From its humble beginnings as a niche industry, the gaming world has come a long way, becoming a powerhouse of entertainment worldwide. One of the biggest attractions to gaming is the e-sports niche, which entails competitive online gaming in numerous capacities.
In recent years, e-sports has popularised the gaming skins market, letting players purchase and customise their in-game items like outfits and accessories. Despite its colossal popularity, the skins market is experiencing turmoil due to several reasons.
This article will discuss how these issues can be remedied by the adoption of NFTs.
What is a Gaming Skins Market?
Conceived as a simple cosmetic bonus in video games, the gaming skins market has matured into a fully-fledged industry with its separate economy, supply, and demand. As of 2023, the skins market has reached a valuation of $50 billion, showing no signs of slowing down anytime soon. It all began in the 90s when several video games implemented changing outfits and accessories to incentivise in-game progression.
In that period, gaming skins simply added flavour to the base video game experience. However, by the early 2000s, gaming skins became wildly popular due to their implementation in competitive online games. Game studios behind online sensations like Counter-Strike, Warcraft and Dota started actively featuring skins in their online marketplace, letting players express themselves in free-form.
The reason behind this global success is that online games have an average playing time well beyond 100 hours for a single player. With such an active engagement, players desired to have options to express their unique styles with their virtual assets and characters. Thus, the new industry was actively moulded, with numerous game developers featuring skin purchase options in their upcoming video games.
However, the gaming skin markets expanded even beyond this milestone. In 2023, they represent a completely separate economy, with numerous active participants purchasing and selling skins for impressive sums of money. For example, one of the most expensive digital skins on the market is featured in Counter-Strike: Global Offensive, selling at a staggering price of $400,000. While the average cost of digital skins is much lower, this example showcases how vibrant and active the skins' community has become in recent years.
Despite this exponential growth, the global gaming industry is fairly divided on digital skins, becoming a prominent part of the gaming landscape. There are two reasons for the mixed opinions worldwide.
The Issues With the Current Gaming Skins Market
Firstly, gaming skins have become a gatekeeping mechanism in some gaming platforms, forcing the players to purchase the optional skins to compete. As discussed, gaming skins started as a simple mechanism for cosmetic variation, in no way influencing the core gameplay experience.
However, in recent years, several companies have started introducing virtual skins with bonus features that enhance the gameplay capabilities of characters. Many players believe this is a detrimental practice that goes against the fairness of the online gaming environment.
The second reason for divided opinions is the centralised approach to the gaming skin industry. Despite becoming a fully-fledged market with massive circulation and activity, gaming platforms almost exclusively own the virtual skins industry. While the players can still freely purchase and trade with gaming skins in this market, they do not possess the underlying digital assets.
As a result, the gaming skins industry has witnessed several emerging concerns, including security, ownership and freedom of choice. First, security issues have been exponentially increasing in this sector, as there have been rising counts of theft and displacement in recent years. Additionally, players have become concerned for their virtual assets, as they could lose their possessions if anything goes wrong with their respective developers, who effectively own the gaming skins.
Finally, virtual skin owners have limited choices when trading their assets, as game publishers heavily regulate the marketplace. Thus, the gaming skins industry in 2023 faces significant roadblocks to overcome, and the concept of non-fungible tokens (NFTs) could be the practical answer to its limitations.
Understanding the Concept of NFTs
NFTs were first introduced in 2014 as one of the blockchain-based technologies. NFT technology allows individuals and businesses to create unique digital assets with distinct online addresses and complete ownership. As the name implies, NFTs are thoroughly unique, which is a great feature for creators and artists worldwide, letting them sell their creative outputs without intermediaries.
NFTs are also highly secure since they utilise the underlying blockchain technology to reduce theft and fraud risks. Like their cryptocurrency counterparts, NFTs can be easily stored in digital wallets and traded online. After their relatively silent start in 2014, NFTs reached unprecedented growth figures as of 2018, swiftly creating one of the largest digital markets in the world.
However, the success of NFTs has been cut short due to numerous controversies. From undelivered promises and lacklustre features to outright scamming, the NFT landscape was filled with malicious and dishonest parties as of 2021. Thus, the market experienced one of the most crippling downturns in the digital field. Today, the NFT sector is conceived as risky, as investors and traders are still sceptical in light of the market collapse.
The Re-Emergence of NFTs in 2023
While the recent market downturn has devalued the significance of NFTs, many experts believe this novel technology should not be written off as a fluke. With its strong core technology, enhanced security and unique ownership mechanisms, NFTs are making a slow but steady comeback in 2023. NFTs are strong facilitators for digital art creators worldwide, letting them sell their work and receive full compensation instead of dealing with third-party agencies.
