GameFi refers to blockchain-based video games that incentivize players by rewarding them with cryptocurrencies or tokens, non-fungible tokens (NFTs), and other digital assets. The decentralized nature of GameFi (a portmanteau of game and finance) ensures, for the first time, provable ownership and verifiable rarity of in-game assets. Combining gameplay with these in-game NFT assets, players earn rewards by participating in competitions, reaching higher rankings, or progressing through game levels. These games range from simple lotteries to elaborate multi-player environments that incorporate hundreds of different in-game assets and different virtual environments.
Traditional video games that we have come to know and love are typically held on centralized servers owned by gaming companies. These organizations maintain complete authority over the gaming environment, setting the foundation for how and when gamers can play the game. Unfortunately, this centralized structure also means that it is the gaming companies, and not the players, who maintain custody of in-game purchases. If these centralized companies cease operations, the user’s in-game assets will be lost forever. It also means that these items have no real world value as they cannot be bought and sold to other individuals outside the game.
On the other hand, blockchain-based games tokenize in-game assets on the blockchain. This means a unique NFT represents each in-game asset. Given the integration of blockchain and crypto, players can now purchase in-game assets anywhere and transfer them between different gaming environments. Players can also buy or sell these NFTs on secondary marketplaces.
GameFi encompasses the ‘play-to-earn’ (P2E) or ‘play and earn’ gaming models. Players are provided opportunities to make money by earning cryptocurrency and token rewards. Many P2E games don’t require an upfront investment, but players may be inclined to purchase costly NFTs in order to enhance their earning potential. The GameFi sector is still in its infancy so players and investors are advised to exercise due diligence to ensure they understand the game’s mechanics and economy, the team behind it, and level of initial investment compared to potential rewards.
If you are interested in taking a deeper dive into GameFi, click here to move to our dedicated GameFi course (coming soon). Otherwise, carry on to the final lesson of this course - the metaverse.