NFT in iGaming — Slotegrator’s guide to gaming with non-fungible tokens
In recent years, discussions around NFTs have generated plenty of hope, worry, and speculation. What do non-fungible tokens have to do with online gambling, what risks are involved, and is there any point in switching to an NFT casino? We’ll find out in a second.
Non-fungible tokens, or NFTs, are very complex. To get a handle on them, it helps to break down some related concepts, so we’ll start with the technology they’re based on — blockchain.
Blockchain
To get an idea about the role of NFTs in the gambling business, it helps to quickly reacquaint yourself with blockchain technology (described here). Blockchain is a way of distributing databases of information among a computer network. It’s called blockchain because of the way it stores the information — in blocks that are linked with each other: when a new piece of information is added, it links to a previous block. This creates a chronological order of collecting information in a chain that retains the history of information, not only its current status.
Though information can be added to a blockchain, it can’t be changed. The blockchain is also decentralized. It is not just impossible to clean or change the history of events, it is also impossible to influence the whole chain unilaterally — if something happens to one block, it has nothing to do with other blocks, and there is no authority to make changes in the entire structure. While cryptocurrencies are most closely associated with blockchain technology, they’re not its only application — NTFs are also based on blockchain.
So, blockchain is an independent, decentralized, secure, and transparent way to store information.
Cryptocurrency
Cryptocurrency is a digital medium of exchange created using blockchain technology and secured by cryptography. One key appeal is that they’re decentralized, meaning they’re independent of any authority like a national government. Cryptocurrency functions the same way that fiat currency does: one unit of a particular cryptocurrency is equal to another unit of the same cryptocurrency (1 bitcoin = 1 bitcoin), and they can be exchanged for goods or services.
Cryptocurrencies are “mined” using special software that solves complicated mathematical equations and powerful hardware that requires large amounts of energy (making crypto mining a popular occupation in regions with relatively cheap electricity). Their price is affected by demand, supply, and expectations. While they’ve gained widespread popularity — due in part to their independence from any state authorities — they can be highly volatile, subject to sudden price fluctuations in the same way stock markets are.
Cryptocurrency can be divided into two groups: coins, a replacement for fiat currencies that operate only on their blockchains; and tokens, representing assets or items created on coins’ blockchains. Tokens use smart contracts to conduct transactions.
Smart contracts
Smart contracts are terms and conditions that are written in code and create protocols that automatically execute contracts. Basically, they’re a piece of code ensuring that when certain conditions are met, events happen automatically — when A happens, B is enforced. Every blockchain uses its own smart contract.
One of the best illustrations of this way of conducting a transparent peer-to-peer transaction is a vending machine — when a certain sum of money is inserted, the selected item drops out.
This technology is already widely used in various industries. For example, insurance company AXA released a program automating the process of flight insurance payouts: the smart contract used by the company was connected to a database of air traffic and if there was a delay of two or more hours, the payment was immediately made.
The iGaming industry, of course, also adopted the technology. Smart contracts are used in online casinos for better transparency and fairness.
Non-fungible token (NFT)
According to Investopedia, non-fungible tokens (NFTs) are “assets that have been tokenized via a blockchain. They are assigned unique identification codes and metadata that distinguish them from other tokens.”
Unlike cryptocurrencies, NFTs are “minted” and anything that can be traded can become an NFT — they are not something you pay with, but something you pay for (an asset). To purchase an NFT you can pay with fiat money, cryptocurrency, or trade it for another NFT. And the price, unlike physical items that include production, logistics, marketing, labor, etc., is something the market sets depending on how other participants value it. Collectors have spent millions on some NFTs.
Another key difference between cryptocurrencies and NFTs is that while 1 unit of cryptocurrency (coin) is equal to another unit of cryptocurrency, making their exchange possible, not all NFTs are created equal. They are non-fungible, meaning not all units have the same value.
This non-fungible nature means that unlike coins, which can be simply exchanged, tokens can’t be replicated, replaced, or interchanged.
Every NFT is unique. It contains information about the owner (identity, address, etc.) and property rights. For example, even if you minted 100 similar images and sold them to 100 different people, though the images would look the same, they would contain different information.
Metaverse
The metaverse is a relatively new phenomenon, and the fact that it’s still being developed makes it even more difficult to define; it’s best described as a more extended internet that users utterly immerse themselves in rather than just interacting with it.
The metaverse makes use of cryptocurrency, AI (artificial intelligence), VR (virtual reality), AR (augmented reality) and other technologies (remember Pokémon Go?). People interact with each other in real time, immerse in the experience, and simultaneously conduct different activities, including not only gaming, but design, art, sports, retail, etc. While there is still debate about the future popularity of metaverse, McKinsey, for example, estimates that the metaverse can generate $5 trillion in 2030.
Why are NFTs gaining popularity?
