Japanese game developers embrace NFTs, but at what cost?

Love them or hate them, nonfungible tokens are making serious headway worldwide. According to a Reuters report, sales of the crypto investment assets soared from just $13.7 million in the first six months of 2020 to a whopping $2.5 billion in the first half of last year. With Japanese game companies, in particular, beginning to embrace NFTs, 2022 could be the digital assets’ biggest year yet.

Primarily associated with images and video files, NFTs are data sets in a digital ledger that prove ownership. They’re not exactly new, with the first NFTs being launched in the mid-2010s. However, there is confusion over what NFTs represent, even among investors. They don’t necessary grant ownership or rights to physical pieces of work, most of which can still be freely disseminated online. People have reportedly paid as much as $69 million for a single NFT — and yet the same image can still be saved on a computer with a simple right click, free of charge. In their simplest form, NFTs are digital receipts and, ultimately, that’s what people are buying, not the work itself.

Still, there seems to be a market for NFTs, and some of Japan’s biggest game companies are eager to cater to it. In a New Year’s Day letter, Square Enix President Yosuke Matsuda referred to 2021 as “Year One” of NFTs and, without going into specifics, showed support for the technology, writing that he looked forward to when digital goods were “as familiar as dealings in physical goods.”

Square Enix has already entered the fray by creating NFTs for its Million Arthur franchise. In Square Enix’s financial meeting in autumn, the company said this initial entry was “a proof of concept for establishing what synergies we can derive by combining NFTs with our business assets,” adding that “NFTs have a high affinity with our assets.”

Square Enix isn’t the only Japanese game giant keen on NFTs, with Sega also expressing an interest. However, Chief Executive Officer Haruki Satomi acknowledged that the digital assets have evoked negative reactions and added that he was against a mere money-making opportunity.

That’s because if you want to make some quick cash, it can seem like NFTs are the way to go. In January 2021, for example, entertainment conglomerate Konami held an NFT auction to mark Castlevania’s 35th anniversary, featuring game scenes, background music and art. The 14 NFTs Konami auctioned off netted more than $160,000.

Interestingly, Konami’s official NFT site made it clear that the purchasers didn’t obtain copyrights or trademark rights by buying the NFTs. What’s more, the Tokyo-based game maker clearly stated that “Konami does not guarantee that the value of the NFT will increase after the purchase.”

It’s also worth noting that not all video game NFTs are necessarily doing well. In late 2021, Ubisoft introduced NFTs of in-game gear for Ghost Recon Breakpoint that players could earn (one NFT required 600 hours’ worth of playing time) in the hope that players would resell them through an authorized vendor. The launch was reportedly a disaster.

Other developers have pushed back against the notion of including NFTs in their games, and Steam outright banned them. Even Microsoft seemed skittish about them, with Microsoft Gaming CEO Phil Spencer telling Axios, “What I’d say today on NFT, all up, is I think there’s a lot of speculation and experimentation that’s happening, and that some of the creative that I see today feels more exploitive than about entertainment.” Spencer isn’t totally against NFTs full stop, but is wary of their current incarnation.

While more and more celebrities, from Matt Damon to Quentin Tarantino, seem more than happy to shill NFTs, there are a whole host of reasons, people — gamers, in particular — are balking at the digital asset.

Making such assets requires significant computer power, which isn’t exactly environmentally friendly. What’s more, some simply don’t like the concept of NFTs, in which you’re not buying the actual digital work or its copyright or trademark, but, rather, just a receipt that confirms you own it.

For gamers, in particular, the past few years have seen an increase of in-game monetization, where that’s been for new downloadable gaming content, characters or in-game items. There has been a real-money trade for rare in-game items, and people have shelled out good money for leveled up characters.

In such cases, however, it feels like this is more akin to financial speculation, with game companies trying to turn a quick profit instead of investing their time and energy in making their games more enjoyable.

That said, it’s still early in the lifespan of the NFT, and the asset will have to grow beyond its current incarnation if it is going to win over any naysayers.