What is NFT gaming?

Written by Pragat

Reviewed by Brady Werkheiser

Published on March 29, 20233 min read

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NFT gaming has earned worldwide recognition in a short time, as it flipped the narrative that games are just for fun and leisure, and owned entirely by gaming studios.

NFT games now offer players ownership over their in-game items and more pathways to making money playing video games. 

In fact, the NFT gaming industry market size is set to reach USD 65.7 billion by 2027, with a Compound Annual Growth Rate (CAGR) of 70.3%, according to a the "Blockchain Gaming Market by Game Type, Platforms And Region - Global Forecast t" by ReportLinker.

What is NFT Gaming?

NFT gaming is a niche gaming industry that uses Non-Fungible Tokens (NFTs) to represent unique digital assets on the blockchain and prove in-game ownership of items.

A Non-Fungible Token (NFT) is a digital asset on a blockchain that is unique. NFTs can take the form of digital art, sports cards, virtual in-game items, music, and videos. No two NFTs are the same, and their ownership is immutable and publicly visible. On Ethereum, NFTs follow the ERC721 token standard. 

In addition to ERC721 tokens, semi-fungible tokens are used in NFT gaming when in-game assets need to be modified. Example use cases for semi-fungible tokens include weapons with limited uses or characters that gain important player stats as in-game achievements are unlocked.

On Ethereum these modifiable NFTs follow the ERC1155 token standard (Multi Token Standard), and on Solana, Metaplex’s Semi-Fungible Tokens (SFTs) offer web3 game developers the same flexibility.

While NFTs have several use cases, they are increasingly used in web3 games enabling players to truly own in-game assets such as characters, weapons, virtual currency, and avatars.

How does NFT gaming work?

NFT games combine the characteristics and mechanisms of traditional games with blockchain technology to provide players the ability to exercise complete control over their assets. 

Here’s a step-wise approach to explaining how an NFT game actually works:

1. Web3 gaming studios create blockchain games using multiple web3 gaming tools 

2. Web3 game designers create digital assets that represent digital collectibles, weapons, or characters

3. Web3 game developers turn unique in-game items into NFTs and add them into the gameplay

4. Players earn NFTs by completing quests inside the game or purchasing NFTs using in-game cryptocurrencies

5. In-game assets are owned by a player’s web3 wallet

6. Player-owned NFTs are used in the game to advance play

7. The blockchain ledger tracks the NFT each time it changes owners or it is modified (e.g. SFTs)

8. NFT gamers can earn money or level up their assets by trading on NFT gaming marketplaces

9. Players can also earn money by renting NFTs to other players using popular gaming DAOs

How is NFT gaming different from traditional gaming?

NFT games differ from conventional games in several ways including technology, ownership, Play-to-Earn vs. Pay-to-Play, and interoperability.

Before you choose a game that uses NFTs, understand these key differences to determine if playing NFT games is right for you.

1. Technology and Control

Unlike conventional gaming, NFT games are built using blockchain technology — which marks the biggest difference between traditional gaming and decentralized web3 gaming.

Moreover, NFT games impart an unprecedented gaming experience to the users by letting them participate in future game developments through gaming DAOs and governance through on-chain voting mechanisms.

In-game voting mechanisms are possible since NFT games leverage smart contracts (code on the blockchain that runs when predetermined conditions are met), allowing a decentralized gaming experience and full transparency. 

Conversely, in traditional games, the gameplay is entirely set by the developer leaving little control for users.

2. Ownership of Assets

NFT in-game items provide players complete ownership and control over their assets as they exist independently of the game. Ownership allows players to sell and trade  on NFT marketplaces for in-game digital assets. However, in regular games, in-game items cannot be owned, making them valueless outside the game.

3. Play-to-Earn (P2E) vs. Pay-to-Play

The P2E model enables players to earn money for the time and value they create within games. These in-game rewards can be exchanged for real money, allowing players to make money as they advance in the game.

On the other hand, the Pay-to-Play or freemium gaming model requires players to spend money to advance certain areas of gameplay or to access assets. Furthermore, these in-game items from web2 games cannot be sold for profit within the game's ecosystem.

4. Interoperability

As NFTs are nothing but digital assets held in the user’s web3 wallets, they can be moved and used in different blockchain games as cross-chain messaging and NFT bridging tools become more mature. Conversely, regular games do not support interoperability as the in-game items have no value outside the game.