Blockchain tokens are already used for payments by major metaverse and VR projects like SENSO and Sensorium Galaxy. The next step is introducing NFTs, or non-fungible tokens, to allow users to carry avatars and virtual items from one platform to another. The idea has a lot of potential, but there are serious technical challenges to overcome.
Why would someone pay millions for an NFT?
Let’s start with a short primer. NFT stands for ‘non-fungible token’, and what this means is a blockchain token that represents something valuable and unique, be it a digital artwork, diamond, house, cartoon character, song – even a puppy. NFTs are sold on special marketplaces, and in the past few months we’ve witnessed a veritable NFT craze, with some selling for millions of dollars. The most expensive one was a collage by the digital artist Beeple, which sold for $69 million.
The world’s most expensive NFT represents this collage by Beeple. Source: The Verge
Note that owning an NFT can give you the rights of ownership to the underlying asset, or just a license to use it, or neither – it all depends on the terms of the agreement. So when you buy a CryptoKitty or a CryptoPunk, for example, you acquire the license to display and use them for commercial purposes, but the original author retains the intellectual property rights.
Another category of tokens are SFT, or semi-fungible tokens. These refer to tokens that refer to almost-identical items with individual IDs – for example, tickets to a concert where each ticket is assigned a seat number.
The NFT market has been heating up lately: in April, almost $50m worth of NFTs were sold each week for an average price of $1,700. A lot of people buy them as an investment, hoping that the price will grow, like it happened with many CryptoPunks tokens that now sell for over $1 million.
NFTs vs. V-bucks vs. cryptocurrencies for gaming: the key differences
Before we talk about NFTs in VR, let’s talk about gaming, because it’s an easier use case to understand. Most of the famous games have an in-game currency, such as V-bucks in Fortnite, or Riot Points in the League of Legends. You buy this in-game currency with a credit card and then spend it on in-game items, such as weapon skins, advanced skills for the character, etc.
The in-game currency is similar to cryptocurrency in that it’s fungible. Each piece of game gold is equal and identical to another, just like any two USDT tokens are the same. Actually gaming currencies and crypto are two types of virtual currencies.
By contrast, the items you buy with in-game currency are not identical to each other. Some can be semi-fungible, like a weapon skin that is issued in 1,000 copies, for example. Others are unique (non-fungible) or very rare, and these can be expensive like NFTs. For example, a rare battle axe in DOTA 2 can sell for over $1,700 on Steam.
In-game weapons like this one will cost you a pretty penny. Source: Dota Trade
NFTs and cryptocurrencies have a serious advantage over regular game items and currency like V-bucks: they exist outside of the game. Since tokens live on the blockchain, you can in theory carry them from one game to another. You could play the same character, use the same inventory, and buy new items using the same currency in many different games: that would be any player’s dream.
Most NFT-based projects do have a strong gaming element and borrow a lot from trading card games. Examples include Gods Unchained (fantasy), CryptoKitties (cute kittens), and F1 Delta Time (collecting Formula 1 cars and drivers). NFTs in these games can fetch very high prices: for instance, a piece of a Bahrain racing track in F1 Delta Time routinely sell for over $10k, and one user has recently paid over $100k for a car.
It remains to be seen if NFTs will be integrated into traditional computer gaming. But our subject is VR – and here the use case for non-fungible tokens is even stronger thanks to the trending concept of the digital metaverse.
VR, NFTs, and the metaverse – carrying tokens across worlds
The idea of tokenizing VR projects has been around since at least 2017. Out of those early projects, only Decentraland is still operational (and thriving). However, its original plan to implement VR support hasn’t materialized yet (though it is on the roadmap). Why?
The main reason is probably that VR adoption itself is taking much longer than predicted. It only makes sense to spend money and effort tokenizing VR if the market is growing – but in 2018 and 2019, headset sales fell compared to 2017.
It was only in 2020 that the industry seemed to have turned a corner. According to a forecast by Statista, the market should go from 5.5 million devices sold in 2020 to over 43 million by 2025. With these numbers, it finally becomes economically feasible to implement NFTs and cryptocurrencies on VR platforms.
Is there a practical need for such tokenization, though? We’ve seen a lot of startups try to ‘disrupt’ various markets with blockchain and fail simply because the market had no practical need for this technology. Is VR any different?
As it turns out, virtual reality is indeed a strong use case for tokens. The industry is moving towards metaverses – large virtual spaces with multiple worlds and activities packed inside. Tokens are the best way to pay inside the digital metaverse, because such payments are global and virtual, just like the metaverse itself. These are congenial tech concepts.
