GameFi is one of the hottest topics in the cryptocurrency industry right now. Blockchain gaming looks poised to disrupt the global video games market. Titles like Axie Infinity and its more than $175 billion in total in-game asset sales have piqued the traditional gaming industry’s interest — we’re now seeing giants like Ubisoft entering the GameFi sector.
What is GameFi?
GameFi refers to the financialization of video gaming. Similar to the popular crypto term DeFi, or decentralized finance, GameFi is a fusion of the words “game” and “finance.”
GameFi is a rather broad term, and, as we’ll explain in this article, titles that are considered GameFi may have entirely different financial elements to one another. For example, some blockchain games reward players for completing in-game tasks while others may enable revenue generation from the various assets a player owns.
It is important to note that GameFi is not gambling. The games we consider part of this emerging sector require players to leverage a mix of skill and strategy to generate income. Although luck may be a part of these games, it is not the predominant factor in determining who wins or is eligible for financial reward.
History of GameFi
The origins of the term GameFi can be traced back to November 2019, when the founders of MixMarvel, a blockchain game publishing platform, delivered speeches at the Wuzhen World Blockchain Conference in China on how the technology underlying cryptocurrencies could revolutionize the video gaming industry.
Perhaps more famously, however — particularly for western readers — the term was evidently first used by Andre Cronje, the founder of Yearn, in a September 2020 tweet. Since then, “GameFi” has been used with increasing regularity to describe games with financial elements enabled by blockchain technology.
Despite the term only entering popular usage more recently, GameFi’s history goes back almost as far as Bitcoin itself. Early Minecraft servers with BTC integrations, the 2013 website Gambit.com, titles like Bombermine and peer-to-peer services enabling gamers to monetize mainstream titles with BTC represent some of the earliest efforts in the field that we now consider GameFi. Later, projects like Huntercoin used blockchain technology for more than just payments, enabling players to monetize their gameplay by mining cryptocurrencies.
Ethereum’s 2015 launch presented new opportunities for video game developers thanks to its programming language’s sophistication. It meant programs could be stored and executed on-chain for the first time,enabling the creation of applications. Among them were blockchain games like CryptoKitties, which leveraged the newly defined ERC-721 standard to represent in-game assets in the form of non-fungible token.
In the years since, interest in NFTs has grown and blockchains optimized for performance have been launched, inspiring tremendous innovation in the GameFi sector. Today, we’re starting to see the fruits of these innovators’ efforts, and blockchain gaming is growing at an exponential rate.
How do GameFi games work?
GameFi comes in many different forms today. As such, the mechanisms by which players can generate revenue through their gameplay vary. However, there are a few important themes worth mentioning. Many of the most popular blockchain games today use a combination of the following features to monetize the action.
In some blockchain games, players receive financial rewards for completing gameplay objectives. The funds awarded in these play-to-earn titles typically originate from a reserve of native tokens held within a smart contract.
For example, in the hugely popular Ethereum-based game Axie Infinity, a portion of the game’s AXS token is reserved to reward the following behaviors:
- Winning battles and tournaments
- Tending your plot of land
- Trading on the Axie Infinity marketplace
- Breeding Axies
Central to many blockchain games today is the concept of ownership of scarce digital assets. Bitcoin introduced digital scarcity via blockchain, and NFT technology expanded on it. NFTs can represent all manner of assets — both digital and physical — including in-game items.
Digital ownership of unique assets creates economic opportunities that were not possible before. For example, in CryptoKittiesor Axie Infinity, players can breed two creatures represented by NFTs to create a third creature. They can then leverage a title’s play-to-earn capabilities with this new asset, sell it or lease it out for other gamers to use, splitting any revenue generated between owners and borrowers.
Although not exactly games in the strictest sense, online virtual worlds — popularly known as metaverses — also enable their inhabitants to monetize their time via asset ownership. At the heart of spaces like Cryptovoxels, The Sandbox and Decentraland is the concept of land ownership, and these plots trade freely on secondary markets.
Owners can monetize their plots in much the same ways that they can in the physical world. In addition to outright selling owned land, they can develop an attraction that may generate revenue, or lease it out for someone else to monetize. Walk around one of these shared virtual spaces and you’ll see various efforts to monetize land. Examples include casinos, virtual shops and concert venues.
Some GameFi projects introduce concepts from the DeFi sector to reward gamers. Concepts like yield farming, liquidity mining and staking will be familiar to anyone with DeFi experience and can provide a passive means to generate income from a blockchain game.
How to get started playing blockchain games?
Each blockchain game is different. Therefore, we can only provide general guidance on how to get started with GameFi. For more advanced help, we recommend consulting the relevant game’s documentation.
1. Create a web 3.0 wallet
Unlike many of today’s most popular web applications, most blockchain games do not use a traditional username/password account system. Instead, a user identifies themselves to the game using a_Web 3.0 wallet__._
The wallet required to play will depend on the network on which the game is hosted. For example, playing Axie Infinity will require an Ethereum-compatible Web 3.0 wallet, like Ronin Wallet or Metamask.
2. Acquire any assets needed to play
Many blockchain games require ownership of one or more in-game assets before you can play. For example, to play Axie Infinity, you must have at least three Axies in your Web 3.0 wallet.
Other titles may require the purchase of an in-game digital currency. In many cases, you can buy said currencies on an exchange or through the game itself.
3. Log in via your Web 3.0 wallet
Most of today’s popular GameFi titles are played in your browser. Therefore, you’ll need to log in using the Web 3.0 wallet you created earlier to join the action.
To do so, visit the relevant game’s website and look for the option to connect your wallet. Your wallet will ask you to confirm the action by signing a message from the site. The wallet itself creates the signature and you simply confirm it by clicking the Sign button.
As mentioned earlier, your Web 3.0 wallet will act as your account, and any progress made will be saved via your wallet. It also serves as your item inventory and, depending on their interoperability, any assets held may be used to play the game.
The future of GameFi
Despite having roots that trace to the very beginning of cryptocurrency, GameFi is just starting to attract mainstream appeal. Demonstrating the niche’s growth neatly is the success of one of its flagship titles, Axie Infinity. In August 2021, Axie Infinity became the first blockchain game to surpass $1 billion in total token sales — one-fifth of which occurred in a single week — and has hosted more than a million daily active players.
While previous blockchain games struggled to attract mainstream appeal, the technology backing them and the understanding of it has developed to the point where new GameFi titles are finding large fan bases. For some industry commentators, gaming represents the most likely route to widespread blockchain adoption.
More than 2.7 billion video gamers worldwide are already very familiar with the notion of scarce digital items, tokenization and in-game currencies. Meanwhile, blockchain technology empowers these gamers in a way that has clear benefits — both financially and in terms of a title’s development. Therefore, it is not difficult to imagine GameFi taking increasingly bigger bites out of the global video games market worth $175 billion.
Indeed, the Blockchain Game Alliance, an organization aiming to raise awareness about GameFi, already has impressive members, including mainstream game studio Ubisoft and chip manufacturer AMD. In fact, Ubisoft announced in May 2021 that the focus of its sixth Entrepreneurs Lab event would be GameFi.
Given the success of Axie Infinity and the number of blockchain games currently under development on various blockchain protocols, it is clear that GameFi has a bright future ahead. Yet, just how this future will unfold is difficult to predict. While the features discussed in this article will surely remain prominent in many GameFi titles, the pace at which blockchain technology is evolving today means new innovations are not uncommon. Many of these breakthroughs will surely make it into video games and bring with them new and exciting ways to monetize new experiences.