GameFi: How Play-to-Earn Cryptocurrency Works

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GameFi is a portmanteau of the words “gaming” and “finance”, referring to video games developed using blockchain technology.

Besides being a collective term for blockchain games, GameFi is a movement that is rapidly growing in popularity. Crypto analytics firm DappRadar reported over 800,000 daily unique active wallets across the GameFi market in August 2022.

The industry is estimated to have a market capitalization of around $8 billion, a relatively small number compared to publicly traded video game companies. One of the most popular video game companies, Activision Blizzard, has a market capitalization of over $56 billion.

But GameFi has grown rapidly in recent years, and its market value could be as high as $74.2 billion by 2031, according to a 2022 analysis by market research firm ReportLinker.

What is GameFi?

Traditionally, the video game industry has consisted of play-to-win games – or perhaps more accurately, pay-to-play. From plugging into a machine in an arcade to buying a console game in a store, gamers have historically been the players and the payers.

In recent years, some video game developers have added paywalls to games, requiring players to spend more money to unlock certain features of a game they have already purchased.

GameFi games, on the other hand, are games to earn, where players can earn cryptocurrency by playing the game.

“For traditional games, you put money and time into the game and you get fun out the other end,” says Jason Brink, president of blockchain for Gala Games, a company that is developing an ecosystem of 14 games. “What makes GameFi different is that you can change the relationship between time and money to get a different amount of fun and maybe a little money on the other side.”

How much money can you earn?

Many of the games on blockchain networks are free to play. So can anyone who has a talent for gambling cash in a huge amount of cash? Probably not – at least not without a significant time commitment.

Although the cryptocurrency tokens created by GameFi developers for the in-game economy have real value, they are generally worth a few cents, if not fractions of a penny. But they can have greater value in a video game ecosystem.

“Let’s say you’re playing a game and you collect a war chest with some ungodly amount of crypto tokens,” says Jean-Paul Faraj, head of community and partnerships for Unstoppable Games, a company that is developing its first game. “Even if these tokens have almost no dollar value, they can have value compared to another game because we are in a decentralized market where you can trade and exchange tokens.” For example, he notes, you might be able to use tokens earned in one game in a separate game.

How much money you earn also depends on the choices you make in the game.

“In traditional games, every player-controlled character will have roughly the same experience. But what if you had a player who could own a city?” says Brink. “Or a player who owns a ship and can shuttle 20 players back and forth to different locations? … Could you make a lot of money? Sure. But depending on what you choose to do in the world, your outcome could be drastically different. “

How do GameFi companies make money?

Because many of the games are free to play, most GameFi companies make money through NFTs, or non-fungible tokens, which are digital identifiers generally associated with an image or video. NFTs in the GameFi space are often avatars that you can use for your game character, but they can also be tools or items that you can use in the game universe.

Companies like Gala Games will release these NFTs to the public and then they can be traded on exchanges like OpenSea or LooksRare. When an NFT is bought or sold, Gala pays a royalty fee of 2.5%. Given that some NFTs are listed on these sites for hundreds of thousands of dollars, revenue from royalty fees can add up quickly.

Some companies do not charge royalty fees on NFTs, but will take a small percentage of every transaction that happens inside the game.

fraud

If you’re considering using GameFi games to earn crypto, tread carefully. Although some games are legitimate, there have been several against various GameFi development companies for cheating players.

In late 2021, a game called Squid – inspired by the Netflix show “Squid Game” but not affiliated with it – ended up in an apparent carpet cover, Squid promoted itself as a game to make money, but did not allow players to sell tokens. This pumped up the price of each token from 1 cent to over $2,800. The developers made off with over $3 million.

Avoid games that don’t allow you to sell tokens or lack a following.

“If you hear about something that’s GameFi and you can’t even play the game, or at least see other people playing who aren’t on the development team, it’s probably not legit,” Brink says.

This is how you get started

Most games in the GameFi space are free to join and play, so all you need to do is create a user account and password. In some cases, you may also be asked to set one up digital wallet for cryptocurrency you can earn during the game. Keep your logged information in a safe place because it’s the only way to verify that you own what’s in your wallet.

You don’t need to be an expert gamer or a cryptocurrency expert to get started, but it’s helpful to read game reviews beforehand. If you’re new to the GameFi space, you’ll generally want to look for games that have an established following with a large user base.

Neither the author nor the editor held positions in the aforementioned investments at the time of publication.

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