A good example is SENSO, the in-platform token of Sensorium Galaxy. A user can buy SENSO tokens on an exchange like KuCoin or Poloniex and then use them in the digital metaverse of Sensorium Galaxy to pay for a concert ticket and get a 20% discount. One can also buy an avatar, accommodation for the avatar, virtual accessories etc. – all for SENSO.
Another use case is NFTs, or non-fungible tokens. These can be used to encode in-game objects and avatars themselves on the blockchain. For instance, the NFTs in Sensorium Galaxy will allow users to own the avatar and even take it from one digital world to another, together with the avatar’s whole inventory.
Avatars and accessories: the most obvious use case for tokens and NFTs in VR
The range of items that users could buy and own on VR platforms is truly vast. First, you could potentially have several avatars – to suit different moods, perhaps. Next, an avatar needs a wardrobe, hairstyles, and a place to live. You could even collect digital artworks and display them in your avatar’s home.
A good example is the in-built store in Sensorium Galaxy. It already features over 20 avatars – some looking very human, some a bit alien. Right now the only supported payment method is the native SENSO tokens, and a single avatar costs a little over $9 with a 20% discount off the official price of $11.99. Credit card support will be added soon, but users will need to use SENSO to get 20% off.
As of May 2021, every user who registers in Sensorium Galaxy receives two avatars and a starship deluxe cabin for free as part of the pre-release promo. In the future, all avatars and accommodation will be paid, though the prices are likely to remain very affordable.
By the way, SENSO tokens can be found on several large exchanges, including KuCoin and Poloniex. In mid-April, the price fluctuated around $1, up 230% in two months.
Built-in store in Sensorium Galaxy where you can spend SENSO
For now, avatars and other items in Sensorium Galaxy do not use NFTs, but things will change in the future, though there are technical challenges to be met first. Most NFTs are still issued on the Ethereum blockchain and subject to its notoriously high gas fees. Every transaction with an ERC-721 or ERC-2155 costs $10-15, which is prohibitively expensive if one wants to buy an avatar for under $10.
If VR is to use NFTs on a large scale, it needs a far cheaper and faster blockchain. That’s why Sensorium Galaxy recently announced a migration to a Substrate-based blockchain that will integrate SENSO with the wider Polkadot ecosystem.
User-generated content: monetizing your VR designs with NFTs
Some VR projects allow users to add their own content: virtual rooms, character skins, artifacts, and so on. On some platforms, professionally designed content is or will be combined with users’ own designs (Sensorium Galaxy), while others are almost exclusively built by users (VRChat).
Of course, user-generated content isn’t always on par with the creations of professional designers and developers. For instance, if you compare the latest video trailer of the aquatic VR world MOTION in Sensorium Galaxy with a ‘world’ in VRChat, the difference in quality is striking:
MOTION world in Sensorium Galaxy, dedicated to dance
VRChat gameplay. Source: New World Notes
Still, talented content creators can produce quality in-platform items or spaces, and they will want a way to monetize them. After all, it’s not fair if you spend months designing a beautiful avatar or a clubbing space, similar to those in Sensorium Galaxy, you might also charge a few dollars for the right to use it.
In this case, NFTs will come in very handy: you can sell the NFT and license the copyright to every buyer, meaning that they’ll have the right to wear the avatar you’ve created, display it, and even resell it. But you’ll still retain the intellectual property rights as the author.
A futuristic nightclub in PRISM: users will be able to pay for access with SENSO tokens
When will NFTs become the norm in VR?
As explained by one of the blockchain experts on the SENSO team, Ethereum transaction fees are the main barrier on the way to a wider adoption of NFTs and payment tokens in the metaverse and VR space. Indeed, if you are buying a very rare avatar worth $2,000, you probably won’t worry much about the $20 fee. But most virtual items will range from $5 to $50, and most users won’t agree to pay a gas fee above $1.
Just a year ago, a single transaction in the Ethereum network cost around $0.10. However, the boom of decentralized finance (DeFi), NFTs, and crypto as a whole drove up the level of blockchain activity. The higher the network load, the higher the fees.
In a couple of years, Ethereum should switch from the current energy-intensive Proof-of-Work algorithm to the much more efficient Proof-of-Stake. However, the VR industry cannot wait that long – thus the search for alternatives. For now, Polkadot looks like the best bet, and it even has one NFT project already, called SubstratePunks (a version of CryptoPunks). A bridge to connect Polkadot to Ethereum-based NFT assets is also in the works.
SubstratePunks
As soon as the transaction fee issue is solved, NFTs in VR will probably take off. VR marketplaces will bustle with activity, with users reselling popular items, and content creators can begin earning money with their VR designs. . This will mark the beginning of a much larger phenomenon: the formation of a true metaverse economy.
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