The concept of GameFi and how it works

Summary

GameFi refers to a blockchain game that provides economic incentives for players to earn money while playing. Players can usually earn cryptocurrency and NFT rewards by completing tasks, playing against other players, and completing levels.

Unlike traditional video games, in most blockchain games, players can transfer in-game items out of the game’s virtual world. Players can buy and sell items on the NFT market and use the earned cryptocurrency to trade on the cryptocurrency exchange platform.

Introduction

Since the rise of Axie Infinity, GameFi is rapidly replacing the traditional gaming industry. Earning money while playing is GamiFi's weapon to attract players. What exactly is GameFi, and how is it different from the video games we are familiar with?

What is GameFi?

GameFi is a combination of the words Game and Finance, which means blockchain games that provide economic incentives for players to earn money while playing. The GameFi ecosystem uses cryptocurrency, non-fungible tokens (NFTs) and blockchain technology to create a virtual gaming environment.

Players can usually earn in-game rewards by completing tasks, fighting against other players, and leveling up. They can also transfer game assets out and trade them on cryptocurrency exchanges and NFT markets.

How does GameFi work?

Rewards in GameFi are varied, including cryptocurrencies and in-game assets such as virtual land, avatars, weapons, clothing items, etc. The model and game economy of each GameFi project are different. Most in-game assets are NFTs in the blockchain and can be traded directly on the NFT market. In some other projects, in-game assets need to be converted into NFTs before they can be sold or traded.

In-game assets often create benefits for players, allowing them to earn more rewards. However, some avatars and skins in games only provide visual effects and have no impact on gameplay or rewards.

Different games have different ways to play. Players can usually earn rewards by completing tasks, playing against other players, or building monetized buildings on owned plots. In some games, players can pledge or loan game assets to other players to earn passive income without playing the game. Let's take a look at the commonalities of GameFi.

Play and Earn Model (P2E)

The innovative play-to-earn (P2E) gaming model is at the heart of the GameFi project. This model is very different from the traditional pay-to-play model of video games, where players are required to invest money before they can start playing. For example, video games such as Call of Duty require players to purchase a license or recurring subscription.

Traditional video games generally do not bring any financial returns to players, and the game company controls all in-game assets. In contrast, players can fully control their in-game assets in P2E games and have a better chance of earning profits.

It is important to note that whether or not you can control your assets depends entirely on the model and game design of the GameFi project. Blockchain technology can (and should) allow players to fully control their in-game assets, but this is not the case in reality. Before participating in a P2E game, players must understand how the game works and the team behind the project.

Also note that some P2E games are free to play and generate financial rewards, while others require the purchase of NFTs or cryptocurrency assets before you can start playing. Therefore, be sure to do your own research (DYOR) and conduct a risk assessment. If a P2E game requires a large amount of money to participate and the rewards are minimal, your initial investment may be wiped out.

Axie Infinity is one of the most popular play-and-earn games. Since 2018, this Ethereum-based NFT game has continued to grow in popularity. Players can use NFT pets (Axies) to complete daily tasks and battle against other players to earn SLP tokens.

After winning a certain player-vs-player (PvP) ranking, you can also get AXS rewards. In addition, AXS and SLP can be used to breed new Axies, and the new pets can be used as in-game assets or traded on the official NFT market.

In addition to buying and selling, players who own pets can also lend Axies to others and earn rewards even if they don’t play the game. This lending model is called a “sponsorship program.” Sponsors can use the borrowed Axies to participate in the game and earn rewards.

In other words, Axie owners can earn passive income, while sponsors can participate in the game without investing. The rewards earned are shared by both parties.

Digital Asset Ownership

As mentioned earlier, blockchain technology allows players to own digital assets and monetize in-game assets in various ways.

Just like in video games, players own assets such as avatars, pets, houses, weapons, tools, etc. in the game. The difference is that assets in GameFi can be issued or created in the form of NFTs on the blockchain (a process also called "NFT minting"), giving players full control over their assets. These assets are real and ownership can be verified.

Some popular metaverse games, such as Decentraland and The Sandbox, focus on the concept of land ownership, allowing players to monetize virtual land in the game. In The Sandbox, players can purchase virtual real estate and generate revenue by developing the property. For example, they can charge visitors to the land, earn token rewards by publishing content themes and hosting events, or rent the transformed land to other players.

DeFi Applications

Some GameFi projects also have decentralized finance (DeFi) products and features, such as staking and liquidity mining with liquidity mining, etc. Players can usually stake in-game tokens to earn rewards, unlock exclusive items, or participate in new game levels.

