NFTs in Gaming: Play-to-Earn and Virtual Economies

Most people still think NFTs are overpriced JPEGs. They’re missing the part where 250,000 players in the Philippines used Axie Infinity earnings to pay rent during lockdown. Or the part where a virtual plot of land in Decentraland sold for £2.4 million. Gaming isn’t just using blockchain technology — for millions of players, gaming IS where they first encountered it.

The intersection of NFTs and gaming has been turbulent, overhyped, and occasionally genuinely interesting. The play-to-earn model that exploded in 2021 has mostly collapsed. What’s replaced it is more measured, more sustainable, and still significant enough that every major games publisher from EA to Ubisoft has teams working on it.

What NFTs Actually Do in Games

In a traditional game, your sword, your character skin, your rare loot — these exist as data on the game company’s servers. The company can delete them, change their value, shut down the servers, or simply decide your item is now common. You don’t own anything. You have a licence to access it for as long as the company permits.

NFTs change that relationship. An NFT is a blockchain token representing a unique digital asset. When a game item is issued as an NFT, ownership is recorded on the blockchain — not on the company’s servers. If the game shuts down, the token still exists. If you want to sell it, you can do so on any compatible marketplace without asking the game company for permission. The asset has properties closer to genuine ownership than any previous digital asset model.

The practical implications are significant. Players can trade items across games that share a compatible blockchain standard. A weapon skin designed for one game could theoretically be worn in another. Rare items have genuine scarcity — the maximum supply is coded into the smart contract, not managed by a game company’s PR team.

Play-to-Earn: How the Model Works

Play-to-earn (P2E) games reward players with cryptocurrency or NFTs that have real-world value. The most basic version: play the game, earn tokens, sell tokens for cash. The more sophisticated version involves complex in-game economies where different player activities generate different token types, which interact in a designed economic system.

The model relies on new player investment sustaining the rewards of existing players. When the player base is growing, tokens flow in faster than they’re extracted, prices hold, and early players genuinely profit. When growth stalls, the economic model collapses fast — which is exactly what happened at scale in 2022.

At its peak, games like Axie Infinity, The Sandbox, and Decentraland collectively held NFT assets worth over £10 billion. The play-to-earn sector attracted venture capital from a16z, Sequoia, and others. Scholarship programmes — where asset owners lent NFT characters to players in developing countries in exchange for a revenue split — created genuine income for thousands of people. I’ve read accounts of players in Venezuela earning three to four times the local minimum wage through Axie Infinity. It worked, for a while.

Axie Infinity: The Rise and Fall That Taught Everyone Something

Axie Infinity was the clearest demonstration of both the potential and the fragility of play-to-earn economics.

At peak in 2021, Axie Infinity had 2.7 million daily active users. The game’s Smooth Love Potion (SLP) token hit $0.40, meaning a dedicated player could earn £400 to £600 per month — transformative income in the Philippines, Venezuela, or Indonesia. Sky Mavis, the Vietnamese developer, raised £145 million in Series B funding at a £2 billion valuation.

Then it fell apart. In March 2022, the Ronin Network bridge — the bridge connecting Axie’s sidechain to Ethereum — was hacked for £500 million in one of the largest DeFi exploits in history. The hack revealed how centralised the supposedly decentralised system actually was. SLP crashed 95%. Daily active users fell to under 200,000 by mid-2022.

The deeper lesson wasn’t just about security. The Axie economic model required constant new player inflows to sustain token prices. That’s structurally a Ponzi. When growth slows, early players extract value from late players. The “earning” was real — but only because someone else was ultimately paying for it.

True Ownership vs Rental: The Philosophical Shift

The philosophical argument for NFTs in gaming is more interesting than the get-rich mechanics that dominated 2021 coverage.

Digital gaming items have always been valuable to players. Rare World of Warcraft items sold on eBay for hundreds of pounds years before blockchain existed. RuneScape has maintained a player-to-player trading economy for two decades. The difference is that these transactions were always outside the game’s official framework, in a legal grey area, and entirely dependent on the game company’s continued existence and goodwill.

