Hollywood's Next Hit Could Be Based on an NFT -- And You'd Never Know It

Hollywood's Next Hit Could Be Based on an NFT -- And You'd Never Know It

In 1994, True Lies was a massive hit, raking in almost $400 million at the box office. That makes sense: It starred Arnold Schwarzenegger, one of the most bankable stars in Hollywood history, and was helmed by James Cameron, fresh off directing Terminator 2.

But how many people watched La Totale, the French movie it was based on?

That's the question on John Wick creator Derek Kolstad's mind. In between writing Netflix's upcoming Splinter Cell show, Kolstad is penning an eight-episode anime show, based on Forgotten Runes Wizard's Cult.

If you've never heard of Forgotten Runes, that's probably because you don't spend your nights surfing NFT marketplace OpenSea. It's an NFT collection that launched last July and consists of just under 10,000 fantasy characters. The question is simple: Is it possible for a show based on NFTs to cross over to a mainstream audience that may not even know what those three letters stand for?

"There's real life and there's what Web3 is doing, and there's a divide between the two," Kolstad said in a recent Zoom interview. "You [need] to bridge the divide by just making a good thing, a good thing that makes people say, 'What is this? It's based on something? What's that?'"

NFT collections, like the Bored Ape Yacht Club, typically feature thousands of different characters, as well as a loose story that ties them together. But NFTs are polarizing. They've been enthusiastically adopted by some, but are despised by many. Those working in the industry are aware that interest is too limited to market NFT adaptations, like a TV show, based on its crypto credentials alone.

But that doesn't mean NFT characters, stories and franchises can't be fodder for an adaptation that goes mainstream. Forgotten Runes is one of many NFT brands hoping to jump from the blockchain to the big screen.

"The number of [NFT owners] in a single collection is usually around 5,000," said Bryce Anderson, production executive at Clubhouse Pictures, which helped produce I, Tonya and Birds of Prey. "If that's your audience, it's not enough to make a global brand. We talk about our TV shows, and it's 500,000 people per week or you get canceled. That's what you need."

It won't be easy. Much of the hype around NFTs was generated by the speculative bubble that enveloped the crypto market in 2021. The crash of crypto prices in recent months has sedated that speculative mania, dampening enthusiasm for NFTs. Despite the cold winds of "crypto winter," many creators are trying to prove that NFTs are here to stay.

Similar to how some developers and engineers left the Silicon Valley giants to join the crypto industry, renowned creatives are exploring NFTs. Most notable are the celebrities. Seth Green is working on a show that will star his Bored Ape Yacht Club NFT. Reese Witherspoon's production house is working on a film and TV universe for the World of Women NFT collection. Equally important are the artists and scriptwriters, who've come from companies like Pixar and Marvel.

"You never know what something's going to become," said Bearsnake, one of Forgotten Runes' founders. Bearsnake declined to give his real name but verified to CNET that he ran creative at an entertainment startup acquired by Disney. "Hello Kitty started as a vinyl coin purse. Did they know it was going to turn into... one of the biggest media franchises in the world? No, but it found an organic way to where it is now."

28 of the NFTs in Forgotten Runes Wizard's Cult, a collection of 9,995 pixelated NFTs. 

Forgotten Runes/OpenSea

Fund a show, own a character

For some, the goal is for a universe created from an NFT collection to break through the cryptographic ceiling and go mainstream. Others see NFTs more practically: as a way to help fund productions.

"The biggest barrier for any young filmmaker has been finance," said Spike Lee during a talk at the NFT.NYC conference in June. "Where are you gonna get the money?"

Lee says technology has helped decentralize filmmaking, as amateurs can now shoot and edit video on their phones and laptops. Funding, however, continues to bedevil up-and-coming artists. Lee hopes NFTs can change that. He's piloting a program at New York University, where he teaches filmmaking, that will allow his students to fund projects by issuing NFTs.

"Films are still going to be made by the studios, and I think that NFTs will fit in the independent cinema," Lee said.

At the center of the premise is intellectual property. Punters can invest in up-and-coming filmmakers and the characters they create, just like they can invest in startup companies. The more popular those characters become, in theory, the bigger the returns.

IP bleeds into the second proposed benefit of media creation via the blockchain. Buying an NFT often means buying the IP for the depicted character -- and the right to build on top of that IP by creating a backstory. Many hope this can change the way films and TV are written and created.

Take Forgotten Runes. Wizard's Cult is a collection of 9,995, each depicting a different fantasy character: mages, warriors, alchemists, clairvoyants and more. Those who own an NFT get access to the Book of Lore, wherein they can write an official backstory for their character. Once it's written, it can't be changed -- even if the NFT is sold to another person.

It sounds like a recipe for chaos -- the internet is undefeated at loading unsuspecting platforms with offensive content -- but the idea is that self-interest will prevail. Worthwhile characters can be chosen to appear in Forgotten Runes' upcoming anime. If it becomes a hit, the characters within, and their attached NFT, become more valuable.

Writing fan fiction is technically illegal, points out Bearsnake, as it violates copyright law. The proposition, made by many NFT collections, is that franchises can be built quicker by embracing the passion of fans rather than merely tolerating it.

