Why Microsoft ended Minecraft’s NFT games
Technological disruption happens slowly, then all at once. But sometimes there are simple warning signs that a new technology is becoming a threat that incumbents cannot ignore.
I saw one of these signs yesterday when Microsoftit is (MSFT -1.38%) Minecraft has banned non-fungible tokens (NFTs) in its game. There is no indication that they will be allowed to return. Not only did this crush some NFT projects built on Minecraft, but it made a very compelling case for NFTs in a single announcement.
The genesis of NFTs was World of Warcraft
This history of disruption goes back nearly a decade. According to his own account, Ethereum (ETH 0.52%) co-founder Vitalik Buterin became interested in cryptocurrency and eventually created his own blockchain after Activision Snow stormit is (ATVI -1.02%) World of Warcraft “removed the damage component of my beloved wizard’s Siphon Life spell.” In other words, Buterin was upset when a centralized entity (game developer Blizzard) changed the rules of the game and there was nothing he could do about it. Sound familiar?
One of the cases of cryptocurrencies and NFTs is that they are immutable or unchangeable. No one can take away ownership or change what is basically written on the blockchain. (There are nuances in many mutable NFTs, but for now I’ll focus on the immutable angle for argument’s sake.)
In the gaming space, the idea of using an NFT in general is that no one can take your NFT away, or say you can’t create the NFT for gaming and sell it to someone else. It’s an idealized vision because there’s ultimately a developer building the game and making the rules, but one of the ideas is that the Guardians are coming up with blockchain games. At the very least, blockchain opens up potential new business models for developers.
The economy is a factor
If there are no gatekeepers, the economic incentives will also change. Microsoft keeps about 50% of revenue generated from third-party content, but it doesn’t take 50% of NFT sales. This creates an economic conflict between creators and centralized developers in addition to the technical conflict.
This tension isn’t inherently bad, and Microsoft has the right to allow certain assets in Minecraft and disallow others. But in doing so, it drives home the point that crypto and blockchain advocates have tried to make: centralized entities are bad.
What better way to make the case for decentralization and blockchain than to make an enemy of one of the biggest companies in the world?
This is how the disturbance begins
Microsoft shareholders should keep an eye on the Minecraft/NFT feud and the resulting fallout in gaming closely. Not only does Microsoft own Minecraft, but it buys Activision Blizzard, which not by chance inspired the creation of Ethereum.
It’s not entirely clear how the business model or technology of a blockchain-based game will be an improvement over current models, but the fact is that developers are trying. And with hundreds of millions of dollars invested in blockchain games, this is a real threat to Microsoft’s massive gaming ambitions.
Games like Minecraft rely on user-generated content to generate revenue, and if they push top developers to explore blockchain, it could be a big loss. For developers, the idea of selling NFTs and keeping 100% of the revenue they generate (or closing) versus 50% on a centralized game like Minecraft could also be an attractive economic incentive.
This is how the disturbance begins. Powerful companies push their power a bit too far and inadvertently nudge developers into a disruptive new platform. Microsoft may have just been advocating for developers to move to blockchain better than any crypto enthusiast could have on their own.
Travis Hoium holds positions at Ethereum. The Motley Fool holds posts and endorses Activision Blizzard, Ethereum, and Microsoft. The Motley Fool has a disclosure policy.