What does it mean to you to have fun while creating cash? Isn’t this interesting? Yeah! What we couldn’t imagine as a possibility many years ago is now an incredible reality that we live with today, due to blockchain technology.
The introduction of blockchain technology and subsequent discoveries in its real-world applications have completely altered the reality of several economic sectors, redefining how the future looks and what is conceivable.
GameFi is the most dominant industry in the dApp ecosystem, according to DappRadar’s Q3 2023 report on the State of Blockchain Gaming. According to the estimate, investments in Web3 gaming and metaverse initiatives would total $2.9 billion by 2023.
Source : dappradar.com
In this article, we’ll delve into a notion made feasible just by blockchain, where game and money coexist.
Historical Overview
To understand the beginnings of GameFi, we must first consider the wider DeFi movement. Decentralized finance, or DeFi, arose as a revolutionary notion that sought to build a financial system independent of traditional banks and middlemen. It enabled users to lend, borrow, trade, and earn interest on cryptocurrency without relying on centralized institutions.
GameFi may be traced back to the emergence of non-fungible tokens (NFTs) and blockchain-based gaming platforms. NFTs became popular as unique digital assets capable of representing ownership of in-game goods, artwork, and collectibles. This cleared the path for blockchain technology’s inclusion into the gaming industry, allowing gamers to control their in-game assets.
One of the first GameFi projects to gain popularity was CryptoKitties, a blockchain-based game in which users could acquire, breed, and sell virtual cats as NFTs. This study highlighted how blockchain technology may disrupt the gaming business by establishing verified scarcity and actual ownership of in-game items.
The DeFi explosion of 2020 also had a significant impact on GameFi. DeFi protocols enabled users to stake their cryptocurrencies and gain rewards, paving the way for similar processes in gaming environments. This merging of DeFi and gaming resulted in platforms such as Axie Infinity, which let gamers earn cryptocurrency rewards for engaging in fights and producing unusual species.
What is GameFi?
Blockchain technology has evolved to extend across sectors, providing financial independence, inclusion, and power restoration to the regular person.
In a recent trend, the gaming industry has benefited from blockchain’s dynamism by adopting economic models like the Play to Earn (P2E) models, which allow players to earn incentives, prizes, and revenue while doing what they enjoy.
The phrase GameFi combines the words “game” with “finance.” It refers to blockchain games in which participants may make money by playing or participating.
The GameFi ecosystem develops a virtual gaming environment based on cryptocurrencies, non-fungible tokens, decentralized finance, and blockchain technology. Simply said, GameFi represents a commercialized variation of typical gaming experiences.
In most situations, in-game rewards are earned by completing activities, competing with other players, progressing through game levels, and so on. GameFi is intriguing because it allows users to swap in-game awards for real-world monetary value on cryptocurrency exchanges and NFT markets.
All awards received in tokens, NFTs, virtual lands, avatars, and costumes are fully owned by players and may be traded outside the site.
Since blockchain is a distributed ledger system that retains immutable data, player asset ownership is undisputed—and in the event of a game crash or assault, players’ assets stay secure on the digital ledger.
How GameFi Works?
GameFi games have many commonalities and characteristics, however, individual blockchain games employ diverse models and game designs to provide a distinct user experience and gaming environment.
Players may profit from in-game assets such as virtual lands, avatars, costumes, NFTs, customized buildings, and so on — but they must be converted to NFTs before exchanging them in an open marketplace.
Traditional Online Gaming Versus GameFi Games
The difference between Call of Duty, Fortnite, Minecraft, Axie Infinity, Cryptoblades, Splinterlands, or Mirandus is written on the wall. The former uses a play-to-win approach and provides engaging user experiences, but solely enriches the financial resources of game makers while secreting excitement hormones in users. At the same time, the latter provides all the former does, plus the added benefit of paying you to play and participate.
Traditional online games are designed to encourage players to fight for victories and build up purchased in-game items to achieve a competitive advantage. GameFi video games are designed to allow players to earn money as they move through the game environment.
Key Features of GameFi
Crypto gaming is still a growing industry. Several major elements distinguish it from regular online gaming, including:
Decentralized Finance
GameFi games combine blockchain and decentralized finance. The inclusion of DeFi components enables participants to profit from staking. Some blockchain games allow players to earn an annual dividend by locking up NFTs through smart contracts.