"Some of my favorite pieces of literature of the last 10 years, like actual literature, is stuff people wrote on the internet, and released on the internet, for free," said Clubhouse Picture's Anderson. "That was their creative impulse, and I think [NFTs help find] a way to let that live in a more public way."

Anderson is cocreator of Runner, an upcoming NFT collection. Runner takes place on a planet called Omega and focuses on The Omega Race, a contest that determines who rules the whole planet. It's being penned by Blaise Hemingway who, through the Disney Animation Story Trust, helped write Frozen and Big Hero 6.

Runner is an upcoming NFT collection. It's founded by Bryce Anderson and Bryan Unkeless, both of Clubhouse Pictures. Between them, they've worked on films like The Hunger Games and I, Tonya.

Runner

To Hemingway, the idea of NFT holders being able to create official backstories for their characters reminded him of being a kid and creating storylines for his Star Wars figurines.

"There could be a character that appears on screen for two seconds in a cantina scene, but what's that character's story?" he said. "We're following the story of about 12 central characters, but there's an entire world that has parallel stories going on that intersect with this."

Hemingway and Anderson have plans to adapt Runner to other mediums, though none are concrete yet. A film or TV expression seems inevitable given the team's credentials: Working with Hemingway and Anderson are Bryan Unkeless, producer of the Hunger Games, and Cedric Nicolas-Troyan, director of Snow White and the Huntsman.

NFTs going pop

The business models of NFT collections -- the ones that have business models in the first place -- often rely on the ability to break out into mainstream culture. But breaking out requires quality products, and quality products take a lot of time and effort to make.

Forgotten Runes is among the more ambitious NFT groups. Beyond the anime show, there's a comic book series that had its first issue in June, plans for a tabletop game and, curiously, even a cookbook. A Forgotten Runes massively multiplayer online role-playing game, or MMORPG, is in development and is due for release early next year.

The idea of creating a franchise and expanding it into different mediums is as old as Disney, said Bearsnake. What's new with NFTs is a set of tools that allows fans to play a more crucial role in that process. Those tools, however, create problems as well as solutions. Creators need to make products with mainstream appeal but also placate NFT investors who are mostly speculators, more interested in short-term hype than long-term vision.

"The majority of people in the space are really in it for financial gain, and that's OK," said Bearsnake. "I think there's a lot of unrealistic expectations from a lot of the community to the founders, because not everybody understands what goes into just even making a comic book. Like, that was hard."

It's a difficult time to be branching out. The past few months have been tough on all things crypto. Ether, the currency behind most NFTs, is down over 50% since the year began. That's tanked not only NFT valuations -- Bored Ape Yacht Club NFTs are at about a third of their all-time-high -- but also mainstream interest in the arcane technology.

The circumstances for a blockchain blockbuster aren't the most auspicious, but NFT creators don't need to make the next True Lies. They just need to make the next La Totale.

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NFTs explained: Why people spend millions of dollars on JPEGs

NFTs explained: Why people spend millions of dollars on JPEGs

Take a quick look at the image to the right. What, if anything, could convince you that image is worth $9 million?

Richerd/OpenSea

What you're looking at is an NFT, one of the first ever created. It's part of the CryptoPunks collection, a set of 10,000 NFTs released in 2017, a time when much of the world was still finding out what bitcoin is.

Most likely you've already rolled your eyes, either at the $9 million figure or at the very idea of NFTs themselves. The response to nonfungible tokens hasn't changed much since March when they first started exploding. The public at large has reflexively dismissed them as environmentally harmful scams. The bigger the sale, the more brazen the injustice. 

Which brings us back to the above pixelated chap. Its owner is Richerd, an affable Canadian software developer. He started building cryptocurrency software around 2013, but eventually tired of it. After discovering NFTs earlier this year, Richerd bought CryptoPunk #6046 on March 31 for $86,000 in what he said was the biggest purchase he'd ever made in his life.

Richerd, who has over 80,000 followers on Twitter, last month claimed that his CryptoPunk was priceless to him and wasn't for sale no matter the price. The very next day his determination was tested when an offer came through for 2,500 ether, or $9.5 million. It was made not because Richerd's CryptoPunk is worth that amount -- similar NFTs now go for about $400,000 -- but rather because his bluff was very publicly being called. It was a challenge, but it was still a legitimate offer. If Richerd clicked "accept", 2,500 ether would have flowed into his wallet.

Richerd rejected the offer. 

"Well, obviously, the day before I said 'I'm not selling it for any price,' so if I sell it for that price, I'd be going against my integrity," Richerd told me over a Zoom call. "On top of that, I've used this CryptoPunk as my profile pic, as my brand. Everyone knows that's me."

Not too long ago, Richerd's explanation would have sounded insane to me. How divorced from reality would someone need to be to offer eight figures on a picture that looks like a Fiverr job? How scandalously misguided would a person need to be to rebuff that offer? After I spent a few months researching and following NFTs, however, it doesn't surprise me in the slightest. In fact, it makes a whole lot of sense.

There are 10,000 NFTs in the Bored Ape Yacht Club collection. Here are three examples. The middle one is owned by Jimmy Fallon.

Yuga Labs

Bitcoin millionaires

Here is one quick fact that explains why NFTs are bought for the equivalent of a CEO's salary: Bitcoin is estimated to have made over 100,000 millionaires. It's no surprise that NFTs became a phenomenon in March. That's when bitcoin hit $60,000, up over 500% from just six months prior. 

