GameFi and Cryptocurrency in iGaming: Comparative Analysis

Until now, making money in games has remained largely a one-sided prerogative. Most online games are set up in such a way that only the owners of the game can make money from the game itself. Games are hosted on centralized servers owned by the game company, which has the right to make adjustments to the gameplay at any time and even limit the ability to play at all. Moreover, players have no actual ownership of the items they accumulate with their character – clothes, weapons, prizes. All of this exists solely within the game and has no real value in the outside world.

This is not the case with GameFi, thanks to its decentralized nature and use of blockchain technology.

What is GameFi?

The term “GameFi” is a combination of the words “game” and “finance,” and it was first introduced in a tweet by Andre Cronje, CEO of Yearn Finance. GameFi combines blockchain technology, NFT and game mechanics to create a virtual environment in which players can play and receive tokens.

With GameFi projects, players can earn in-game rewards by completing tasks and progressing through various game levels. Unlike traditional in-game currencies and items, these rewards have measurable value outside of the game ecosystem.

For example, in-game items issued in the form of NFTs or tokens for achievements can be sold on NFT trading floors and cryptocurrency exchanges; thus, this sector has been named P2E – “play to earn.”

How does GameFi work?

Almost all blockchain-based games are accompanied by a corresponding in-game currency, a marketplace, and the project tokens themselves. Unlike traditional games, there is no centralized control body. Instead, GameFi projects are usually managed and regulated by the community, and players can even participate in development.

While the mechanics and economics of individual GameFi projects may differ, there are a few commonalities:

Blockchain technology: GameFi projects are powered by blockchain technology. This keeps track of player ownership and provides transparency of all transactions.

P2E business model: Unlike traditional games, where users play to win, GameFi projects use the P2E model. These games encourage players to play and progress in the game by offering rewards that have measurable value outside of the game. These rewards are typically in the form of in-game cryptocurrencies or NFTs.

Asset ownership: In traditional games, in-game purchases are non-transferable investments locked within a single game. In P2E, players own their in-game tokenized assets. In most examples, they can exchange them for cryptocurrencies and eventually fiat money. Assets can range from armor to an area of virtual land that is tokenized on the blockchain.

DeFi solutions: Many GameFi projects may also include elements of decentralized finance (DeFi), Liquidity mining is a process in which cryptocurrency holders provide assets to a decentralized exchange in exchange for rewards. These rewards usually arise from trading commissions, which are accrued for the exchange of tokens by traders.) and Yield farming (Yield farming is a method of earning rewards or interest by contributing one’s cryptocurrency to a pool with other users. The pooled funds are used to perform smart contracts, such as cryptocurrency lending, which earns interest in exchange). They provide players with additional opportunities to increase their tokens.

GameFi examples.

In 2017, Ethereum launched CryptoKitties, the first widely recognized blockchain game. Soon after, a number of other decentralized blockchain games were launched, including Ether Shrimp Farm, Ether Cartel, and Pepe Farm. These games use the P2E economic model, which gives players the ability to monetize their time playing the game.

The advantage of these NFTs is that they can be exchanged for cryptocurrencies, which can then be exchanged for fiat currencies on third-party exchanges, opening up a whole new world of digital economy. Examples of popular P2E games include Axie Infinity, The Sandbox and Decentraland.

Take Axie Infinity, for example, an Ethereum-based game that gained popularity in 2021 and became the most visited NFT game in the world in March 2022.

In Axie Infinity, players collect, breed, train, and fight creatures called “Axies.” Unlike regular in-game items, each Axie can be exchanged on the game’s marketplace for real money (for comparison, the most expensive Axie ever sold was worth $820,000).

The game has two cryptocurrencies of its own: Axie Infinity Shards (AXS), which can be bought and sold on exchanges, and Smooth Love Potion (SLP), which players earn by playing the game and can also buy and sell on exchanges, but is mostly used for in-game transactions. AXS is also used as a management token, allowing token holders to vote on future game development.

With all that said, games like Axie Infinity can have a high cost of entry. Users must buy three pet characters to start playing. It used to cost about $300 to create an average team, but prices have since dropped by about a third.

Despite the price drop, the initial cost is still a huge barrier for many, especially since the vast majority of blockchain game players are now from developing countries. This hurdle has led to the emergence of gaming guilds – platforms that allow NFT owners to lend in-game assets (NFTs) in exchange for a share of the generated assets – reducing the significant upfront costs for potential participants.

Cryptocurrency in iGaming

Crypto gambling is one of the biggest current trends in iGaming.

Crypto-casinos are online casinos that allow deposits and withdrawals in one or more cryptocurrencies. Any casino that supports cryptocurrency payments can be considered a cryptocasino. It is becoming common for online casinos to accept cryptocurrencies along with several fiat currencies, although there are some platforms that accept cryptocurrency payments exclusively.

Blockchain technology creates a system of trust by establishing trust directly between the parties, without relying on the assistance of a central authority or intermediary (such as a “gambling house,” a regulator or a betting escrow service). Every part of a transaction made on the blockchain is recorded, stored and distributed across a network of computers, creating a permanent, immutable and transparent record that can be verified and validated by all parties involved in the transaction.

Comparative analysis and conclusions

As mentioned above, GameFi emerged in response to the challenges of the gaming industry, as players would like to monetize the time they spend playing games in some way. By earning in-game currency, players can later exchange it for real fiat currency through decentralized exchanges or by getting in-game items in the form of non-exchangeable tokens (NFTs) and then selling them on marketplaces, with the price in turn being generated by the time spent. In many ways, it was GameFi that gave impetus to the development of NFT itself.

For some, like those in the Philippines – where cryptocurrency is officially allowed at the state level – GameFi was even able to become a source of income during the coronavirus crisis.

In general, a cryptocasino is a blockchain-based online gambling platform that provides the ability to make deposits and withdrawals in various cryptocurrencies and to use traditional payment systems for fiat money transactions. Another distinctive feature of cryptocasinos is the use of smart contracts to lock in bets during gaming or payment processing. This makes the process automated and reliable.

GameFi, in turn, is a whole ecosystem that is still gaining momentum, but has the potential to change the gaming industry in general and gambling in particular in many ways.

The introduction of P2E technology is becoming more and more enticing for consumers. However, it is beneficial for both parties, as game owners benefit enormously in the form of liquidity mining, which is especially important in the initial stages, recognition and technology of their project, and also gain access to markets that they could not previously operate in thanks to blockchain transactions.

GameFi itself differs from iGaming in that the former is often based directly on personal skills and initial contributions to the game itself (often a certain amount must be paid initially to buy a character, for example) rather than purely on excitement and probability. However, and in such projects implemented element of luck. For example the Lootboxes that players receive for certain achievements in the game, but the reward is not a strictly game object, and NFT-tokens of varying value, which players can then sell on the appropriate platforms.

The main difference of course is that if in iGaming only a small part of players have a chance to earn money, with GameFi every player can earn money depending on time and effort he puts into the game.

Thus, having invested a certain amount in the game – players have the opportunity to win a lot more at the expense of the price of the relevant NFT, and it can already be called a game of chance.

From the analysis above we can conclude that despite the fact that GameFi and iGaming using cryptocurrencies are similar in many ways, but they also have huge differences. GameFi is just another integration of the decentralized blockchain world into the real world, and today it is probably one of the best manifestations of decentralization.