What Is GameFi and How Does It Work?
What Is GameFi and How Does It Work?

What Is GameFi and How Does It Work?

Paskelbta Mar 25, 2022Naujinta Jun 15, 2023


  • GameFi is a fusion of blockchain technology, gaming, and decentralized finance, offering economic incentives through play-to-earn models. 

  • Players can earn cryptocurrency and NFT rewards by completing tasks, competing with others, and progressing in the game. 

  • Gaming items can be transferred from the virtual world, enabling trade on NFT marketplaces and crypto exchanges.

What Is GameFi?

GameFi is a fusion of blockchain technology, decentralized finance (DeFi), and gaming. It refers to play-to-earn blockchain games that offer economic incentives to players for participating. The GameFi ecosystem uses cryptocurrencies, non-fungible tokens (NFTs), and blockchain technology to create a virtual gaming environment.

Typically, players can earn in-game rewards by completing tasks, battling other players, and progressing through the different game levels. They can also transfer their assets outside the game to trade on crypto exchanges and NFT marketplaces.

How Does GameFi Work?

In GameFi, the reward can come in different forms, such as cryptocurrencies or in-game assets like virtual land, avatars, weapons, and costumes. Each GameFi project will adopt a different model and game economy. In most cases, the in-game assets are NFTs running on the blockchain, meaning they can be traded on NFT marketplaces. In other cases, however, the in-game assets need to be converted into an NFT before players can trade or sell them.

Typically, the in-game assets will provide certain benefits to the players, allowing them to earn more rewards. But, some games also feature avatars and cosmetics that are purely visual and have no impact on the gameplay and earnings.

Depending on the game, players can earn rewards by completing tasks, battling with other players, or building and monetizing structures on their plots of land. Some games also let players generate passive income without playing the game, either through staking or by lending their gaming assets to other players. Let’s take a look at some of the common features of GameFi.

Earn Incentives Through Gaming: Play-to-Earn (P2E) in the Gamefi Realm

At the core of GameFi projects, we have play-to-earn (P2E) as a revolutionary gaming mode. It’s different from the business model adopted by traditional video games in that pay-to-play games don’t typically empower players to monetize their in-game assets.

In most cases, traditional video games won’t generate any financial returns for players, and their in-game assets are owned and controlled by the gaming company. In contrast, P2E games can give players total control over their in-game assets while also offering opportunities for them to make money. For example, video games like Call of Duty require players to purchase licenses or recurring subscriptions to keep these assets, but players can't sell them on the secondary market.

However, keep in mind that it all depends on the business model and game design adopted by the GameFi projects. Blockchain technology can (and should) give players full control over their in-game assets, but that’s not always the case. Make sure you understand how the game works and are aware of the team behind the project before getting into a P2E game.

Another thing to note is that P2E games can be free-to-play and still generate financial rewards for players, but some GameFi projects require you to purchase NFTs or cryptoassets before you can play. As such, it’s always important to DYOR and evaluate the risks. If a P2E game requires a big investment to start and the rewards are small, you are more likely to lose your initial investment.

Digital Asset Ownership in GameFi

As we’ve discussed, blockchain technology allows for digital asset ownership, meaning that players can monetize their in-game assets in many different ways.

Similar to video games, players can own avatars, pets, houses, weapons, tools, and much more. But in GameFi, these assets can be issued or created as NFTs in the blockchain (also known as NFT minting). This allows players to have complete control over their assets, with authenticity and verifiable ownership.

Some popular metaverse games, such as Decentraland and The Sandbox, focus on the concept of land ownership. They allow players to monetize their virtual land. In The Sandbox, gamers can purchase digital real estate and develop them to generate revenue. For instance, they can charge other players visiting their land, earn token rewards by hosting content and events, or rent their customized land to other players.

Merging DeFi and GameFi: Staking, Yield Farming, and More

Some GameFi projects also offer DeFi products and features, such as staking, liquidity mining, and yield farming. These models allow players to stake their in-game tokens to earn rewards, unlock exclusive items, or access new gaming levels.

Introducing DeFi elements can also make crypto gaming more decentralized. Unlike traditional game studios that centralized control over their game updates, some GameFi projects allow the community to participate in their decision-making process. They can propose and vote for future updates via decentralized autonomous organizations (DAOs).

For example, a game could let players vote on in-game and organizational policies by locking their governance tokens in the DAO. The more tokens they lock, the higher their voting power. This allows gamers to communicate directly with game developers and influence the development of the game.

How Play-to-Earn Games Work

There are thousands of blockchain games in the market, and they each work differently. Be careful of scam projects and fake websites designed to look like legitimate P2E sites. Connecting your wallet or downloading games from unknown websites can be dangerous. Ideally, you should create a new crypto wallet specifically for this purpose and only use funds you can afford to lose. If you are confident the game you found is safe, follow these steps to get started.

1. Create a crypto wallet

To access the GameFi world, you need a compatible cryptocurrency wallet, such as Trust Wallet or MetaMask. Depending on the game you’re playing, you might need to use different wallets or connect to different blockchain networks.

For example, if you want to play blockchain games on the BNB Chain (BSC), the former Binance Smart Chain, you will need to connect your MetaMask to the BSC network first. You can also use Trust Wallet or any other supported crypto wallet. Check the game’s official website to find out the ones they support.

You can also connect your crypto wallet to the Ethereum blockchain and access most games running on the Ethereum network. Some games also build their own wallet to reduce costs and improve performance.

2. Connect your wallet to the game

To play a blockchain game, you will need to connect your wallet. Make sure you are connecting to their official website and not a fake copy designed to steal funds from unsuspecting users. Head over to the game’s official website and look for the option to connect your crypto wallet.

Unlike traditional online games that require you to set up a username and password, most blockchain games use your crypto wallet as your gaming account, so you will likely be asked to sign a message on your wallet before you can connect to the game.

3. Check the requirements to play 

Most GameFi projects will require you to purchase their cryptocurrency token or in-game NFTs to get started. The requirements vary from game to game, but you should always consider the earning potential and overall risks. One way to do this is to estimate how long it will take to recoup your initial investment before committing.

The Future of GameFi

GameFi has the potential to create new opportunities for gamers and enthusiasts alike. As new GameFi projects come to market, gamers can expect to have access to new types of games that offer trustless environments with greater control over their gaming experience. Additionally, existing gaming companies may begin to integrate blockchain technology into their products to offer aspects of decentralized ownership and unique in-game assets.

However, it's important to note that GameFi, like any new technology, comes with risks and downsides. As with any emerging technology, there are bound to be unexpected challenges and pitfalls along the way. Because the industry is still in its early stages, it's important to be cautious and do your research before getting involved in any GameFi projects. Additionally, as with any blockchain technology, there is the potential for hacks and security vulnerabilities.

Closing Thoughts

Since the early days of Bitcoin, we have had people trying their luck with simple browser games, hoping to make BTC profits. While BTC games are still around, the rise of Ethereum and smart contracts have changed the blockchain gaming world, enabling users to enjoy more elaborate experiences.

Ultimately, the future of GameFi is still uncertain. But one thing is clear: as blockchain technology continues to evolve and new use cases emerge, GameFi has the potential to bring a new level of innovation and engagement to gamers.

Further Reading

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