When you see a headline or a tweet about some preposterous sum being spent on an NFT, it's easy to become bewildered over how absurd that purchase would be for you. What's easy to forget is that very expensive things are almost exclusively bought by very rich people -- and very rich people spend a lot on status symbols. 

Take Bored Ape Yacht Club, for example. It's a collection of 10,000 ape NFTs, all with different traits that make some rarer than others. Rare ones have sold over for over a million bucks, but common variants go for around $200,000. (At the time of launch back in April, BAYC developers sold the NFTs for $190 each.) BAYC, owned by the likes of Steph Curry and Jimmy Fallon, is what you'd call a "profile pic collection." The main purpose of the images is to be used as your display photo on Discord, where most NFT business goes down, or on Twitter, Instagram or wherever else. 

To recap: $200,000 minimum for a profile picture. 

In isolation, that's insane. But place it on a spectrum of how wealthy people spend money, and it becomes less staggering. You can right click and save a JPEG, so why spend money on it? Well, you can buy a nice house in a safe neighborhood almost anywhere in the world for $1 million, yet celebrities regularly snap up $20 million mansions. You can find a fashionable dress for under $500, yet brands like Chanel build their business on selling ones for 20 times that amount.

Up to 100,000 people became millionaires when that green line shot skyward. 

coinmarketcap.com

We accept that rich folks buy extravagant items offline. Is it so inconceivable they would buy extravagant things online, too?

"In the real world, how do people flex their wealth?" said Alex Gedevani, an analyst at cryptocurrency research firm Delphi Digital. "It can be buying cars or watches. How scalable is that versus if I buy a CryptoPunk and use it as my profile picture?"

Obviously, status symbols aren't specific to the rich. All of us indulge in some way or another, be it buying a $20,000 new car when a $7,000 used vehicle will do, or buying a $30 T-shirt when Walmart sells basics for under $5. What most status symbols have in common is that they have a specific audience in mind. The banker sporting his Rolex and the chief executive stepping into her Bentley don't care that I think either of those purchases is excessive. They have a small but powerful group of people they're trying to influence. So, too, with NFTs. 

In the case of Richerd, he runs his own business, Manifold, where he helps show digital artists like Beeple how they can use blockchain technology to make art that could only exist as NFTs. Being a part of the most sought-after NFT collection helps in those circles. And when he says his brand is built on his Punk, he's not exaggerating -- a group of investors even named their organization after him.

"Anybody who owns a CryptoPunk believes certain things," Richerd explained. "Either you've been in the community for a long time so you believe in what these are, or you've paid a lot of money to get in, which shows conviction.

"I want to show my conviction. This is one of those projects that makes you put your money where your mouth is." 

A bit of trouble

NFTs are polarizing. There's a small group of people who believe in the underlying technology (tokens that prove ownership of a digital good), but there are many more who regard it as a hoax. Just as the second group struggles to see any value in NFTs, the first group can sometimes be defensive about the technology's imperfections.

And make no doubt about it, there are a lot of issues with NFTs. 

First is the confounding inaccessibility. There's a reason software developers tend to do well in crypto and NFT trading: Setting up blockchain wallets and other required digital apparatus is difficult. Even just buying and selling can be perilous. Send money to the wrong wallet address by accident, and it's gone forever.

Then there are the fees. Imagine you're interested in dipping your toes into nonfungible waters and you have $1,000 you're willing to lose. If you're minting a new NFT during a public sale you'll usually spend between $120 and $400. Not too bad -- until you factor in the transaction fees. Most NFTs are built on the ethereum blockchain, which is notoriously inefficient. The more people using ethereum, be it through trading altcoins or buying NFTs, the higher the fees. At a good time you'll spend about $100 per transaction, though double or triple that amount is common. Suddenly that $1,000 doesn't go very far. 

This is especially troublesome for NFTs, which are infamous for causing "gas wars." It's possible for 100,000 people to buy shiba inu coins at once, since there are a quadrillion in circulation. But when 10,000 people try to buy an NFT, it results in a massive spike in transaction costs as some users outbid each other to speed up their purchase. It may only last a minute or two, but a lot of damage can be done in that time. People spending over $10,000 on a transaction fee isn't rare. People losing $1,000 on a failed transaction isn't, either.

This is what it looks like when someone spends $4,000 on a failed transaction. It's rare, but not rare enough. 

Etherscan screenshot by Daniel Van Boom

Ethereum's inefficiency also contributes to the other major criticism of NFTs, the massive amount of energy they consume. Note that this is something of a semantic issue: NFTs aren't bad for the environment as much as ethereum is. Other networks, like Solana, use a fraction of the power. Ethereum developers are expected to implement an upgrade next year that will make mining it consume 1% the energy it currently does. At this moment though, while no one can say precisely how much energy ethereum consumes, we know it's a lot. (Bitcoin, despite getting all the headlines, is even less efficient than ethereum, which is why almost nothing is built on its blockchain.)

And finally, there's the fact that most people trading NFTs are doing so to make a profit. Scams are everywhere, and prices are volatile. Most of the people who create, buy and sell NFTs are ignorant or uninterested in the technology. If there is a technological leap taking place, it's likely to be obscured by the dizzying price movements.

