Do NFTs create value in games? There are at least three ways to look at it

When blockchain is introduced into video gaming, the economy and sometimes the entire design of such games focus on artificial scarcity and ownership of game items. However, this approach overlooks some of the most important aspects of value creation in games, according to Alesha Serada’s research at the University of Vaasa. The value of game items is derived from manifold social relations in gaming communities, in the ways that frequently disregard rarity or price of digital assets.

Alesha Serada’s doctoral dissertation demonstrates how the value of Non-Fungible Tokens (NFTs) is constructed in games, using the example of one of the first popular and longest-running blockchain-based games, CryptoKitties.

The processes of value creation and extraction in games are well familiar to industry practitioners, but they are rarely studied by academic researchers. This continues to be a problem, because consumer awareness is often low, and corporate responsibility in the gaming industry is lacking. Back in 2017, NFTs on blockchain were promised to liberate gamers from corporate greed of major game publishers. As of 2024, this promise is not fulfilled yet.

According to their early adopters, NFTs would ensure property rights in virtual worlds and create new types of value based on unique properties of blockchain technology. After eight years of creative evolution, only very few blockchain-based games have reached a noticeable level of adoption, and even those are critically panned. This indicates the lack of value in such games to their players.

However, games are one of very few blockchain applications beyond cryptocurrencies that saw at least some level of adoption. So-called “crypto games” made an important contribution to the development of blockchain platforms, as Serada argues in their doctoral dissertation, to be defended on October 4 at the University of Vaasa.

“I chose CryptoKitties as my primary case for studying value on blockchain, because it was the first of this kind to reach overnight fame,” says Serada.

“Besides, this is also one of the very few blockchain-based games to have a friendly and vibrant community. Thanks to it, the game managed to survive several ‘crypto winters’ on the cryptocurrency market. Throughout the years, a wealth of quantitative data has been accumulated both on blockchain and off-chain, which I combined with qualitative data from the game community and the game itself.”

A holistic model of value creation in games before and after blockchain

Despite the many inefficiencies of blockchain, game designers can learn valuable lessons from blockchain-based games. Based on research, Serada suggests a three-dimensional model that takes into account different types of value: the value as designed by game creators, the subjective value of items projected by an individual player, and the value that is collectively created by the game community.

The last type of value is the fundamental and most sustainable way of value creation in games, and yet blockchain-based games are particularly low on it. The dissertation also includes a decision flowchart, which can be used to determine what kind of value, if any, is constructed in a game item represented by an NFT.