Moreover, NFT technology has helped other industries, including sports and entertainment, to simplify numerous activities. Utility NFTs like fan tokens allow fans across the globe to engage with their favourite sports teams, celebrities and other entities without any hassle.
Despite these milestones, the primary value of NFTs is the unprecedented ownership features. As discussed above, NFTs enable individuals to have all the rights and privileges of their owned assets, which is not the case with centralised digital markets.
How NFTs Simplify the Ownership of Digital Assets
As stated above, the biggest attraction of NFTs is their ability to transform digital asset ownership across numerous industries. Unlike the centralised model, NFT owners do not have problems proving their exclusive ownership of a given asset. Without NFTs, creators and artists worldwide did not have effective mechanisms to sell their possessions directly. After all, it is challenging to prove digital ownership without NFT technology.
Thus, digital creators had to rely on the third-party assistance of various organisations, re-sellers and agencies to sell their products. Naturally, creators received heavily reduced compensation since they depended highly on these third-party companies to actualise their sales. However, with NFTs, proving asset ownership has become swift and convenient.
Now, all it takes is to provide an appropriate NFT address for a specific asset. Every bit of ownership data is stored on respective blockchain networks, swiftly verifying that the seller actually owns a particular asset. This system has allowed numerous creators, artists, and businesses to thrive in recent years, as they no longer depend on intermediaries to sell digital assets. Additionally, NFTs marketplaces are mostly global, without any geographical boundaries, enabling creators to find their audiences worldwide.
Finally, NFTs are highly secure, as they are blockchain-based assets stored and encrypted on blockchain networks. As a result, buyers and sellers of NFTs do not have to worry about asset displacement, fraud, and other malicious threats. While some risks like phishing remain, NFTs are exponentially more secure than their centralised counterparts.
How NFTs Could Improve the Gaming Industry and Skins Market
As outlined in the previous section, the gaming skin markets and other digital asset industries have a fundamental issue related to ownership. With the current model, all digital assets are effectively possessed by their issuers, meaning individuals do not receive full ownership rights with a respective asset purchase.
Naturally, this status quo has been controversial for a long time, as the gaming skins industry has become larger than ever expected. Currently, gaming skins are sold for impressive amounts of money, and they fluctuate in price according to supply, demand, and other free market factors.
Thus, individuals worldwide can stand to profit from trading with virtual skins, but centralised systems constrain them. As of 2023, most of the virtual skins are still owned by game publishers, which severely limits the economic capabilities of the virtual skin markets.
This is where NFTs can change the equilibrium by providing a way to transfer asset ownership from the gaming platforms to individuals worldwide. If a given gaming platform decides to implement NFTs, it will no longer be required to maintain the rights of digital assets. With NFTs, developers will store their digital assets on a particular blockchain network, like Ethereum, and sell them to the respective buyers.
As a result, adopting NFTs will enable users to purchase virtual skins thoroughly and have all respective rights and obligations to the asset. Now, digital asset owners will have complete control over their possessions and be able to transfer, hold, trade and swap them at their convenience.
Additionally, gaming skin owners will not have to constantly fear the potential security breaches or unexpected breakdowns of centralised platforms, as their assets are stored in the decentralised network. With the benefits mentioned above, it is easy to see why NFTs could fundamentally elevate the gaming skins marketplace, benefitting the industry's growth and liberating the skin market from arbitrary limitations.
Why the Gaming World is Against Adopting NFTs
While the value of implementing NFTs in the gaming industry is apparent, some gaming industry giants like Valve are strictly against it. The main reason is the unfortunate reputation garnered by the NFT market in the 2020-2022 period. As mentioned above, the NFT world expanded astronomically in a short span of time due to artificially increased prices and overall hype surrounding the market.
However, the lack of actual value has caused most of the NFT industry to experience a severe downturn, effectively shrinking the industry by two-thirds. Many experts and game developers believe that the adoption of NFTs invites unwanted parties to the marketplace, aiming to drive up asset prices and make short-term profits. These malicious parties can disrupt the entire market equilibrium and cause participants to lose massive amounts of money.
Thus, it is not surprising that both developer and player communities in the gaming landscape are wary of NFTs. After all, many have already lost significant funds due to collapsed projects and other unsuccessful NFT ventures.
Final Takeaways
From its initial roots as a simple accessory, gaming skins have become a global phenomenon in the last decade. In 2023, millions of players worldwide own and actively trade with virtual skins daily. This novel market has already experienced shortcomings in ownership, security, and freedom of choice.
These concerns can be seamlessly resolved by adopting NFT technology, letting users own gaming skins and other digital art without intermediaries or central authorities. However, NFTs have accumulated a questionable reputation in the last three years, incentivising the industry to avoid their implementation.