"I'd call it a bubble," Gedvani said, "because the amount of speculators that are entering the market is outpacing genuine creators." 

But a bubble can pop and leave something better in its wake. Think of Pets.com. It had a peak valuation of $290 million in February 2000 but by November of that year, as the infamous dot-com bubble began to burst, it had already closed shop. It's used as a cautionary tale for speculative trading in bubbles. But the impulse to invest in Pets.com evidently ended up being justifiable. That particular venture was misguided, but the e-commerce trend it was flicking at was legitimate. Seven-figure pixel art may not be forever, but proof of digital ownership, which is what NFTs are really about, may be. 

A big 2022

Where NFTs will end up is anyone's guess -- and anyone who claims to know is probably trying to sell you something. What we do know is that the amount of people buying NFTs is almost definitely about to grow.

It's estimated that around 250,000 people trade NFTs each month on OpenSea, the biggest NFT marketplace. In the short term, CoinBase will soon open its own NFT marketplace, for which 2 million users are on the waiting list. Robinhood has similar plans.

More importantly, giant companies that already make money outside of the crypto space want in. Niantic, the company behind Pokemon Go, has just announced a game in which players can earn bitcoin. Twitter and the company formerly known as Facebook plan to integrate NFTs into their platforms, and Epic Games says it's open to doing so too. Envision a world where instead of buying skins in Fortnite, you buy an NFT for those skins that you own -- meaning you can trade it for outfits and weapons in other games, or sell it once you're done with it. (Epic said it won't integrate such a mechanic into Fortnite, but that may not stop competitors.) 

Richerd reckons the flood of people soon to enter the NFT marketplace will create a broader diversity of digital products sold for different audiences. Your neighbor might not want to spend $200 -- much less $200,000 -- on a profile picture, but maybe they'll be willing to spend $10 on a one-of-a-kind skin, or on a product in Facebook's Metaverse. But though the space may change, he remains confident that CryptoPunk #6046 is safe for a while yet. 

"Even if every NFT falls," he said, "CryptoPunks will be the last one."

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Beyond Axie Infinity: 'Web3 Games' Hope to Convert Crypto Skeptics

Beyond Axie Infinity: 'Web3 Games' Hope to Convert Crypto Skeptics

The moment Chris saw Axie Infinity, he was hooked. He was once an avid gamer, playing hours of League of Legends every day, but stopped after deciding he was sinking too much time into an unproductive hobby. Axie Infinity promised something different. Inspired by Pokemon, it's a video game about training and battling monsters. That sounds like hundreds of other games, but one element distinguishes Axie Infinity. It's built on the blockchain.

Axies are the Pokemon of Axie Infinity, but they're owned as nonfungible tokens, or NFTs. A cryptocurrency called Smooth Love Potion is earned by battling these Axies. Players can also breed Axies, then either sell or battle with them. Chris, who declined to give his real name and goes only by the pseudonym Cryptobarbarian, felt he could justify playing video games again -- as long as it paid.

"It was fun for the first few weeks, but it gets boring really fast," the 28-year-old said. From there, he said, Axie Infinity became purely about making money.

Axie Infinity is a browser game. Accessing it is free, but you need to buy a team of three Axies to play. At its peak of popularity, bottom-tier Axies cost around $350 each, meaning playing the game once required a four-figure investment. The game allows Axie owners to lease out their monsters to other players, however. A longtime crypto investor, Cryptobarbarian told me he bought $30,000 worth of Axies and loaned them out in return for 40% to 70% of the profits. (CNET wasn't able to verify his purchases.)

The strategy paid off at first. Axie Infinity was a hot ticket in CryptoTown, generating over $15 million a day last August. But thanks to a combination of poor in-game economics, inflation threatening the real world's economy and a $600 million hack reportedly caused by a fake job posting, the price of Axies and the game's Smooth Love Potion cryptocurrency collapsed. The same monsters that cost hundreds of dollars last year now fetch under $10.

"I got around 100 players playing for me with high-end Axies," Cryptobarbarian said to me over Twitter, "which overall cost around $100,000 at the height and are now worth nothing."

To gamers, stories like this provide ample reason to reject "Web3 gaming," a term referring to the integration of NFTs and cryptocurrency into games. The significant carbon footprint of ethereum and bitcoin adds to the resentment. Be it Ubisoft bringing NFTs into Ghost Recon or Square Enix launching Final Fantasy 7 NFTs, gamers have fiercely resisted the blockchain coming anywhere near their industry.  

Three Axies in Axie Infinity. 

Sky Mavis

The fear is that crypto and NFTs will deform gaming into a side hustle, transforming its purpose from entertainment to moneymaking. Play-to-earn titles such as Axie Infinity prove the point; they're not games as much as they are financial speculation with the veneer of a game.

"I've never met anyone that played it just for fun," Cryptobarbarian said of Axie Infinity, "only to make money." 

But Axie Infinity doesn't represent the future that many Web3 developers envision for gaming. Video game firms, both small and large, are developing titles they hope will clean the slate of Web3 gaming. All are on carbon-neutral blockchains such as polygon or solana, which are far more efficient than ethereum. (Whether they're as secure is an open question.) The goal isn't to make titles that entertain crypto speculators, but rather to make games fun enough that people can justify playing them regardless of whether they earn crypto. 

