Why Microsoft put an end to Minecraft’s NFT game

Technology disruption happens slowly and then all at once. But sometimes there are simple warning signs that a new technology is becoming a threat that the incumbents cannot ignore.

I saw one of those signs yesterday Microsoft‘s (MSFT -1.39%) Minecraft banned non-fungible tokens (NFTs) in its game. There is no indication that they will get back. Not only did this crush some NFT projects built on Minecraft, it made a very compelling case for NFTs in a single announcement.

Image source: Getty Images.

The origin of NFTs was World of Warcraft

This history of disruption goes back almost a decade. According to his own account, Ethereum (ETH 2.18%) co-founder Vitalik Buterin became interested in cryptocurrency and eventually created his own blockchain after Activision Blizzard‘s (ATVI -0.21%) World of Warcraft “removed the damage component from my beloved warlock’s Siphon Life spell.” Put another way, Buterin was upset when a centralized entity (game developer Blizzard) changed the rules of the game and there was nothing he could do about it. Sounds familiar?

One of the cases for cryptocurrencies and NFTs is that they are immutable or immutable. No one can take away ownership or change what is fundamentally written on the blockchain. (There are nuances to many mutable NFTs, but for now I’ll focus on the immutable angle for the sake of argument.)

In the gaming space, the idea of ​​using an NFT is generally that no one can take away your NFT, or say you can’t make NFT for the game and sell it to someone else. It’s an idealized view because ultimately it’s a developer who builds the game and makes the rules, but one of the ideas is that gatekeepers come down with blockchain games. At the very least, blockchain opens up new potential business models for developers.

Economy is a factor

If there are no gatekeepers, the financial incentives will also change. Microsoft keeps roughly 50% of revenue generated by third-party content, but it doesn’t take 50% of NFT sales. This creates an economic conflict between creators and centralized developers on top of the technical conflict.

This tension is not inherently wrong, and Microsoft has the right to allow certain assets in Minecraft and ban others. But in doing so, it makes the point that crypto and blockchain advocates have been trying to make: Centralized entities are bad.

What better way to advocate for decentralization and the blockchain than to antagonize one of the biggest companies in the world?

This is how disturbances start

Microsoft shareholders should keep an eye on the Minecraft/NFT controversy and subsequent gaming fallout. 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 bottom line is that developers are trying. And with hundreds of millions of dollars in blockchain gaming, this is a real threat to Microsoft’s massive gaming ambitions.

Games like Minecraft rely on user-generated content to produce revenue, and if they push 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 to it) compared to 50% on a centralized game like Minecraft can also be an attractive financial incentive.

This is how disturbances start. Powerful companies push their power a little too far and inadvertently drive developers to a new, disruptive platform. Microsoft may have just made the case for developers moving to the blockchain better than any crypto enthusiast could have himself.