The first question we had to answer was 'Do NFTs cause global warming?'
No.
The second is somewhat different: 'Is blockchain gaming economically sustainable?'
This is a better question as it relates to what blockchain gaming is actually about - economics.
In that context, it's also a more significant question and for that reason certainly one that will be deployed in a more subtle fashion by those who already think that Blockchain Gaming Is A Bad Thing That Should Be Stopped By Any Means Necessary (™).
It's also a surprisingly difficult question to answer well, and that's why it's worth discussing at some length.
TL;DR: 'Is blockchain gaming economically sustainable?'
Yes
NB: This question can also be deployed in specific fashion - notably 'Is Axie Infinity economically sustainable?'
Or it can be weaponized - Is blockchain gaming (or Axie Infinity) a ponzi or pyramid scheme?
Some answers
When answering the question of 'Is blockchain gaming economically sustainable?' the first thing to think about is economics.
What makes any economic system sustainable?
Without getting deep into the theory of supply and demand etc, I think this is about the ability of any economic system to find equilibrium.
Of course, this doesn't mean it's always in equilibrium. New situations or inputs will upset the equilibrium, but a sustainable system will always find a new equilibrium.
In contrast, an unsustainable or chaotic system will be in flux; highly volatile, and probably eventually trend to zero.
But what's key in our current situation with blockchain games is that when new technologies launch, the short term growth they inherently generate is not sustainable.
But that's fine. It's just short term growth.
Activity starts from zero so growth rates are always insanely high. Over time they reduce to a lower level that is sustainable.
Indeed, you could argue that transformative technology is actually defined by its ability to generate insane levels of growth; that's the hockey stick shape so beloved of VCs.
One example of this short-term unsustainability would be the initial marketing strategy of PayPal in the early 2000s. It paid each person $10 for signing up, and also $10 per referral generated.
'Our growth was exponential, but so were our costs,' explained Peter Thiel in his book Zero To One.
This wasn't PayPal's long term marketing strategy, it just had to get enough users and drive transaction volumes so the small margin it generated from each transfer scaled sufficiently quickly.
Remind you of any other business model?
The advantage of blockchain games, however, is that they don't even have to spend money to attract users.
Blockchain games create assets - tokens and items - which the players then trade amongst themselves, generating small transactional margins for the developer.
The impact of growth
In this way, the first confusion inherent in the question of sustainability is confusing the early stages of a new technological transformation with its long term equilibrium.
It also confuses the way in which blockchain games create value for their players and the overall ecosystem.
This is important because it ignores the impact that high economic growth generates. In the case of the UK economy in the 1760s Industrial Revolution, more money meant population growth, which meant a larger economy, which meant more growth etc etc.
And it's a similar case for blockchain games. Success makes them larger, which means more economic value is created, for the game's player base and developer, and this in turn attracts value inputs from external agents such as advertisers.
Does this mean that all fast-growing blockchain games will be sustainable in the long term?
Of course not.
We don't have many examples of how developers, communities and economies will deal with sharp shocks, especially around asset prices. But we do have some.
Axie Infinity's economy has operated for over three years, experiencing some rapid pricing shocks up and down in the process, notably SLP's price in July 2020. To-date, the game has survived and its community - both short and long term - shows no sign of exiting.
Similarly, we've seen other projects experience asset price changes that have been strong enough to kill whatever community they had. EOS Dynasty would be a historic example, CryptoBlades a current one.
More common are games such as My Crypto Heroes, CSC and Gods Unchained for which there is some uncertainty about their status. Ironically, though, blockchain games are much harder to kill off than centralised games because their assets are always alive even if the game itself isn't.
To some degree, these games always have the possibility of resurrection.
Apex predator?
And this brings us what I think will increasingly be the twisting knife in this seemingly innocent question; ‘It's all a pyramid scheme?’
Let's be clear: a pyramid scheme is something that is overtly set up to defraud people; its evil genius being that many people involved in the scheme will profit from it.
It's only the final cohort who pay in who eventually bring the scheme down because the growth of a pyramid scheme relies on new money to pay out previous payees.
Pyramid schemes have to fail because they are zero-sum and they eventually run out of new people.
But this isn't the case in general economics because economic value is (hopefully) being created through growth. If it's not, a business (or country) may implode and collapse like a pyramid scheme, but that doesn't mean it was a pyramid scheme.
To underline the point, the claim that any blockchain game is a pyramid scheme is a specific accusation and should only be made with strong evidence that the project is artificially inflating asset values in a manner that eventually has to collapse.
Even in this case, the point of any blockchain game is that the vast majority of any economic activity is shared among its player base, not paid to its developers.
But let's be charitable and assume that our questioners are simply uneducated in economics; what they really mean is the high growth levels of a specific blockchain game or the sector in general isn't sustainable.
In which case, the answer is probably, yes.
Pretty much every economic system experiences a growth phase, which could be characterised as a bubble; in which asset valuations rise beyond what is sustainable in the long run, and then fall, perhaps rapidly. until they eventually find equilibrium.
The first mass market example of this was the growth of NBA Top Shot's market cap in early 2021. It peaked at around $2 billion before falling to around $500 million and is now around $850 million.
That's a rollercoaster and one that left a bitter taste in the mouth for many collectors on the receiving end of it (something not improved by the issues with cashing out to fiat currency that Dapper Labs had to deal with).
Did people lose money on NBA Top Shots? Absolutely.
But was NBA Top Shots a pyramid scheme?
No, it was just a project in which people got greedy and over-estimated the duration of short term growth. They spent $1,000, made $2,000 and then spent $10,000 etc. Capital inflows exceeded what the market could maintain and as soon as that became clear, prices collapsed.
The fact that NBA Top Shots' market cap dropped by 75% tells us how overheated that economy had become.
Yet it didn't drop to +99%. This is significant because true pyramid schemes always and can only trend to a 100% drop in economic value.
The fact is blockchain (games) can almost never do that. The point of the blockchain bit of the game is that these assets are always alive, with some sort of financial value attached, and owned by users even if the game part goes away.
And, true to form, NBA Top Shot recovered, up 70% from its all-time low.
To conclude
So to return to our initial question:
'Is blockchain gaming economically sustainable?'
Yes, as a sector blockchain gaming is economically sustainable, just as any nation state is economically sustainable.
'Is every blockchain game economically sustainable?'
No. Many if not most blockchain games will lose money for the people who get involved.
'Should I invest in a blockchain game?'
No, you should not. You should play the blockchain games you enjoy and never spend more money than you can afford to lose.
'Can blockchain games make money?'
Yes. Every well-designed blockchain game with a strong community has the potential over the long term to make money for its community and its developers.
'Jon, what blockchain games should I play to make money?'
No investment advice. But I'm pretty transparent about the games I like and play. I did my research and can afford to lose what I've spent. You can do the same.