"I've long been a believer that gaming is one of the consumer internet categories that is most likely to bring on mainstream adoption of crypto," said Amy Wu, head of gaming at FTX Ventures, the investment arm of the FTX crypto exchange. "But I also believe when you have a hit game with Web3 elements, it's very likely that the majority of players will never actually trade those tokens. They're just playing the game."

Free to play, play to own

The upcoming wave of Web3 games will range from free-to-play mobile titles to big-budget AAA games for PC and console. On the simpler end of the scale is Shatterpoint. With an art style inspired by Legend of Zelda: Breath of the Wild, it's an action RPG for Android and iOS that, on paper, looks like many top App Store games. There's a single-player campaign plus a PvP multiplayer mode. You earn new weapons and gear as you progress and, much like Fortnite and Call of Duty, the multiplayer is broken up into different "seasons."

But these seasons, segmented by "the shattering" in the game, is where the blockchain comes in. Players will be given a certain list of goals each season. If they complete one -- say, being one of the first 100 players to reach level 50, or staying atop of the PvP leaderboard for a certain amount of time -- their character will be converted into an NFT. Only a limited amount of NFTs will be minted per season. 

There are two reasons why players might want to bother scoring an NFT. The shattering acts as an in-game reset, so any gear you've collected will vanish. NFT characters, of which there will be a limited amount each season, are permanent. However your character looks when it's minted into an NFT, with whatever combination of gear equipped, that's how it'll look in perpetuity. The second benefit is that these NFTs can be sold on a marketplace -- if there's a market for them.

A screenshot from Shatterpoint. 

Estoty Games

There are three crucial elements that make this model sustainable, says Shatterpoint developer Benas Baltramiejunas. First, the game is free to play -- unlike P2E games like Axie Infinity, which requires the upfront cost of three Axie NFTs. Second, none of the items retained as an NFT can resemble "pay to win" mechanics. There can only be cosmetic benefits to owning it, not a competitive edge. Last, and most important, the game is designed with the assumption that most people playing won't be interested in minting their character as an NFT. It has to be fun for them too.

"We're using the NFT approach to create a bit of competitiveness, to incentivize players to play," he said. Shatterpoint is monetized by traditional microtransactions and from taking a small cut of NFT sales -- 2.5% is the traditional cut creators take. Baltramiejunas hopes that focusing on NFTs will result in both better game design and fairer prices. If developers can create a compelling game, revenue can theoretically be sorted out organically through whatever the player base sets as the value of the NFTs. 

"In free-to-play games you have whales which account for 10% of the player base but 90% of the revenue," Baltramiejunas said. "If you only have those microtransactions for monetization, you are only focusing on those whales during the content creation, and you're leaving everybody behind. However, with NFT integration, you don't need to monetize that aggressively. The market decides." 

NFT brands expand into gaming

While Shatterpoint is a mobile game that produces NFTs, the coming years will see many examples of the reverse: NFT collections turning into games. NFT drops, such as the famed Bored Ape Yacht Club, are doubling as crowdfunding platforms that produce games. Creators earn millions in royalties from sales, and use that money to expand the brand, theoretically boosting NFT prices in the process. Some brands are expanding into TV and film. Many are dabbling in gaming.

One such example is My Pet Hooligan. It's a product of AMGI Studios, an animation studio where former Pixar animator Colin Brady serves as chief creative and technology officer. The studio sees Unreal Engine 5 and blockchain technology as the next technologies that will drive entertainment, Brady told me at the recent NFT.NYC conference. 

AMGI Studios' goal of 2021 was to use Unreal Engine 5 to create an animated film for Netflix at half of the traditional cost. While the film was being greenlit, Brady explained, AMGI technical lead Kevin Mack approached him about starting an NFT collection. 

The result was My Pet Hooligan, a set of 8,888 3D rabbits. "We sold out in less than a minute, and all of a sudden people started saying, 'hey, when movie? When TV show? When video game?'" Brady said. The studio, filled with Unreal Engine programmers, already had a game in the works. 

The result is Rabbit Hole, a sandbox game that looks like a mix of Grand Theft Auto and Ratchet and Clank. Rabbit Hole is currently in closed alpha, available only for My Pet Hooligan NFT holders with only one map functional. The build of the game I saw at NFT.NYC was intriguing. It was certainly incomplete, with noticeable frame-rate issues, but had the clear foundation of a fun sandbox game.

My Pet Hooligan NFTs on the OpenSea marketplace.

AMGI Studios/OpenSea

Rabbit Hole will eventually be available for PC and console. Brady says the goal is to reach 1 million players by the end of the year.  To encourage the type of in-game socialization seen among players of Fortnite and Roblox, the studio developed a companion facial-recognition app for phones. If you perch your phone where a webcam typically is on a computer, it'll track your face and replicate all facial movements on your on-screen Hooligan.

Unlike Shatterpoint, which will integrate just NFTs, Rabbit Hole will use both NFTs and crypto. It will have a play-to-earn mechanic -- or play and earn, as technical lead Kevin Mack prefers to say -- in the form of in-game currency Karrots. These will be used to buy clothing, dances and more for the Hooligan avatars, but it doubles as a cryptocurrency that can be exchanged for ether or bitcoin. You can earn money playing Rabbit Hole, but Brady said it's not going to be life-changing cash. 