NFTs offer a model where the value players create in games can be genuinely owned and freely transferred. A character built up over three years of play has real value. It’s reasonable that a player should be able to sell it, trade it, or pass it on — just as they would any other valuable asset. This isn’t radical. It’s applying basic property rights to digital assets.

The counterargument from game designers is legitimate: true item ownership disrupts game balance. If rare items can be freely traded, rich players can simply buy power rather than earning it. Game economies become extractive rather than fun. Finding the balance between player ownership and gameplay integrity is the design challenge the industry is still solving.

Major Games Studios and Their Cautious Position

The major traditional games studios watched the 2021 boom and 2022 crash with obvious interest and obvious caution.

Ubisoft launched Quartz, an NFT platform for in-game items in Ghost Recon Breakpoint, in December 2021. The community response was hostile — 95% downvotes on the announcement trailer. Ubisoft quietly shelved expansion plans. Square Enix sold its Western studios to fund blockchain gaming investments, then watched those investments crater in value. EA called NFTs “the future of gaming” in early 2022 and quietly dropped all specific plans by 2023.

What this tells you isn’t that the concept failed — it’s that the implementation got ahead of the player acceptance curve. Gamers are suspicious of anything that looks like a money extraction mechanism inserted into gameplay. The studios that will succeed will make blockchain integration invisible at the player level: you own your items on a blockchain, but you experience the game as a game, not as a financial product.

The UK Tax Reality for Gaming NFT Earnings

UK players earning from play-to-earn games need to understand HMRC’s position. It’s clear and it’s not particularly friendly.

HMRC treats cryptocurrency tokens received as income from gaming activities as taxable income. If you earn SLP tokens worth £500 this month, that £500 is subject to Income Tax and potentially National Insurance, depending on your total income and whether HMRC classifies the activity as a trade.

When you sell NFT gaming items at a profit, Capital Gains Tax applies. The gain is calculated in GBP at the time of disposal, which creates record-keeping challenges given crypto price volatility. Selling a gaming NFT for Ethereum when ETH has risen since you received it creates a double tax event — income on receipt, capital gain on disposal.

The practical advice: if you’re earning meaningful amounts from gaming NFTs, treat it like any other self-employment income from a record-keeping perspective. HMRC has shown it is willing to investigate crypto income, particularly as exchange data becomes more available to tax authorities.

Where the Model Is Heading

The surviving and growing segment of blockchain gaming has learned from the 2021-2022 cycle. The games being built now look fundamentally different.

Gods Unchained, Parallel, and Illuvium are focused on being good games first — playable, strategic, worth engaging with on their own terms — with blockchain ownership as a feature rather than the core proposition. The “earning” in these games comes from skilled play and genuine engagement, not from recruiting new investors into a token scheme.

Immutable X, a Layer 2 scaling solution for NFT games, has attracted developers including GameStop’s NFT marketplace and over 200 games studios. The platform processes NFT transactions at zero gas fee, which was a critical barrier to in-game micro-economies at scale.

Sony has filed patents for NFT game item transfer between platforms. Microsoft Xbox has blockchain gaming infrastructure in development. When the infrastructure teams at major console platforms start filing patents, it signals genuine long-term commitment — not hype cycle enthusiasm.

What This Means for You

If you’re a UK gamer, the honest advice is: approach play-to-earn games primarily as games. If the gameplay is compelling and enjoyable, the blockchain aspects add interesting ownership properties. If the gameplay is only justified by the earning potential, treat it with the scepticism you’d apply to any other income claim requiring upfront investment.

For UK investors, blockchain gaming represents a volatile but genuine long-term opportunity. The total addressable market for gaming NFT infrastructure is projected at £60 billion by 2030. The companies building the picks and shovels — blockchain infrastructure, marketplaces, scaling solutions — are less exposed to individual game success and failure than game-specific tokens.

The Axie Infinity story isn’t the end of NFTs in gaming. It’s Chapter One of a longer story that includes much better second-draft attempts.

This article is for educational purposes only and does not constitute financial advice. Cryptocurrency investments involve significant risk. Always do your own research.