The introduction of DeFi elements can also deepen the decentralization of cryptocurrency games. Traditional game studios centrally control game updates, while in some GameFi projects, players in the game community can participate in update decisions. Players can submit proposals and vote on future updates of the game through a decentralized autonomous organization (DAO).

For example, players of Decentraland can lock governance tokens (MANA) in the DAO to vote on in-game and organizational policies. The more tokens locked, the greater the voting power. Players can use this mechanism to communicate directly with game developers and provide suggestions for game development.

Do video games belong to GameFi?

In traditional video games, players can also earn in-game currency and collect digital assets to upgrade their characters. However, these tokens and items cannot (or should not) be traded outside of the game. In most cases, they have no value outside of the game. Even if they have value, players often cannot buy, sell or monetize these assets in the real world.

In blockchain games, in-game tokens and assets are often cryptocurrencies and NFTs. Some blockchain games use virtual tokens instead of cryptocurrencies or NFTs, but players can still convert in-game assets into NFTs. In other words, players can transfer their earnings to cryptocurrency wallets and trade assets on cryptocurrency exchanges or NFT markets, or convert cryptocurrency earnings into legal currency.

Getting Started Guide to GameFi Gaming

There are thousands of blockchain games on the market, and the mechanisms of operation of these games are also different. Players must be careful to identify and avoid falling into the trap of scam projects and fake websites. There are security risks when downloading games from random websites or connecting wallets. The ideal operation is to create a new dedicated cryptocurrency wallet and invest within your personal ability. If you are sure that this game is safe and reliable, you can join the game in the following ways.

1. Create a cryptocurrency wallet

To play GameFi games, you need a compatible cryptocurrency wallet (such as Trust Wallet or Metamask). You may need to use different wallets or connect to different blockchain networks for different games.

For example, you first need to connect MetaMask to the Binance Smart Chain network to participate in blockchain games on the chain. You can also use Trust Wallet or any other supported cryptocurrency wallet. You can check the game's official website to see which wallets are supported.

You can also link your cryptocurrency wallet to the Ethereum blockchain and participate in most games that run on the Ethereum network. However, developers of games such as Axie Infinity and Gods Unchained have created dedicated wallets for their games to cut costs and improve game performance.

Although "Axie Infinity" is built on Ethereum, its team developed a side chain, which is the Ronin network. Therefore, you need to use the official Ronin wallet in order to interact with the Axie Infinity ecosystem. The Ronin Network sidechain significantly reduces the cost of trading and breeding Axie as well as the cost of gaming for Axie Infinity players.

2. Associate your wallet with the game

Before you can play blockchain games, you need to link your wallet to the game. When doing so, you need to carefully distinguish between the official game website and fake websites. Visit the game website and find the option to link your cryptocurrency wallet.

Traditional online games require setting up a username and password, but most blockchain games use cryptocurrency wallets as game accounts, so players need to sign a message in the wallet to associate it with the game.

3. Check game requirements

Most GameFi projects require you to purchase crypto tokens or in-game NFTs before you can participate. Each game has different requirements, but before you join, be sure to understand its profit potential and overall risk, and estimate the time it will take to earn back your initial investment and start making a profit.

To join Axie Infinity, you need to have 3 Axies in your game wallet. Visit the Axie Marketplace and purchase Axies using Wrapped Ether (WETH) in your Ronin Wallet. You can purchase Ether from cryptocurrency exchanges such as Binance and transfer it to your Ronin Wallet using the Ronin Bridge. For more information, read How to use the Ronin Wallet?

If you don’t have enough funds or are unwilling to take risks, you can consider looking for sponsorship programs to participate in the game by borrowing NFTs, but the profits earned must be shared with the NFT owners.

The Future of GameFi

In 2021, the number of GameFi projects has skyrocketed, and it is likely to continue to increase in the future. As of March 2022, DappRadar has gathered more than 1,400 blockchain games. Popular games are spread across multiple blockchains, including Ethereum, Binance Smart Chain (BCS), Polygon, Harmony, Solana, etc.

As blockchain technology continues to upgrade, GameFi is expected to continue its rapid growth. The ability to own in-game assets and earn money while playing has made GameFi attractive to a large number of players, especially in developing countries.

Summarize

In the early days of Bitcoin, people began trying simple browser games in the hope of earning Bitcoin revenue. While Bitcoin games have not disappeared, the rise of Ethereum and smart contracts has clearly given blockchain games a new look, bringing players a more sophisticated and interesting gaming experience.

It is obvious that GameFi is perfectly integrating entertainment and economic incentives to attract players. As the popularity of blockchain games heats up, it will become a common phenomenon for large companies to build their own metaverse.