular product. Here you should pay attention to three key parameters: tokenID, smart contract address and copyright status. The first two parameters are sent directly to the object, its seller and the current “owner”, while the copyright status is directly responsible for the use of the asset linked to the token.
NFT allows you to claim undeniable rights to a specific digital object and track the entire history of ownership of a particular asset. But what exactly are these rights? Owning an NFT does not necessarily mean owning a particular object attached to it and this is where it gets really interesting.
NFT and questions of law. How digital content creators protect NFT creations from scammers and what we actually buy and sell
We have not yet touched on one of the key problems of all online content – banal copy-paste. It is the issue of protecting rights in the digital space and regulating the entire NFT market that creates in the eyes of the public the idea of non-fungible tokens as another bubble that is about to burst. However, the media themselves, making the same mistake over and over again, create this excitement.
Take as an example the story of Jack Dorsey’s “buying” a tweet. Dorsey, as a great enthusiast of cryptocurrencies and cryptothemes, made NFT, tying it to the first publication in the history of the platform and he sold exactly the token tied to the tweet. However, the flywheel of the media could no longer be stopped – print media around the world unanimously proclaimed: Jack Dorsey sold his first tweet and it was not true from the first to the last word.
More and more new news threw coal into the accelerating “hype train”: NFT on the mobile grinder Axie Infinity went under the hammer for $1.5 million, Visa acquired NFT on pixelated CryptoPunks for $150,000, and a gray pixel square was sold for $1.3 million.
Jack Dorsey didn’t sell the copyright on his first tweet! Winners of NFT auctions often only acquire the right to create their own copy of the original digital object. At worst, it’s just an online document with a unique background.
In fact, as mentioned earlier, NFT is just a certificate confirming certain rights associated with an object. In the chain of resale of a digital work, in the vast majority of cases, the original is involved only once – when the token is directly created. Then, with each new sale, a local copy of the object put up for auction is created, and with each repetition, its value steadily decreases.
You can protect the value and uniqueness of the token by setting two parameters: resellable and copyright_transfer. The first is responsible for the possibility of NFT resale, the second is directly responsible for the transfer of copyright as a result of a transaction for a file that is attached to it. If the second parameter is set to false, there can no longer be any possibility of copying the linked file for the purpose of resale – this will be a direct violation of copyright.
As noted by Andres Guadamuz, already cited above, the right to transfer intellectual property can still be tied to the sale of a particular token – this parameter is set when it is formed. And in this case, by purchasing a digital token, you really become the owner of this or that content.
Despite the fact that the NFT itself, as a collection of metadata about a work, looks rather primitive, the fact of a transaction between two verified persons with its help can indeed be proven in court. Here is what the Berne Convention for the Protection of Literary and Artistic Works of 1886, the main document in the field of intellectual property, says about this.
Therefore, the question arises only for the legitimacy of the transaction itself. As mentioned above, the fact of a transaction and transfer of a token from one person to another is recorded in smart contracts. In a number of countries, smart contracts have already been officially recognized and incorporated into national legislation.
However, NFT itself does nothing to protect content creators from theft and loss of revenue. It is physically impossible to steal the original token, but nothing prevents you from copying the file to which the NFT put up for auction is linked and creating your own token. Unfortunately, we have to state that the issue of NFT plagiarism is regulated exclusively by the decentralized Internet community, algorithms like those we see on Instagram and Youtube, and the administrations of specific platforms. Therefore, each individual episode of online theft of intellectual property can end differently.
As a rule, tokens with digital copies of works linked to them are traded on specially created marketplaces. Such communities independently take on the protection of the rights of creators. An example is the online platform Foundation, which highlighted the issue of protecting the copyright of its users in internal rules.
Also, within individual platforms, automated algorithms for detecting copyright infringements are often used, which simplifies the process of identifying criminals.
Remember: when you buy an NFT, you are not buying a digital work of art, you are buying a token certificate, which may guarantee your exclusive ownership rights, or may not guarantee anything other than the ability to own a unique digital token. Read the text, don’t look at the picture. Thankfully, there’s not much text.
Video games – how to distinguish innovation from microtransactions in a new wrapper
News about video games with NFTs tied to them arouses both righteous anger and genuine interest among gamers. Under public pressure, the creators of STALKER 2 went back down, and the revenue of the Ubisoft online store with skins with newfangled technology is even calculated in three-digit amounts.
On the other hand, the mobile Axie Infinity regularly becomes a source of sensations, and the incorrigible romantic Peter Molyneux has already announced record revenues for the so far just announced NFT game Legacy. Why do some initiatives with blockchain technology “shoot”, while others are doomed to shame and ridicule?
