Last week, Valve updated the Steam rules to prohibit games based on blockchain that issue cryptocurrency or NFTs, or let users exchange them.
It was an unusually proactive move for a company that typically takes an "anything goes" approach to what happens on the platform, and then reverses course only when people point out the entirely foreseeable problems or it gets yelled at loudly enough.
As much as I would like to give Valve credit here for assessing the downsides of blockchain technology and refusing to contribute to an environmentally disastrous speculative bubble with no compelling use case in games -- which is our stated reason for limiting coverage of blockchain start-ups -- it doesn't seem like that has anything to do with Valve's reasoning.
Valve hasn't yet explained why it's banning NFT and blockchain games, but a developer of one such game has given us some indication.
"Steam's point of view is that items have value and they don't allow items that can have real-world value on their platform," Age of Rust developer SpacePirate Games said on its Twitter account last week as it spread news of the blockchain ban.
The idea of virtual items having "real-world value" has been a contentious issue for years. The US government started looking into taxation on the exchange of virtual goods in games like Second Life and World of Warcraft some 15 years ago. A German tax court recently ruled that renting virtual buildings with virtual currency was subject to actual taxes.
"The argument that virtual items don't have real-world value has been a key part of the industry's defense against accusations that loot boxes are gambling"
Beyond taxation, the argument that virtual items don't have real-world value has been a key part of the industry's defense against accusations that loot boxes are gambling. The ESA insisted virtual items have no real-world value when the Federal Trade Commission looked into loot boxes. It apparently worked, as the little came of that inquiry.
EA made the same argument in front of the Netherlands Gambling Authority in defense of FIFA Ultimate Team, but less successfully.
And a little closer to home for this discussion, Big Fish Games in 2018 argued that virtual items have no real-world value when it was sued over the social casino game Big Fish Casino in the state of Washington, which also happens to be where Valve resides. The law allows for anyone who loses a thing of value to an illegal gambling operation to sue to recover those loses, which is how that lawsuit led to an appeals court verdict against Big Fish and a pair of class-action settlements that cost the company $155 million.
The games industry proper has been very clear about its virtual goods having no real world value -- even though it will happily sell you as many in-app purchase bucketloads of gems as you want for $100 a pop -- and even then it has found itself repeatedly under fire from critics and legislators. Given the central conceit of NFTs, it will be very difficult for developers of these blockchain games to argue they have no real-world value.
There's also the very real possibility of governmental regulation of various types of blockchain technology. China has already banned mining of cryptocurrencies and halted digital currency transactions and the US Securities and Exchange Commission has promised increased regulation of cryptofinance.
None of this technically precludes Steam from hosting blockchain and NFT-based games, but there are significant unanswered questions around the regulatory and legal implications here, enough to make the whole thing look like a headache waiting to happen.
So the question then becomes, why would Valve want to invest in blockchain technology despite the headaches we know it will create and the unknown additional headaches likely to come from governmental and regulatory intrusion? Why would any big platform holder? Why would it go to all the trouble of incorporating and supporting an economy of decentralized goods that it cannot control, enabling transactions that it cannot take a slice off the top of, disrupting an industry standard business model that suits Valve very well already?
"The NFT dream of buying a unique sword in one game and using it in any other game is exactly that: a dream"
Valve already lets players trade in-game items in a way where it keeps control. If publishers wanted to have items that work between games, they could do the same, working with each other to create cross-compatibility, still in a way that they control.
But the NFT dream of buying a unique sword in one game and using it in any other game without the game makers needing to permit it, or put in an unreasonable amount of extra work to support it is exactly that: a dream. The logistical issues of incorporating unique player-owned items into each new game both visually and mechanically are such that I expect no practical cross-game use for NFTs more complex than each being used as a procedural generation seed.
And as for any new sense of ownership created by NFTs, that too is illusory. Even though the Etherium chain on which many NFTs are based supposedly stemmed from a World of Warcraft player's disappointment at his favorite character class spell being nerfed, NFTs themselves do nothing to prevent that from happening. They only exist in a game through the support of the developer, and if the developer decides an NFT is breaking the competitive balance of its game, it will nerf it or ban it accordingly.
"The games industry has been trending toward more centralized control of games and experiences for years"
Putting aside the logistical issues of incorporating unique player-owned items into each new game both visually and mechanically, the games industry has been trending toward more centralized control of games and experiences for years. We've gone from fire-and-forget games that could be pirated and modded at will to tightly controlled and ephemeral live services that cannot be enjoyed without an always-on connection and the installation of kernel-level anti-cheat software.
So who wants to take on the regulatory risk and known unknowns to foster a new type of game where they won't get a cut of the transactions by default and all the proponents of this type of game are philosophically opposed to the level of control developers and publishers have come to expect over their games and their player experiences?
If there is a blockchain gaming space to come, it seems incredibly unlikely to come through Microsoft, Sony, and Nintendo. As much as the console walled gardens have been loosening their grip ever-so-slightly in recent years, they will not be leading the charge for decentralized blockchain tech in games. The App Store and Google Play also seem like non-starters given how vehemently they're fighting for their cut of Fortnite revenues.
That pretty much leaves PC as an avenue for blockchain gaming to get a foothold, but as any indie developer of the last decade would likely tell you, it's pretty hard to make a go of it in PC without being on Steam.
Of course, there's always the Epic Games Store. Epic CEO Tim Sweeney was quick to offer the Epic Games Store as a welcoming home for NFT-based games after the Valve news broke, partly because it needs to build up differentiating factors if it ever hopes to break Valve's hold on the PC gaming market, and partly because the company's Quixotic campaign against Apple and Google has been based on the evils of platform holders controlling their platforms.
"We aren't touching NFTs as the whole field is currently tangled up with an intractable mix of scams, interesting decentralized tech foundations, and scams"
Tim Sweeney, last month
But even Sweeney stopped short of unconditional support. Epic isn't making NFT-based games itself, and last month Sweeney explained why, saying, "We aren't touching NFTs as the whole field is currently tangled up with an intractable mix of scams, interesting decentralized tech foundations, and scams."
In response to Valve's ban, Sweeney also specified that other developers' NFT-based games would be allowed "provided they follow the relevant laws, disclose their terms, and are age-rated by the appropriate group."
Ordinarily the bit about not breaking laws and disclosing terms should go without saying, but given the aforementioned scams, those could be significant hurdles for many developers. And considering how nervous trade groups around the world have been about the real-world value issue, the ratings bodies they established may also be inclined to insist on more restrictive ratings for games including NFTs.
So given the lay of the land right now, which big platform holder or publisher is going to invest in a quality product that will legitimize the idea of a blockchain-based game and make it a hit despite having very little clarity on the legal and regulatory implications, how NFTs could make a game more fun, or how a game is supposed to find its audience when it's not allowed in the stores where people actually look for games to play?
Both Ubisoft and Atari have been kicking the idea of blockchain gaming around for years now, but neither has introduced anything to speak of. I'm deeply skeptical they ever will.
We're talking about something akin to a developer not just creating the next Minecraft, but creating a next Minecraft that is so dependent on blockchain technology that it cannot be effectively copied and delivered to the masses by a deep-pocketed publisher from the non-blockchain space.
Blockchain advocates have often talked about the technology as if its very existence would spontaneously generate industry-disrupting titans from nowhere. They'd better hope they're right about that, because with Valve taking Steam off the table, that's about the only way I see blockchain gaming ever getting a foothold in the space.