Gaming guilds, such as Yield Guild Games, allow gamers to bet their cryptocurrencies and NFTs to earn interest. Guilds can also lend in-game assets to players who cannot afford them while earning commissions.
Immutable Asset Ownership
In-game assets are not a new notion in gaming; exchanging them within the game is frequent in popular titles such as Fortnite and Call of Duty. The distinction between GameFi games and DeFi games is that GameFi games use blockchain to provide in-game assets with real-world monetary worth.
Blockchain eliminates the centralization of conventional online games by generating immutable public ledgers that track ownership of every in-game item created or acquired by participants. Blockchain technology also enables players to keep the value of their possessions independent of what happens to the gaming platform.
Play to Earn (P2E) Model
Blockchain games provide an appealing economic model that monetizes gaming, but this time not just for game makers but also for users. Players obtain money by completing stages, battling other players, and obtaining and exchanging in-game assets like avatars, outfits, virtual lands, customized weaponry, and so on in the form of NFTs. The Play-to-Earn concept rewards users with in-game assets, like as tokens or NFTs, which they can then trade or sell for real money.
This approach has been popularized by games such as Axie Infinity, in which players produce, nurture, and combat monsters known as Axies. Axie Infinity’s in-game economy allows players to acquire Smooth Love Potion (SLP), a token that may be used within the game or exchanged for other cryptocurrency exchanges.
Play-to-earn has acquired significant popularity in Southeast Asia, notably in the Philippines, where 44% of the population is unemployed.
Move to Earn (M2E)
The Move-to-Earn approach compensates players for physical activity, encouraging health and fitness in addition to gaming. A notable example is Stepn, a mobile game in which players earn GMT tokens by walking, jogging, or sprinting outside while wearing NFT sneakers. These tokens may subsequently be utilized within the game’s ecosystem or purchased on the open market, giving players a financial incentive to live a healthy lifestyle.
Tap to Earn (T2E)
Tap-to-Earn is a relatively new feature in the GameFi world that allows users to earn tokens by performing basic tasks such as tapping on a screen. This paradigm is exemplified by Notcoin, a game meant to be easily accessible in which players touch to mine virtual money. The gameplay is simple enough for anybody with a smartphone to join in, and the rewards may be spent inside the game’s environment or converted into other types of cryptocurrency.
How to Get Started With GameFi?
Each decentralized game is unique. Thus, the instructions below provide broad direction on how to get started with GameFi. If you want sophisticated, game-specific help, it is recommended that you consult the relevant game documentation. Let’s look at the steps to get started with GameFi:
Create a cryptocurrency wallet
To access GameFi platforms, you will need a suitable cryptocurrency wallet. Because different games allow different wallets, you may require more than one wallet to enjoy your favorite games. So, whether you need to establish MetaMask, Trust Wallet, another wallet, or all of them will be determined by the games you want to play.
To play a game operating on a certain blockchain, you must first establish and connect a suitable wallet to that blockchain. Visit the official website of your selected game to see which wallets it supports. For example, you may connect your cryptocurrency wallet to the Ethereum blockchain and have access to all of the games on its network.
Many GameFi platforms, like Axie Infinity, have constructed their wallets to minimize expenses and improve speed. Axie Infinity was first released on the Ethereum blockchain, but its creators eventually developed a sidechain called Ronin on Ethereum. The Ronin network makes it cheaper to breed and trade Axies, lowering the total cost of playing. This implies you’ll have to make a Ronin Wallet to interact with Axie Infinity.
Connect the Wallet to the Game
To play the game, you must first connect the wallet you established to it. Go to the game’s website and look for the option to link your cryptocurrency wallet. Most websites include instructions on how to build and link a wallet. You can follow them if they are accessible to ensure a seamless onboarding experience.
Blockchain games differ from typical online games. You do not have to create a username or password. Instead, you connect to the game using your cryptocurrency wallet. This is a highly crucial step that must be completed correctly.
Ensure You’re Aware of the Rules Before Playing
To begin using most GameFi platforms, you must acquire in-game tokens or NFTs to fund your purchases. While the criteria differ from one game to the next, you must examine both the earning potential and the total risk connected with playing a specific game. Calculate how long it will take to recover your original investment and begin producing money.
