The Case for NFT Gaming Skins - CS:GO
The Case for NFT Gaming Skins - CS:GO
Counter Strike Global Offensive and How NFTs revolutionize the gaming skin industry
Hey fellow explorers!
My brother, a good friend, and I were conversing about gaming and microtransactions yesterday. I was intrigued by something my brother pointed me to: the CS:GO skins market. They are valuable, and people buy, sell, and even gamble on them!
It raised the question: Why use NFTs in gaming if that's the case? Can a game sell items without them being NFTs?
While today's issue isn't a deep dive 5,000+ word Frontier Letter, it is a structure brain dump from me on why NFTs can enhance this aspect of gaming.
CS:GO and the Case for NFT Gaming Skins
If you're not familiar, CS:GO is a first-person shooter that has been around since 2012, and if you look at the numbers, it is the most popular it has ever been 11 years later, in 2023.
CS:GO allows users to buy crates through the Steam marketplace, and in these cases is the potential to get skins for the in-game weapons and wearables.
This technically works because the game developer, Valve, has these skins and their respective quantity sitting in their database. The lower the quantity (I assume that's how rarity is enforced), the more rare, and the higher the price
Once you get these skins, you can buy and sell them back on the Steam marketplace, a third-party marketplace, or a gambling site, as mentioned.
Any crypto native is now confronted with a question or thought that might be difficult to admit: "Well, why do gaming NFTs even matter then? Any gaming company can just follow this model!"
Today I'll make the case that CS:GO not only reinforces why NFT gaming collectibles will be very valuable but why it would actually be more valuable for them if they issued NFT skins and not the database entry skins (I'll call them DBSkins for this article).
1) Valve Could Actually Make MORE Money if they issued these skins as NFTs
A beauty of NFTs is that they have "royalties tied to them." If you're not sure what royalties are, it essentially means that because the shit being sold was created by you, you get a % of that sale, regardless of who sells it.
So let's stay on the example of CS:GO skins; you land yourself a Karambit - Cause Hardened (Blue Gem) Skins. This thing is estimated to be valued at over $2 million. Let's say Valve sets a royalty % of 10%. That means every time this thing sells, even on third-party marketplaces, Valve earns 10% of the sale value. Let's assume it sells for $1 million once in 2023, once in 2024, and once in 2025.
10% X 1 million * 3 = $300,000
For skin sales on something Valve has already sold, they earned $100,000 a year! Now compound this on top of all the crate sales, creating an ecosystem where Valve makes boatloads of money.
2) The user base that gets these NFTs can do much more with them than buy/sell/gamble online.
I know, it's ringing in my head, too: Doesn't that mean players will earn less on the skins? The answer is not that fun: I don't know. In fact, it's not possible to know. As stated, a primary reason they have value is the rarity determined by Valve, but if issued as an NFT, it's actually possible to publicly (like I can look now online) verify the amount of the existing skin. The ambiguity around how much there is of a certain skin floating about makes the pricing ambiguous, so it may be the case that the value goes up because of the known existence of the scarcity (which I think is likely), or it goes down because there are more of them in existence than people know about (also possible).
What it does do, is opens a world of insane possibilities.
You may have heard of a "line of equity" on a house. This is putting your home up as collateral so the bank can lend you money to renovate your house or for whatever purposes you would like to use the money for... like buying CS:GO skins.
The skins become so much more than tradable assets; for example, they can now be rented out. They can even be easily converted for cash, which is not the case now.
Even trading would become more efficient as fees can be reduced and verification would be instant and not require a third party. The closest centralizeda alternative in the case of CS:GO skins is CSFloat.
If the skins are NFTs, you can now do similar functions, like getting a line of equity against your collateral.
Imagine:
"How did you pay for this expensive 2 bedroom NYC apartment?! That must of cost you a fortune!"
"Oh no not at all, just rented out my AWP Dragon Lore for a couple years and saved the money."
3) The ownership is truly yours
NFTs are publicly auditable; therefore, the authenticity of the exact item type, quantity, and rarity is always known.
This is an argument that, in my experience, I find most people don't care about. "So what, Valve isn't going to just take my skin away from me or print it out of existence by creating more of it?"
And really, it's hard to argue because we have no idea what an entity will do in the future, but my response is: Isn't it better to solve a problem that isn't a problem yet so that it can never happen to you?"
Technically, they are valve assets, and if your Steam account gets shut down - good luck getting your skin back.
I also tend to have a large inherent distrust in massive companies, so if I can own something myself versus giving it to a company, I'll take it myself.
4) Server shutdowns don't matter
Games eventually run out of time, people stop playing, and the servers get shut down because spending money on server space no longer makes economic sense.
This typically means that your skins, accolades, achievements, and whatever in-game items are of value to you and others go obsolete and something removed from existence.
If they are NFTs, this is no longer the case. The NFTs will persist, albeit likely at a lower value, because a server shutdown indicates fewer players and less of a market.
We may be surprised at how much people value in-game items even when the game no longer functions. If I received an NFT every time I dropped a nuke in Modern Warfare 2 in 6th grade, I'd wear that badge of honor to my grave.
Is there a case for centralized selling and keeping the status quo?
Yes, there is! Continuing to sell the crates on the Steam marketplace and keeping the current system running is still lucrative and doesn't require technical investment to build infrastructure for NFT skins to be built into the game and available in external marketplaces. I'm unsure how much of a resource burden this becomes. I think it's also partly perception; right now, crypto and NFTs do not have a good reputation, and rightfully so, with all the scandals that have happened in 2022-2023.
I think that AAA gaming companies will only start to implement NFT items in one of two manners:
After it's proved to be better than the current way from smaller gaming studios who can "afford to take a risk," or
If it blossoms out of a small project/release that a AAA gaming studio experiments with within their gaming ecosystem, that has a strong reception from their audience.
NFT Gaming Skins
I don't know the correct answer, but I think a compelling case exists for NFTs replacing the current DBskins model. If the gaming companies can make money, in perpetuity, on skins from day 1 of release - it's at least a compelling case to try it out and see where it goes from the game studio's perspective. It also empowers the gamers of that ecosystem.
Thanks, everyone; I hope this was enjoyable for ya!
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Have a wonderful rest of your weekend!
Dom