Enrico Schaefer - August 15, 2022 - Non-Fungible Tokens (NFTs)
The first known NFT was minted in 2014 and since then has seen rapid growth. Many video game developers have moved quickly on this new trend, incorporating NFTs into some of their biggest titles and most widely played games. The digital scarcity and transferability on a blockchain make NFTs a natural fit to integrate into video games.
An NFT or “non-fungible token” is a digital asset that links ownership to unique digital items. These digital items could be songs, pictures, videos, tweets and items in online games or virtual worlds. Non-fungible tokens have been designed to give you ownership of something that cannot be replicated or copied. In a way, these NFTs are modern day collectibles. The original creator of the NFT can still retain copyright and reproduction rights, just like any piece of physical artwork. Any individual can buy an artwork print, but only one person owns the original piece. An NFT shows proof of ownership for a digital object.
Non-fungible tokens (NFTs) are generally created using block chain technology, which is the same programming used for cryptocurrencies. While NFTs are created by a similar technology, they do not function in the same manner as cryptocurrencies.
Many consider NFTs to be a new way of investing and potentially a safer way of investing. Several digital objects have the opportunity to grow in value over time, allowing the original buyer to sell and turn a profit. Another reason some individuals buy non-fungible tokens is to secure digital ownership of a physical asset.
The online world of video games is full of NFT opportunities. Depending on the style of game you are making, its online compatibility and the games expected lifespan, there are a variety of NFT options to consider.
For a developer, characters could become transferable from one game to another. That unique one-of-a-kind character could be an NFT that a player purchases and then uses across multiple games from the same developer. For example, the upcoming NFT project for The BitVerse will allow players to customize their avatars with unique attributes and then use that avatar across a variety of games such as their dungeon crawler, endless runner, and battle games. This concept is something we may see more of in Web3 and the Metaverse.
As a developer, you may be more focused on the original sell value of a particular digital asset. The potential as an investment opportunity would not play a role in your choice to incorporate NFTs in your game. Creating items and digital assets that players “gotta have” creates a buzz and popularity to your game. Popular games attract more players creating more opportunities for NFTs to be purchased. There is currently no industry standard for NFTs in video games, however there are several aspects that developers should consider when creating non-fungible tokens.
Peacocking is an industry term used to describe the ability for players to passively show off accomplishments or accumulation (one-of-a-kind collectibles). When players see these special items, they may want that same item for themselves. Developers have a difficult undertaking of creating one-of-a-kind items that are available to thousands of players. The uniqueness of the non-fungible token needs to be done in a high-profile way that is easily identifiable to other players, but small enough to be easy to change out to create endless variations. For developers this is a balance between quality and quantity.
Video game developers should consider all legalities involved when creating and incorporating NFTs into their games. Non-fungible tokens are a relatively new thing and even newer in the gaming industry. Protect your studio and your intellectual property by seeking legal guidance before you create your NFTs. Here are some of the legal aspects your studio should consider:
Developers need to determine the scope of acquired rights for any video game NFT they create. They also need to determine how they will sell and/ or transfer the NFT. Video game developers should limit or expand the acquired NFT rights to meet their own needs.
When a video game NFT contains branding or proprietary characters (intellectual property), the developer needs to determine the extent it is licensing out that IP. At times the NFT may contain branding or other IP from a third party that they are working with. In these circumstances, the developer also needs to consider what rights they have been given and obtain specific rights in relation to the NFT.
Any item with that much potential customization is at risk of breaching various federal and state regulations. While there is currently limited guidance on NFTs, in some circumstances NFTs can be considered securities by state and federal regulators.
Current federal and state tax laws are unclear on NFTs, many believe they should be treated the same as crypto currencies. Also, many NFT platforms do not automatically track NFT transactions, making maintaining extensive records to support the developers tax position vital.
The field of NFTs in video gaming is relatively new, mitigate your company’s legal risks with the help of the NFT legal experts at Traverse Legal.
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