What is GameFi and How Does it Work?

What is GameFi and How Does it Work?

What is GameFi and how does it work? GameFi refers to play-to-earn blockchain games that offer financial incentives to players. Typically, players are able to earn cryptocurrency and NFT rewards by completing tasks, battling other players, and progressing through the different game levels.

Let’s delve a little deeper into this unique form of virtual gaming. The word “GameFi” is a combination of the prefix “game” and the suffix “finance” – essentially marrying the idea of gaming and earning a profit into one concept. The GameFi ecosystem uses cryptocurrencies, NFTs, and blockchain technology to create a virtual gaming environment unlike any other to date. 

One might wonder how GameFi differs from conventional online gaming. The main difference is that, unlike traditional video games, most blockchain games allow players to transfer the gaming items out of the game’s virtual world. This allows players to trade their items on NFT marketplaces and to trade with their crypto earnings on crypto exchanges like Bitcoin Method. With this differentiating factor, GameFi is a completely unique concept that is slowly gaining popularity in the digital sphere. 

In GameFi, rewards come in different forms such as cryptocurrencies, 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, which means they can be traded on NFT marketplaces. In other cases, however, the in-game assets must be converted into an NFT before players are able to trade or sell them. Typically, the in-game assets provide certain benefits to players, thus allowing them to earn more rewards. It should be noted, however, that 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 various tasks, battling with other players, or building monetised structures on their virtual plots of land. Some games also allow players to generate passive income without playing the game – either through staking or by lending their gaming assets to other players in the ecosystem. Some of GameFi’s common features will now be explained in further detail. As mentioned above, blockchain technology allows for digital asset ownership, in other words, players can monetise their in-game assets in many different ways. Similar to video games, players possess avatars, pets, houses, weapons, tools, and amongst others. The difference comes in where, with GameFi, these assets can be issued or created as NFTs in the blockchain – otherwise known as “NFT minting”. This allows players to have full control over their assets, with authenticity and verifiable ownership. This kind of ownership is seen on popular Metaverse platforms such as Decntraland and The Sandbox, where players can purchase digital plots of real estate and develop these pieces of land to generate a profit by charging other players to visit or rent their land and even host events on their customised land. 

As blockchain technology continues to develop, the rate at which the GameFi trend increases is expected to continue at a fast pace. The ability to own in-game assets and make money from games makes GameFi very attractive, especially in developing countries. The future of GameFi is expected to mature in three specific components namely; regulatory compliance, quality of content, and business models. 

GameFi has been rapidly infiltrating the traditional gaming industry since the rise of Axie Infinity – an NFT videogame originating from Vietnam. GameFi earnings are spread more evenly among players and developers because the focus is placed on value extraction, rather than value creation. 

With its unique offering, this young industry has already had a measurable impact on the gaming market as a whole and is estimated to gain significant valuation in the upcoming years. 

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