Then there's the NFT element. This is primed towards holders of the 8,888 My Pet Hooligan NFTs. While players who download the game will start with a generic Hooligan, My Pet Hooligan owners will be able to use their NFT as an avatar in the game. 

If the game gets popular enough, Mack said, there will be a certain prestige to owning one of these avatars. But he recognizes that to make that happen, the team has to make a game that people actually want to play.

"Superman No. 1 is valuable because Superman was a great comic," he said. "I think the NFT space for a while started to get that a little backward, where they thought the things were valuable just because they were collectable." 

To infinity...

Of all the NFT brands expanding into games, Bored Ape Yacht Club is the biggest. BAYC creators Yuga Labs are developing Otherside, a "metaverse" MMORPG. The term "metaverse" is nebulous, but in this case it refers to an open world where items are owned as NFTs and in-game currency is crypto that can be exchanged for dollars. Details on Otherside are scant, but Yuga has a huge warchest for it. The game's map will be made up of 200,000 plots of land, which players can buy and own. Over $350 million was raised from selling land back in May. 

Otherside may be the Web3 game with the highest budget, but perhaps the most ambitious is Star Atlas. 

In development since 2020, the Eve Online-inspired Star Atlas is crafted like a traditional AAA game. Michael Wagner, CEO of Star Atlas development studio ATMTA, told me there are around 200 developers working on the game. It's scheduled for release in 2026. 

Like Eve Online, Star Atlas is half game, half space simulator. Players ride spacecraft through the galaxy, socializing and battling with each other, exploring exoplanets, mining lands and meteors for resources and so on. 

Games like Eve Online are giant, big enough for players to lose themselves in for years. Star Atlas hopes to mimic that feat. On the way to doing so, it uses almost every new tool Web3 offers.

It starts with funding. Wagner said $185 million in revenue was raised in 2021, through the sale of an Atlas token and NFT ships, with a "substantial margin" of that funding development. In the game, ships, items and land will be owned as NFTs. There will be a comprehensive crypto economy built atop the game, which Wagner says will allow for not just a market, but a labor economy too. The economy isn't just in the game; part of Star Atlas will be built on the blockchain, meaning elements will be open source. People will be able to develop apps on top of this data, for things like spacecraft maintenance or resource management. 

Part of Star Atlas' economy will involve taxation. Just like in real life, a certain percentage of all sales will go to a treasury. There will be a DAO, or decentralized autonomous organization, in which token holders can vote on how these funds are used, be it to fund a new marketing campaign or a user engagement campaign. Then there will be another DAO specifically for the game itself, where token holders can vote on changes to the game, like additional features or ways to balance combat. 

"We've structured the economics of the DAO such that we don't lose control in the near term," Wagner said. "But in the future, it would even be possible for them to vote us out as the principal developer of the game and bring in somebody new if they think they could deliver the product in a superior fashion to us." 

Risks and rewards

The potential of Web3 gaming is tremendous, but its challenges are enormous. An examination of Star Atlas alone highlights many issues Web3 developers are likely to face.

First and foremost, making video games is hard. Making high-quality AAA games is harder still, even for veteran game studios, and the Star Atlas game alone is audacious in its ambition. The Web3 components offer additional opportunity for failure: An imbalanced economy, for instance, has the potential to completely break the game. Then there's security and regulation. Crypto has been a digital Wild West for years, with scams endemic. Regulators are slowly changing that. It's an open question whether Web3 gaming can survive in a regulated environment. 

"In many countries, consumer protection is the No. 1 driver of regulations. Given gaming is so mainstream, it will be a topic," said FTX Ventures' Wu. "100%, these assets are going to be regulated."

The final issue is the very commodity that fuels crypto tokens and NFT projects: hype. Games are often promised on NFT project road maps before a single second of development has been undertaken. As Brady noted, it took less than a day for My Pet Hooligan holders to demand the announcement of a game, movie or TV show to sustain hype and lift the NFT value. Vaporware is sure to be common.

Games will need to be developed in a way that insulates players from the crypto-rich speculators. Speculators outbidding each other can artificially raise the value of in-game items, which blocks players who actually want to play the game from accessing them. Recall the speculative bubble that caused the cost of entry to Axie Infinity to inflate to over $1,000.  

"I'm personally not interested in someone who's paying $100,000 for an NFT," said Brady. "That's a certain echelon. That's not normal society. I'm only interested if this helps every person."

Of all the developers I spoke to, a recurring theme was mistrust of any games company that promises a regular income, or dangles the possibility of earning enough money to quit the rat race. "Play-to-earn is not sustainable and is going to die off," said Baltramiejunas. Instead, the goal is for Web3 games to be more engaging than the games you play today, with the benefit of some pocket money on the side.

"If the game was good I would be satisfied with a little money as long as it's not totally a time waste," said Cryptobarbarian, reflecting on how much money he'd need to earn to justify playing games again.

"If I could earn some lunch money with it, that would be nice. But I think that will take at least a few more years before it happens." 

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The White House Issues First Crypto Order. This Week's Top Bitcoin and Crypto News

The White House Issues First Crypto Order. This Week's Top Bitcoin and Crypto News

Welcome to Nonfungible Tidbits, a weekly roundup of news in crypto, NFTs and their related realms.