For example, to play Axie Infinity, you’ll need three Axies, which can be obtained from the Axie Marketplace using Wrap ETH (WETH) tokens. Thus, you must have these tokens in your Ronin Wallet to make in-game purchases.
Advantages of GameFi
The rise of GameFi offers a plethora of advantages that distinguish it from traditional video games:
Earnings Potential and Financial Inclusion
The play-to-earn model established by GameFi allows gamers to make real-world revenue from their gaming activity. By earning cryptocurrency or selling in-game assets, gamers may augment their wages or even make a living entirely from their involvement in the GameFi ecosystem. This function is especially beneficial for people living in areas with limited economic prospects since it promotes financial inclusion and new paths for wealth creation.
Asset ownership and sovereignty
One of the most revolutionary components of GameFi is the notion of user ownership of digital assets. Unlike traditional gaming, where the publisher controls in-game objects and currencies, GameFi platforms use blockchain technology to give players full ownership of their digital assets.
This method enables players to freely trade, sell, or even utilize their assets outside of the game’s environment, opening up additional prospects for value creation and financial gain.
Incentivized Engagement and Retention
The incorporation of money incentives into the gaming experience may be an effective motivator for gamers. GameFi systems may boost engagement, retention, and a sense of commitment to the game’s success by providing players with the opportunity to earn rewards and create valuable digital assets. A mutually advantageous connection between players and game producers can result in the formation of robust, self-sustaining in-game economies.
Challenges and Considerations for GameFi
While GameFi’s promise is clear, the ecosystem now faces several obstacles, which should be noted:
Volatility
The value of GameFi tokens and in-game assets can be extremely volatile, owing to the same market factors that affect the larger cryptocurrency and NFT markets. Volatility can pose financial concerns for participants, who may incur big losses if the worth of their digital assets decreases.
Regulatory uncertainty
The crypto sector and DeFi have sparked regulatory worries in many nations. Governments and regulators are debating how to properly regulate the blockchain and GameFi industries, notably in terms of taxes, consumer protection, and anti-money laundering regulations.
Security Issues
Security issues are also a key obstacle for potential GameFi investors. Because of the unique nature of GameFi, with its high stakes and inherent vulnerabilities, any security compromise can result in significant losses and possibly mark the end of a project.
Lack of liquidity
Liquidity, an essential component of every financial market, is also a significant investment hurdle in the GameFi sector. Tokens and assets linked to lesser-known play-to-earn games or platforms may have little liquidity, making it impossible for investors to quickly buy or sell their positions.
Upcoming Trends in GameFi
As the GameFi ecosystem evolves, various trends and emerging possibilities are influencing its future path.
Metaverse Integration
The emergence of the metaverse, a shared virtual area in which users may communicate, socialize, and engage in a variety of activities, provides a logical fit with GameFi. Platforms are looking for methods to link existing gaming experiences with metaverse environments, allowing gamers to smoothly switch between the virtual world and the play-to-earn economy.
Decentralized autonomous organizations (DAOs)
GameFi’s inherent decentralization characteristics make it an ideal platform for DAOs. These community-driven, self-governing institutions have the potential to shape GameFi’s future by giving players a direct say in the decision-making processes that control in-game economics and development roadmaps.
Interoperability and Cross-chain compatibility
As the GameFi ecosystem evolves, interoperability and cross-chain compatibility become increasingly important. Platforms that can smoothly integrate and support the trade of digital assets across various blockchain networks will gain a competitive edge by allowing players to freely relocate their holdings and participate in a more linked GameFi ecosystem.
Closing Thoughts
Despite early sector activity in 2021, the GameFi market recovered strongly in the second half of 2023, according to CoinGecko’s research. Blockchain-based games like Axie Infinity and Farmers Wolds have achieved record transaction volumes around the end of 2023. The rise in popularity has resulted in an upsurge in total activity in the GameFi industry.
The success of new GameFi ventures and the market’s revival have piqued the interest of both investors and creators. GameFi is predicted to expand and gain popularity, with various games set to be produced in 2024.
GameFi marks a significant shift in the gaming industry. It has established a new player economy in which players may receive concrete rewards for their actions in-game. While the idea of replacing regular labor with gaming may seem unrealistic, the potential for generating real-world value through digital assets is apparent.
