Why Microsoft Put An End To Minecraft's NFT Games

Technology disruption occurs slowly, and then suddenly. Sometimes, however, there are simple warning signs that a new tech is becoming a danger that incumbents cannot ignore.

I saw one of those signs yesterday when Microsoft's (MSFT 1.57%) Minecraft banned non-fungible tokens (NFTs) in its game. There's no indication they will be allowed back. Not only did this crush some NFT projects built on Minecraft, it made a very compelling argument for NFTs in a single announcement.

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World of Warcraft was the genesis of NFTs

This disruption story dates back almost a decade. According to his own account, Ethereum (ETH 0.87%) co-founder Vitalik Buterin became interested in cryptocurrency and ultimately created his own blockchain after Activision Blizzard's (ATVI 0.55%) World of Warcraft "removed the damage component from my beloved warlock's Siphon Life spell." Or, to put it another way, Buterin was upset after a centralized entity (Blizzard, the game developer) changed the rules and there was nothing he can do. Do you feel like this is you?

One of the most important aspects of cryptocurrencies is that they are immutable or unchangeable. It is impossible to take away or alter the fundamental information on the blockchain. Ianblog.Com (There are nuances to many mutable non-financial transactions, but I will focus on the immutable angle for argument’s sake.

In the game space, the idea of using an NFT in general is that no one can take away your NFT, or say you can't create the NFT for the game and sell it to someone else. Although this is an idealized view since there is ultimately a game developer creating the game and making the rules, one of the ideas that blockchain games offers is that gatekeepers are removed. At the very least, the blockchain opens up new potential business models for developers.

Economics is a factor

If there are no gatekeepers, the economic incentives will change as well. Microsoft keeps approximately 50% revenue from third-party content, but doesn't take 50% from NFT sales. This creates an economic conflict among creators and centralized programmers, on top of the technical conflict.

This tension isn't inherently wrong, and Microsoft has a right to allow certain assets into Minecraft and ban others. It's making the point blockchain and crypto advocates have been trying for: Centralized entities are bad.

There is no better way to advocate decentralization or the blockchain than by making enemies of one of the most powerful companies in the globe.

This is how disruption happens

Microsoft shareholders should keep an eye on the Minecraft/NFT squabble and ensuing fallout in gaming closely. Not only does Microsoft own Minecraft, it's buying Activision Blizzard, which not coincidentally inspired Ethereum's creation.

Although it is not clear how blockchain-based games will improve on existing models, developers are making an effort. With hundreds of millions of dollar being poured into blockchain-based games, this is a real threat for Microsoft's huge gaming ambitions.

Games like Minecraft rely on user-generated content to produce revenue, and if they're pushing the best developers to explore the blockchain, it could be a big loss. For developers, the idea of selling NFTs and keeping 100% of the revenue they generate (or close) compared to 50% on a centralized game like Minecraft could be an attractive economic incentive as well.

This is how disruption begins. These companies can push their power a little too far, and inadvertently drive developers towards a new, disruptive platform. Microsoft may have just made the case for developers moving to the blockchain better than any crypto enthusiast could have themselves.