Article Contributed by Anderson McCutcheon, CEO of Chains.com
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A key component of NFTs is their enforceability. While JPEG rights are virtually impossible to enforce on the Internet, the right represented by an NFT can and will be enforced in a digital world. An environment such as a game, metaverse, or audio marketplace can integrate an NFT carrying rights, royalties, and bespoke mechanics pertaining to the underlying asset.
Digital system-enforced rights are still an underestimated and underutilized aspect, but not overlooked by companies, venture capitalists, and entrepreneurs.
One of the most compelling use cases, the Metaverse, became prominent in 2021, as Facebook pledged an initial $10 billion towards building a metaverse this year, with a division dedicated to creating AR and VR hardware, software and content.
Supposing NFTs become an integral part of the metaverse, companies with a metaverse (such as Facebook) are even more likely to develop and deploy their own corporate cryptocurrency, which may or may not compete with other currencies within the same metaverse instance.
This is not an unlikely scenario as we have seen explosive growth in the purchase and sale of NFTs already.
The second major NFT revolution is likely to be around the monetization of digital rights and multimedia art, something that up until now, has been in the total control of multinational media conglomerates.
Once NFTs representing digital rights to media such as movies, music and art end up on the open market, we are likely to see a transformation like no other, with artists and creators getting access to infinite amounts of capital, royalties and audiences, uninhibited – financially and otherwise, by intermediaries that were responsible for monetisation and enforcement of rights.
NFTs have a big role to play here as an immutable record of the content owner will have to be married with a smart contract that diverts royalties to them.
Major artists of the 20th century such as Bruce Springsteen and Bob Dylan recently sold their back catalogs – meaning they surrendered all rights over the songs to platforms in deals worth hundreds of millions. But this could exist on a micro-scale, within a sort of Spotify clone where people are able to support the artist by buying a song or album and thereby speculate on the future success of the music. Royalties can go to the owner of the music and every time the song is resold, the artist gets a cut. This is certainly a way to combat the downfalls of the current system which offers artists less than half a penny per stream.
Independent film studios are another potential beneficiary of this new vision: funding does not always come easy for the next film, nor is finding a partner to distribute the movie a straightforward process. A streaming powerhouse backed by crypto has the potential to pay creators per stream, rather than buy the license to show the media for a length of time, giving a platform for talented, up and coming filmmakers to put their creation in front of a wider audience without the streaming service needing to take a risk on the acquisition of exclusive rights.
The art world will not remain untouched, either. International art dealing can appear mysterious to the outside observer and many would tell you it’s often a vehicle for money laundering. Unnamed collectors sending minions to auctions to buy up artworks with high price tags from the latest fashionable modern artist does happen, as historic and famous paintings are also traded between the richest of the art collecting world.
If artists are not paid a percentage each time the artwork is sold, they can still benefit from the licensing of a piece online as people seek to use it. Art enthusiasts and aficionados will flock to marketplaces where you can pay small amounts of crypto to get a high-res copy of an artwork to turn into a print to be displayed inside a home.
Or, on the bigger stage of the art world, online auctions which correspond to the digital rights of the artwork as well as to the tangible piece in the real world could prosper. It’s harder to move a stolen artwork when it can be traced on a public database to its rightful owner and would as a consequence drive the illegal art dealing world even further underground.
When it comes to popular subscription services, what this does is create a central fund capable of commissioning exclusive media which is great for the creators who have already made it. But crowdfunding through small amounts of crypto from a giant user base creates room for indie projects to be rewarded substantially for a good idea and project.
If the masses can vote with their wallet and do so relatively inexpensively, the entire landscape will stop favoring the super-wealthy and successful and bring artists in from the fringes to put their work in front of a wider audience. If people like it, they will pay for it. This is the future crypto can bring to the creative industries.
The intrinsic value of digital rights and gaming tokens
Non-government-issued cryptocurrencies have the advantage of being tailored towards an outcome. These can exist in bespoke economies which can be designed to incentivize the right kind of user behavior, be fully integrated into NFTs and allow yield-generating products integrated into the game. Such currencies will carry intrinsic value due to their in-game utility, further enhancing the validity and stability of the coin.
This is already evident with projects such as Axie Infinity, which has changed the lives of thousands of players in countries like the Philippines where revenue from gameplay far exceeds average earnings.
