Technology disruptions can occur slowly or 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. They have not been 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.
Image source: Getty Images.
World of Warcraft was the original source of NFTs
This disruption story has been going on for 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." And to put it another manner, Buterin was angry when a central entity (game developer Blizzard), changed the rules for the game and he couldn't do anything. Are you familiar with this scenario?
One of the advantages of cryptocurrencies and NFTs over traditional currencies is their immutability, or inability to change. No one can take away ownership or change what's fundamentally written on the blockchain. (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. The blockchain opens up new business models for developers.
Economics is a key factor
If there are no gatekeepers the economic incentives for change will also. Microsoft keeps approximately 50% revenue from third-party content, but doesn't take 50% from NFT sales. Just another wordpress site 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. However, it is making the point that crypto and blockchain advocates have been trying make: Centralized entities can be bad.
What better way than to make an enemy of one the largest companies in this world?
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.
It's not entirely clear how a blockchain-based game's business model or technology will be an improvement on current models, but the point is that developers are trying. 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 starts. These companies can push their power a little too far, and inadvertently drive developers towards a new, disruptive platform. Microsoft may have made the case for developers to move to the Blockchain better than any crypto enthusiast could.