An example of a video game that has shined most brightly in the NFT market is the mobile Axie Infinity. In it, players grow cute Pokemon-like monsters, crossbreed, upgrade and pit them in gacha-style online skirmishes. However, due to the system of genetics and pumping of each pet, gamers create unique creatures, each of which can be sold on the internal gaming market for cryptocurrency.
Immediately after its creation, each of the pets is assigned an NFT, which can later be sold along with the monster – in the game, the sale of a token directly corresponds to the sale of an asset. Axie Infinity has developed the idea of play-to-earn so successfully that thousands of people are leaving their jobs and heading into a new hobby, providing food for themselves and their families.
A fundamentally different example with his Legacy was presented by Peter Molyneux. He tied crypto tokens to various plots of land in his future game, and it worked – as of December 16, the unreleased project had already earned $ 53 million. The game designer himself intends to create a full-fledged business simulator with MMO elements based on blockchain technology.
Land in Legacy is not just an asset for donated currency, the creator emphasizes: in the territories acquired by players, other gamers will develop their online business by paying rent to virtual landlords in local currency – LegacyCoin.
In both of these cases, the key feature of NFTs works – the asset tied to them must be unique, and the number of tokens can be huge, but not unlimited. The lands in Peter Molyneux’s Legacy will run out sooner or later, just like the new monster variations in Axie Infinity. And the players, driven by the realization of this, continue to grind hard and invest in the project in order to subsequently extract increased profits through speculation when the market begins to experience a natural shortage.
The success of all video game projects based on blockchain and NFT technologies depends on three key parameters.
- Transparency and stability . Players within the system must have full access to the rules under which they can produce NFTs and trade them in the internal system. The gamer must understand what he buys and sells and what exactly ensures the individuality of the object of the transaction. The token must guarantee the inseparable ownership of a particular in-game item.
- The uniqueness of game assets . Whether it’s monsters, cannons, earth, houses or armor – all these items must have a distinguishable and explainable personality. This revitalizes the potential in-game economy by encouraging gamers to both level themselves and interact with each other.
- Limited in-game resources . The number of unique tokens should be limited. As you approach the limit of opportunities to produce something new, the value of the products of the players will naturally increase.
As you can see, all three rules are directly related to the very essence of cryptocurrencies and non-fungible tokens: they exist in a limited number, their uniqueness is explained by being tied to a specific unique real or virtual object, and the rules for their production and implementation are clear and accessible to every gamer.
It can be assumed that the recent high-profile failures of major developers and publishers are connected precisely with the desire to cheat – slip gamers the same doughnut, only more expensive. The honest creation of the NFT market within the game provides for the manifestation of certain willpower on the part of the developer: full control over the game economy will be replaced by a kind of arbitrage, where moderators will have to stop the actions of unscrupulous gamers, but not interfere in the economic processes themselves.
As a conclusion, we suggest imagining in which already existing large games, with the rules announced above, the NFT system and the in-game economy tied to it would look organic and bring the play-to-earn concept to a new level.
Escape from Tarkov
The project of the Battlestate Games studio may well become a platform for the implementation of blockchain innovation in domestic gaming. A wide range of weapon customization tools can encourage players to commercially share masterpieces of design thinking with their comrades. From a burst-firing sniper rifle to a shotgun with a laser sight and unique attachments, everything can be collected in EFT, and there can be a merchant for every item. Also, the abbreviations are similar.
Bethesda’s role-playing cadaver is not afraid of any experimentation, thanks in large part to the community, which over the years since its release has invented countless ways to entertain itself in the game. Although there are fewer weapon customization options than in EFT, players can bid on other products of their creativity: mazes with death claws, self-made dungeons, and even collections of toilet paper rolls.
Endless space for creation. On the basis of Minecraft, entire cities are built and parks are laid out, new monuments are created and events from history and works of art are reconstructed. Players have already sold the results of their work in the voxel sandbox for real money, so linking the game to blockchain technology here will not revolutionize, but will help even novice players earn money.
Exclusive to PS4, Molecule Studios is the perfect fit for blockchain technology. It has both limitless potentials for creativity and a ready-made platform where players can show off their achievements and put up game prototypes for sale.
The NFT case in 2021 revealed a whole abyss of problems for both the video game and the global community. This is the incompetence of the media, inflating the flywheel of unhealthy excitement because of the desire to simplify everything and earn more clicks. This is the desire of unscrupulous publishers and developers to jump on the “hype train” and earn an extra million by, let’s be honest, cheating players.
These are also questions of law – despite all the obvious advantages as an indisputable document about the possession of a digital asset, NFTs in their current form cannot do anything about the problem of plagiarism in the online space. And many national legal systems still refuse to recognize the legitimacy of smart contracts.
The question posed at the beginning, “how to distinguish innovation from unhealthy hype?” is much more difficult than it seems, and only time will make the final verdict. Fortunately, it will be in abundance: NFT is already here, and they are with us for a long time.