Gaming, NFTs & Ownership
NFTs are creating a new revenue stream for digital artists and secondary markets for the video game economy, but who really owns these NFTs?
This subject is vast so I have decided to break it into 2-parts.
Part I will discuss what is the state of Non-Fungible Tokens (“NFTs”) in gaming and the concept of ownership around NFTs, and Part II will focus on the rights NFT buyers have from a contractual and intellectual property rights perspective.
PART I: NFTs & Gaming: A natural fit
A NFT is metadata that is timestamped and stored on the blockchain that certifies the digital asset to be unique meaning that it cannot be replaced by another identical item.
Its existence on the blockchain also means that it can be tracked.
Non-fungible digital assets are not new. They have existed at least since the first day the worldwide web came to life take for example domain names. As the internet ecosystem matured so did the number of non-fungible digital assets available ex. concert and travel tickets, social media accounts, in-game items etc. however they vary in their tradability and opportunity to take them out of the original environment in which they were published.
NFTs differ from traditional non-fungible digital assets in that they are blockchain based giving user’s a certain sense of ownership, management permissions over the NFT and allowing them to move them easily through different ecosystems.
It is empowering creators, big and small, to make money from their digital works, creating secondary markets for digital assets.
The concept is not new in the gaming industry. Over a decade ago an asteroid space resort named Club Neverdie in Entropia Universe, a massively multiplayer online role-playing game, was sold for USD 635 000.
What’s new is the use of blockchain technology certifying the scarcity of the digital assets.
The first NFTs were called colored coins and came to life on the bitcoin blockchain nearly 10 years ago.
Years later came the CryptoKitties, a blockchain game where you can collect, trade and breed cats, and more followed suit including the NBA Top Shot which allows fans to collect and trade pieces of NBA’s history and memorabilia, and Genies a platform that allows you to buy, sell and trade avatar wearable NFTs; all financed by Dapper Labs a privately held company reported to be valued at USD 7.5 billion.
Unlike other NFTs sales, NBA Top Shot brought international attention to this relatively new market and initiated a NFT race across all industries including celebrities tweets such as Jack Dorsey’s first Tweet which sold for USD 2.9 million or digital art work such as the artist Beeple who sold a NFT digital art piece for USD 69.3 million at a Christie’s auction earlier this year.
Imagine playing a blockchain car racing game where you hold a NFT for each component of your Lexus LFA and are able to trade each component for a negotiated price?
The perspective for physical goods to have a unique digital twin is opening a whole new revenue stream for their makers.
I’ve asked Erinrose Sullivan, VP at Creatives+ and Head of Museums and Cultural Heritage at SO REAL, a Swiss firm that specializes in the digital twin market; how she saw the role gaming will play in shaping the future of the digital twins’ market?
She stated: “As games become ever more realistic- just look at Epic’s new Metahuman tool to craft amazingly realistic faces – game makers will need more speed and realism in their objects and settings. Digital twins are a natural part of that evolution. At SO REAL for example, we create what we call a 4D+ twin which not only captures the inside and out of the object, but also the center of gravity, the physics of the object, its material properties – everything you need for a full engaging experience be it in the metaverse through computer, through AR or VR. They are riggable objects ready for any and every setting. Through automation, it provides speed that currently doesn’t exist. That is a game changer for the industry”.
Advancements in technologies are bringing the physical world into the virtual ecosystem; and not long from now video games will look and feel like a traditional movie in which, as a player, you happen to be the main character.
Gamers have and are still spending large amounts of money in in-game assets such as skins (clothing), weapons, means to strengthen their character but the opportunity to trade, sell and turn a digital in-game asset into a liquid asset has for the most part been limited.
Blockchain games are changing this reality and rebalancing the relationship between the end user, that is the player, and the publisher by allowing players to buy and trade in-game NFT’s without disrupting the gameplay.
The NFT market is said to have reached +USD 250 million in 2020 and has been growing aggressively since. Its potential is immense.
Earlier this year a piece of virtual land on the blockchain game Axie Infinity was purchased for 888.25 ether, approximately USD 1.5 million at the time of sale.
Zed Run another blockchain title allows you to buy digital horses for six figures, compete with them, trade them and even breed them.
Given this success, it is important to understand the concept of ownership in the NFT space.
Today the original digital file purchased is not restricted to the buyer of the NFT and is in fact available to anyone.
We can view Jack Dorsey’s first tweet sold for close to USD 3 million at any in time we are connected to the internet. We can also print it, share it etc.
So who owns the NFT?
The instinctive answer is the person or entity who purchased the NFT recorded on the blockchain.
If that is true, then does the new owner hold the right to prevent his/her NFT from being available to anyone else in the worldwide net?
And what about NFTs created on protected copyrighted work without the original authors / owners’ consent, or NFTs created on work that is in the public domain?
Is the underline contract between the NFT seller and its purchaser a sale contract or a license agreement?
Is the license exclusive or not exclusive and does it allow the licensee the rights to use the NFT for commercial use and to freely resale it?
Many digital goods and services we purchase these days are governed by licensing terms that provides us with certain usage rights but also many limitations.
These are important questions when purchasing digital assets, as digital assets are usually at the mercy of their publisher.
For example, traditional in-game digital assets are platform dependent and can typically be revoked or suspended at the discretion of its publisher, in accordance with the publisher’s end user license agreement, which the publisher can change.
Ownership rights to the traditional digital assets are customarily not transferred to the player. The player generally only obtains a limited license to use the asset for non-commercial use at the discretion of the publisher and within the game’s ecosystem.
So are NFTs really shifting the ownership structure of digital assets?
If so, does the existing regulatory landscape provide NFTs with adequate copyright protection and allow legitimate purchasers the exclusive rights to assign, transfer, divest any copyrights they may have on the NFT to third parties?
...to be continued in Part II of this series.