In a gaming-integrated metaverse scenario, we are likely to end up with a “flatter” global digital economy. This means participation will be much more open to people from around the world with unfettered access to top-tier financial opportunities.
How gaming economies will change
On a long enough timeline, games that are willing to open up their economies to the public will dominate closed economies. There are opportunities galore for those living in less economically developed countries, to lift themselves out of poverty and supplement or even replace their income stream.
Digital economies are infinitely scalable and can grow much faster than cities or countries, and are more efficient and rewarding than anything you find in the real world. There are no legacy control mechanisms and barriers towards wealth creation: it all exists inside the game. For many, virtual worlds can be the ultimate social migration venue.
In-game economics can suddenly become serious, in the sense it confers real financial advantages to the participants once digital rights are established.
Crypto can be used in a range of ways within game economies,
- Auction houses
- Loot boxes
- Subscription models
- XP boosting
- Pay-to-win mechanics
- Multiple in-game currencies
To unpack this, current game models most often aim to immerse the player before driving them towards making a purchase. This journey can be altered forever once crypto offers a clear and concise path to success: you can make a purchase and there will be a well-defined outcome with tangible benefit. Where digital rights can be perfectly enforced, this is more than possible.
Auction houses will be a cornerstone of crypto games as players seek to speculate on asset prices or turn a profit on an item they acquired at an earlier date. A player-driven market is crucial here: there will be the speculative investors trading as well as those looking for success in the game and trying to buy the best items. Both will impose upward pressure on prices and stimulate the economy.
Loot boxes are how many free-to-play games make the bulk of their money. Taking advantage of the gambling effect opening a crate mimics, players will time and time again spend money to gain a chance to acquire something rare for in-game use.
Crypto can turn the entire idea on its head, however, with games offering incentives for players to hold on to items they got early on: even a common cosmetic or utility item can be worth something significant if they are among the early releases. Loot boxes are speculative as well as game-enhancing.
The most important aspect of transitioning in-game item ownership to Web3 is how digital rights are enforced on the blockchain. Gamers can trade skins in a game store such as Steam or Epic, for example, however these never truly belong to the player and can see it hypothetically taken away from them at any moment. This isn’t ownership, it’s just records on someone elses ledger.
While recent trends have made current games veer towards free-to-play, the subscription model remains remains strong – if the developer can deliver a game worth paying for from month to month. Beyond the desirability of a game to attract subs with crypto incentives (and NFT drops) it can drive a model whereupon people pay their sub in crypto, earn crypto and retain crypto to speculate on future price movements.
If a game could not only build out this model but also retain a critical mass of players, an economy has the chance to grow to reward all of its players as the currency earned is spent inside the game and only a minority will be motivated to sell their holdings externally – why would you when reinvesting in-game offers even more rewards down the line?
Various tiers are another way to define the crypto rewards enjoyed by players. Leveling up can mean you are more powerful in-game, but what if gaining XP carried incentives to keep a player on the grind? Milestones can lead to pay outs of crypto and NFT drops in a currently under-utilized mechanic which would turbocharge a gaming economy and keep gamers invested and spending time inside the game.
In-game economies can revolutionize the way players interact with their favorite games. While still in its infancy, expect more games to be released with similar concepts to the ones described above as developers find the so-called sweet spot of engaging players while encouraging them to make purchases and keep skin in the game.
Though very nascent, crypto game economies are already demonstrating potential to match real economies in scale and opportunities: once the ball is rolling on a successful game with a thriving, self-perpetuating economy, it will take more than price fluctuations in a bear market to make it implode. Players will know and trust the value of the game economy and marry that with their enjoyment of the game. Change is coming, all it takes is a few leaders to revolutionize.
Read the third and final part of this series where we explore DeFi, Bitcoin and alternative stores of value.
Author: Anderson Mccutcheon, CEO of Chains.com
Bio: Anderson Mccutcheon is founder and CEO of Chains.com, an operating system for the cryptocurrency-enabled economy. Anderson is building a full-stack crypto-economy consisting of a marketplace, freelance platform, and cryptocurrency exchange. He is also an investor and entrepreneur with an interdisciplinary technological and marketing background and a long history in the crypto space. A blockchain industry pioneer and an 8200 alumnus, he has founded Unicoin, Synereo (later HyperSpace), and is currently leading Chains.com.