Our lead story this week is the new crypto-focused executive order from the White House, which outlines opportunities and concerns in the cryptocurrency industry.  We'll also cover the seizure of $28 million in stolen cryptocurrency, UK authorities outlawing crypto ATMs and the US Labor Department cautioning against including digital assets in retirement plans. 

Stay tuned for more next week.

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President Biden signs crypto order

Samuel Corum/Bloomberg via Getty Images

On Wednesday, Biden signed the first executive order focused on cryptocurrency. The order directs federal agencies to come up with ideas for policies to address the risks and benefits of digital assets. The order also directs the federal government to look into potentially developing a US central bank digital currency, a type of cryptocurrency controlled by the government. 

While Biden's executive order is a starting point that lays the foundation for future regulation, it's the first indication of a centralized government effort to determine how cryptocurrency might be handled down the road.

Read CNET's full story on Biden's crypto order

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$28 million in crypto seized as ransomware suspect extradited from Canada to US

Photo by Chesnot/Getty Images)

Canadian authorities have arrested a 34-year-old former Canadian government worker in connection with a 2020 ransomware attack. The suspect allegedly used a type of Windows-specific ransomware called Netwalker that locks files on a computer and prompts the user to pay a ransom in cryptocurrency to regain access. Canadian authorities seized 719 bitcoin worth more than $28 million from the suspect's home in Quebec. According to the Justice Department, the suspect was extradited to the US on Wednesday to face charges.

Read CNET's full story on the ransomware bust

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Crypto ATMs are now illegal in the UK

Getty

On Friday, the Financial Conduct Authority, a UK financial regulator, said crypto ATMs that offer exchange services in the UK must register and comply with UK Money Laundering Regulations. None of the crypto ATMs open in the UK have done this, according to the Financial Conduct Authority. Now the FCA is contacting owners of crypto ATMs in the UK and telling them to shut down or face further action. Recently, crypto ads in the UK have also come under scrutiny due to misleading claims. 

Read CNET's full story on UK regulators shutting down crypto ATMs

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US Labor Department warns against crypto in retirement accounts

Robert Rodriguez/CNET

On Thursday, the US Labor Department expressed "serious concerns" over including crypto assets in 401(k) plans. The department cited a number of reasons why this could be a bad idea, including volatility, lack of informed decision-making, evolving regulations and concerns over valuation and record-keeping. Labor Department acting assistant secretary, Ali Khawar, went on to say that plan fiduciaries -- the people who run retirement accounts -- must use "a high standard of care" when managing retirement holdings. 

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Thanks for reading. We'll be back with plenty more next week. In the meantime, check out Daniel Van Boom's story on the release of Pixelmon NFTs, which didn't quite go as planned. 

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5 predictions for bitcoin, NFTs and the future of money

5 predictions for bitcoin, NFTs and the future of money

This story is part of The Year Ahead, CNET's look at how the world will continue to evolve starting in 2022 and beyond.

Cryptocurrency made many of the strangest headlines of 2021. Boosters touted digital currencies as a world-changing technology with the potential to create new economies and empower people who don't have access to bank accounts. Critics pointed to crypto's massive environmental footprint, as well as its popularity in online crime. The chasm between these views will be hard to bridge.

Much of the cryptocurrency industry functions as a hype-monster, powered by oddball memes of cute dogs and outer-space emoji. The same industry boasts a staggering amount of funding from venture capitalists and private enthusiasts, along with real technical innovations that could radically alter the way we interact with money. And, as it often goes with innovation, what we get may not be what we expect. CNET asked experts to help us navigate crypto's journey to new lands in 2022. Here's what they told us.

1. Crypto moves further into the mainstream

Big companies are trying to figure out how cryptocurrency fits into their business. Everyone from hedge fund managers to Starbucks executives are making moves that could impact how we use digital money this year. 

When we hear about cryptocurrency in the headlines, it's often about Tesla CEO Elon Musk's tweets, overnight millionaires, expensive digital art and hacks. Yet the larger, fundamental changes are often less flashy and attention-grabbing than whatever crypto-hype machine dominates Twitter at any given moment. 

"I hope we're going to see a lot more focus on utility," said Denelle Dixon, CEO of Stellar Development Foundation. "Instead of focusing just on a few use cases that create a lot of hype, we'll see more focus on the use cases that drive real value. And more discussion around financial inclusion."

2. NFTs create new ownership opportunities, and remix old ones

NFT, or nonfungible token, is a buzzy term that many of us heard for the first time in 2021. A new way to determine ownership of digital property using a blockchain ledger, NFTs are increasingly popular in the art and collectibles scenes. One of the most notable NFT collections of 2021 was called the Bored Ape Yacht Club. Go figure.

But the potential of NFTs goes far beyond eccentric digital artworks. NFTs are also used for digital land purchases in virtual worlds and for next-generation music ownership, licensing and publishing. Some observers see a future in which NFTs offer access to special sales or limited-edition products. How about using a NFT as a concert ticket? Or when you log into your favorite video game online? Expect to see all of that in 2022. 

