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 incumbents can't ignore.
I saw one of those signs yesterday when Microsoft's (MSFT 0.43%) 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.
Image source: Getty Images.
The genesis of NFTs was World of Warcraft
This disruption story goes back nearly a decade. According to his own account, Ethereum (ETH 1.85%) co-founder Vitalik Buterin became interested in cryptocurrency and ultimately created his own blockchain after Activision Blizzard's (ATVI +0.00%) 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. Sound familiar?
One of the cases for cryptocurrencies and NFTs is that they're immutable, or unchangeable. No one can take away ownership or change what's fundamentally written on the blockchain. (There's nuance to many mutable NFTs, but for now I'll 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. That's an idealized view because there's ultimately a developer building the game and making rules, but one of the ideas is that gatekeepers come down with blockchain games. At the very least, the blockchain opens up new potential business models for developers.
NASDAQ: MSFT
Key Data Points
Economics are a factor
If there are no gatekeepers, the economic incentives will change as well. Microsoft keeps about 50% of the 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 isn't inherently wrong, and Microsoft has a right to allow certain assets into Minecraft and ban others. But in doing so, it's making the point crypto and blockchain advocates have been trying to make: Centralized entities are bad.
What better way to advocate for decentralization and the blockchain than making an enemy of one of the biggest companies in the world?
CRYPTO: ETH
Key Data Points
This is how disruption starts
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. And with hundreds of millions of dollars being poured into blockchain games, 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'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. 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 themselves.
