🕹️What is GameFi?

GameFi Explained

GameFi has become recently a quite popular concept in the gaming and blockchain industries. Traditional video game users, who are used to pay to play an online game, are being attracted to blockchain video games where instead they can be rewarded for their time and effort.

In a simple way, we can define GameFi as the combination of video games (Gaming) and decentralized finance (DeFi). The technology used for this type of video game is blockchain technology, which allows players to be the sole and verified owners of the virtual elements of the game.

In traditional video games, the predominant model is “pay-to-win”, in which players must pay in order to gain an advantage, such as upgrading, reducing waiting time or buying a virtual object.

GameFi, on the other hand, introduces the “play-to-earn” model. In this case, players are the ones who make money thanks to their knowledge or the time invested.

It is important to highlight that in GameFi games users need more than just luck in order to win. The activities that generate rewards vary depending on the game, but in general they reward skills and require strategy.

How Does GameFi Work?

As mentioned previously, the ways of generating a reward change depending on the game. However, most GameFi projects share the following characteristics:

NFTs - Non Fungible Tokens

NFTs are digital assets created using blockchain technology. Unlike fungible tokens, NFTs are unique, indivisible, and have an owner.

As in traditional games, users can own avatars, animals, houses, tools, etc. represented in NFT. From there, users can spend their resources on improving their digital assets and subsequently exchange them for cryptocurrencies, thus generating an extra profit.

More technically speaking, it's just another contract (ERC-721 or ERC-1155) of generated and minted assets(tokens), which may have different attributes, owners and whatever comes to our minds. It can be traded, sold or bought, or it can have different utilities like staking to gain some profit over a time. They can be a pass to be whitelisted for some sale or they can be even obligatory to play some games.

DeFi – Decentralized Finance

DeFi is an experimental form of finance that does not rely on central financial intermediaries, such as banks, and instead uses smart contracts on blockchains.

It simply draws inspiration from blockchain, the technology behind the digital currency bitcoin, which allows several entities to hold a copy of a history of transactions, meaning it isn’t controlled by a single, central source. That’s important because centralized systems and human gatekeepers can limit the speed and sophistication of transactions while offering users less direct control over their money. DeFi is distinct because it expands the use of blockchain from simple value transfer to more complex financial use cases.

In some GameFi projects, gambling is allowed, for example. Players can thus block some of their tokens in order to earn some interest.