Cryptocurrency, NFTs and pay-to-earn: the new world or a gigantic Ponzi scam?

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Twice in my career, I have been at the forefront of massive change.

In 2000, I was an Internet analyst at Deutsche Bank advising middle-aged men (and they were all men) on how this new nerdy Internet thing was going to change the world. It was three months before the dotcom crash. Valuations were stratospheric. It was possible to believe, as I did, that the Internet was a fundamental change to how the world worked AND that the majority of stocks were overvalued. The advice I gave investors in my major introductory research note was:

That is the advice given to someone whose job is to beat the market, not make absolute returns, while seeking the transformational black swans, such as Amazon, that can make history. My job was to help these older investors figure out how this new technology was going to change their business, and where the real opportunities lay beneath the hype.

In 2008, I was a financier who had left banking and was working on the edges of the games sector. I specialised in helping small and medium-size companies raise money and sell themselves. With the help of my former colleagues at Deutsche Bank, I had meetings most years with the CEOs of major games publishers to discuss the state of the market, executives such as John Riccitiello at EA, Bobby Kotick at Activision, Phil Rogers at Eidos and many more.

A new games phenomenon was emerging. Browser-based games in Korea and Germany were demonstrating an alternative way to make money: by giving your game away for free, tying players to a persistent account and charging for progress, cosmetics or virtual currencies. Mobile games were in their infancy and about to be given rocket fuel when Steve Jobs announced the creation of the iPhone. And executives were struggling to process how this new model would change the way they created, sold and delivered gaming content.

My job was to help these older executives figure out how this new technology was going to change their business, and where the real opportunities lay beneath the hype.

In 2021, it’s happening for the third time. The combination of blockchain technology, cryptocurrencies and NFTs is changing the world. Clearly, large parts of the market are speculative bubbles: Ponzi-schemes where there is no underlying value, and the goal is to keep selling, and selling, and selling, and hoping that you are not the schmuck holding the hot potato when the music stops.

But there are also fundamental changes taking place. Those of us who make free-to-play games know that the idea that only something physical has value is nonsensical – players value their avatars in video games as a form of self-expression, in the same way that the clothes we wear, the music we listen to and the cars we drive (or refuse to own) are a form of self-expression. The permanence of the blockchain is another tool in the idea of creating value. NFTs may have value – I am still unclear about this. And cryptocurrencies seem unlikely to go away, although I don’t yet understand their value as anything other than a speculative investment, and a meme-stock investment at that.

Which means that there is a third transformational event in my career. But for the first time, I don’t understand it. I am fighting the urge to write it off as “Ponzi-nonsense” or “ridiculously overvalued” or “not working in any useful way yet”. I think all of those things are true.

But they were also true of the Internet in 1995, or free-to-play games in 2003. And both of those phenomena were and are permanent changes that have alterered the buildings blocks of our society (the Internet) and our games (free-to-play).

This time round, I’m the older investor trying to figure out how this new technology is going to change the business of games, and where the real opportunities lie beneath the hype.

Wish me luck.

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