"The possibilities of NFTs are endless, since they can be used to log ownership of any unique asset," Alex Atallah, co-founder of OpenSea, said in an email. "We're already seeing early use-cases of NFTs being used as event tickets, software licenses, fan club memberships, or otherwise tied to interactive experiences."

Some of America's biggest brands, including Nike, are already working on expanding the application of NFTs. But NFTs used in consumer products may only be the tip of the iceberg. How about using an NFT to prove you are you? 

"We've seen some movement from the artist-driven NFTs to NFTs that are focused on access or authorization," said Stellar's Dixon. "There was a party in New York recently where folks got access to the party by purchasing an NFT. So I wonder if we'll see some focus on leveraging NFTs for digital identity."

The $85 billion video game industry may be one of the most fertile areas of potential for NFTs. Some of the larger studios are already experimenting with them. And with all the talk surrounding the metaverse, an immersive 3D digital environment that's been proposed by Meta (formerly Facebook) CEO Mark Zuckerberg and other movers and shakers in the tech industry, NFTs could serve as building blocks for a next-generation digital world. 

"Gamers are already accustomed to caring about digital goods, so the potential for NFTs is enormous: a few million NFT users compared to almost 3 billion gamers," said Atallah. "We're seeing some exciting developments when it comes to the intersection of NFTs, gaming and the metaverse."

3. Bigger hacks and bigger ransoms

Cryptocurrencies were used to facilitate millions of dollars of ransomware payments in 2021. That's because digital currencies include features that make them attractive to criminals. They're difficult to track, they're borderless, and once the payment goes through, it's nearly impossible to unwind. 

"We should expect to see more criminals turning to cryptocurrency and services that promise to obfuscate illicit funds due to the misconception of total anonymity," Gurvais Grigg, a senior tech officer at Chainalysis, said in an email. "Bitcoin is appealing to criminals for the same reasons it appeals to those using them for legitimate purposes: It's cross-border, instantaneous and liquid."

Grigg and others expect decentralized finance, a nascent but blossoming industry on the cryptocurrency frontier, to be a popular target for cybercriminals in 2022. Decentralized finance, or DeFi, involves finance that works independently of a central authority or institution. Instead of relying on a bank or credit card network, people can connect directly with DeFi products on a distributed network. 

Though the industry is still in its early days, DeFi is a fast-evolving, highly technical space with tremendous potential. As such, it's attracted a great deal of attention and investment, making it ripe for criminal activity.

"Criminals are likely to explore DeFi as both a target for hacking and as a means to attempt laundering funds through," said Grigg. "Because of how new DeFi is, and the explosion in adoption in developed markets, these platforms are easy targets for experienced criminals who have conducted similar hacks before."

4. You'll hear more about stablecoins

Bitcoin and other cryptocurrencies have grabbed headlines because of their volatility. You can become a millionaire or lose it all at the hyper speed of the internet. But try buying a latte with bitcoin, and that volatility can make things confusing fast. 

Enter stablecoins. This subcategory of cryptocurrency, which is tied to an underlying asset, mitigates much of that volatility. Stablecoins could play a vital role in turning cryptocurrency into something we can easily use to conduct the ordinary transactions of everyday life. 

"People should start paying attention to trends in stablecoins both as a medium of payments and as a dollar digital currency. The use cases for cross-border payments, aid relief, instant settlement payments are starting to flourish in 2021 and we will see more of that in 2022," Rachel Mayer, a vice president of product at fintech firm Circle, said in an email.

Transferring assets more efficiently is one of the central values of a stablecoin. This value is powerful for companies that need to move digital assets and cash quickly and efficiently. 

"On the payments side, more industries will start adopting stablecoins as a more efficient way to make payments," Omid Malekan, author of The Story of the Blockchain and a professor at Columbia Business School, said in an email. "Stablecoin volumes will continue to grow, but the share of that volume that is only involved in crypto trading will go down."

5. New crypto rules appear on the horizon

Washington lawmakers sense that cryptocurrency is a big and important thing. But they are struggling, perceptibly, to understand it. It may only be a matter of time before crypto gets its "series of tubes" moment from a hapless representative out of their element.  

In December, executives from six cryptocurrency companies were called to testify before the House Financial Services Committee, where they discussed potential paths for future legislation. Lawmakers in the US have expressed interest in a range of topics -- whether stablecoin issuers should be considered banks, when to tax cryptocurrency and how to craft functional rules in a highly technical and complex industry. This is tricky stuff. Creating the right standards will take time. 

"I think there's going to be a lot more conversations around crypto and blockchain," said Dixon, one of the executives who testified before the House committee. Dixon previously testified on the issue of net neutrality before a House committee during her tenure at Mozilla in 2019 and harbors no illusions when it comes to regulating new technology. Some discourse will be positive and some will be negative, "but I just think that [by] having these conversations, we're going to see policymakers and regulators be more focused, and hopefully, more traditional businesses will be more focused on that." 

There could be more milestones to reach before Americans see a comprehensive framework for crypto-focused legislation. But if industry leaders and elected officials can work together, regular cryptocurrency users and investors may benefit while environmental and security concerns are addressed. 

"It's important to understand that the cryptocurrency industry wants to be regulated, but wants to ensure that proposed regulatory frameworks are feasible," said Grigg. "Governments globally are working with industry players to create legislation that protects consumers and fosters innovation."

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