First of all, it’s a trend. Celebrities buy and sell items, famous pieces of art are being tokenized, blogger creators promote them as a way to earn sums that are not limited by the market norms, but by audience imagination.
NFT can be used in:
- Art: NFTs are popular in the form of photography, pixel art, tokenized classic masterpieces, etc. — every item is original and cannot be replicated, but can be purchased by anyone in a digital form.
- Sports: fans can interact with their favorite teams or players in metaverses, support them by purchasing trading cards, or buy an NFT membership in fan clubs (unique access information).
- Fashion: Famous fashion brands, including Burberry, Louis Vuitton, Adidas, Levi’s, etc., let customers wear exclusive clothes in virtual reality.
- Music: Songs, video clips, and even ownership rights can be NFTs.
- Virtual worlds where it represents a digital asset owned by a person.
- And, of course, iGaming.
NFT in iGaming
How NFT technology can be used in terms of iGaming activities:
NTFs can be a game token, and can be used to place deposits, but they can also be a reward. Casino and sportsbook platform BC.Game, for example, already accepts NFT deposits.
Since NFTs are decentralized and independent, and they can be used anywhere without any limits, which is appreciated by players who have trouble accessing traditional payment methods.
Blockchains store information about ownership, providing a high level of transparency. This concept is also used in the new trend of provably fair games, where players can verify that their results were governed by a smart contract code, and not influenced or manipulated by humans.
Another function of NFTs in iGaming is to grant access to casinos, such as in the metaverse, or membership in loyalty or VIP programs with special bonuses, tournaments, or jackpots. This function is also a good tool in terms of security — it can assist in self-exclusion or help to block access for miners.
Another interesting idea is letting players become a part of the business: why place bets using NFTs if you can purchase their own slot machine in the metaverse as an NFT? If users own their own virtual slot machine, poker table or even casino, they can benefit from them as business owners. With one exception: there is still no gambling regulation in metaverses, and “casino owners” are not obliged to anything.
NFT casinos would widen the audience: younger generations will play because besides the traditional motives to gamble, they’re very interested in collecting digital assets.
NBA Top Shot
NBA Top Shot is essentially a world of digital trading cards — video NFTs of game-winning shots and other highlights. There’s a limited number of each card (called a “moment”). Customers can buy and sell cards in a marketplace or buy a randomized pack. Some of the cards are incredibly valuable; in April 2021, a LeBron James dunk changed hands for $390,000.
Buying a few hundred dollars’ worth of NBA “moments” can potentially net you thousands. Top Shot has a similar genre and feel as sports betting, making it no surprise that it really took off during the pandemic.
Sorare
While Top Shot is great for the USA, its European counterpart, Sorare, offers football player NFTs based on Ethereum blockchain. Customers can also compete in fantasy tournaments using a team made of the cards they own. Unlike Top Shot, Sorare doesn’t sell packs of random cards, only single cards and predefined bundles.
Regulation of NFTs
Since NFTs are a relatively new concept, even though their popularity is breaking records, regulation is something that still needs to be worked out — unlike cryptocurrencies, which have already been given due consideration in many countries.
Smart contracts, the foundation of non-fungible tokens, are also rarely regulated. However, given how they operate — automatically executing deals — they are a form of self-regulation.
NFTs are assets, and while profits or losses from the sale or purchase of assets are normally subject to taxation, this aspect has yet to be clearly established. Whereas taxes on gains from trading cryptocurrencies are usually applied in the owner’s country of residence, there are few — if any — comparable practices for NFTs.
The European Union, for example, has yet to establish a definition of NFTs, but is planning to regulate them in the same way as cryptocurrencies: authorities are closely scrutinizing decentralized financing out of concerns about money laundering, fraud, and the financing of terrorism, which means European businesses can expect new regulation at some point.
The future of NFTs in iGaming
It’s estimated by MarketsandMarkets that the NFT sector will grow to over $13 billion in 2027, which would make an annual growth rate of 35%. This is in line with the overall trend towards spending more time — and money — online. A survey from McKinsey shows that over 20% of the population is going to increase their level of online shopping, exercising, entertaining, etc.
NFTs were quickly embraced and became a popular way to spend and earn money. The iGaming industry, no stranger to innovation, saw the potential for NFTs immediately, and game providers began developing titles that incorporated the new technology. Aviatrix, for example, features a crash game where players can purchase the in-game avatar as an NFT.
Ultimately, if the rapid spread of cryptocurrencies are any indication of how popular and effective blockchain technology can be, we have every reason to believe that NFTs will become commonplace for online casinos and sportsbooks.
How can Slotegrator help?
Slotegrator is a gambling platform developer and gaming content aggregator with many years of experience in the industry. Our Turnkey platform offers all the important modern modules and features, including Casino Builder, KYC module, risk management, BI module, and bonus module. Our team is on the alert of every regulatory change, every popular trend, and every new release. Contact us to get a free consultation about your gambling business and find out how to improve its performance.
