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Games have been an important part of us since the beginning of humanity, and have evolved with us throughout the years.
So not surprised to see that with the rise of crypto, gaming has quickly become one of the hottest spaces. To give you a sense, blockchain-based games Axie Infinity and DeFi Kingdoms reached more than $400 million in daily transaction volume.
Its importance lies in the fact that Gaming has managed to leverage critical aspects of blockchain and crypto into a level of synergy that really proves how traditional industries can be disrupted.
Essentially, Gaming combines blockchain-powered features, cryptocurrencies’ tokenomics, DeFi (decentralized finance) applications, and NFTs.
And this is revolutionary because this creates maximum value for players, instead of extracting value from them.
Apart from this reason, I personally really wanted to write about gaming for a while now because I believe gaming provides a frictionless entry point into crypto, and therefore can play a significant role in mass adoption.
So I’m excited to share with you today’s article.
A lot of the content is taken from a pretty comprehensive overview by Cointelegraph. For those of you who’d like to read the full extent, here is the link to it.
Before we get started…
If you are new to this space, here are the relevant reads about concepts that will help you better understand today’s article:
First, let’s understand how it started?
The first crypto game started with CryptoKitties developed by Axiom Zen in October 2017. In a nutshell, these are cute kitties that can breed according to their “genetic” traits.
The overwhelming success of CryptoKitties jammed Ethereum’s network on numerous occasions a year later.
Just to give you an idea, the highest price paid for a “CryptoKitty” was more than 600 ETH, or $1.34 million, which at ETH’s all time high, we are talking above $2.8M. Even with the bear market pricing as of today, it’s almost $1M.
Then came Axie Infinity in 2018, and the rest is history.
So what makes Gaming in crypto so special?
I’m so glad you asked.
The TLDR is best illustrated with a before and after comparison:
Before crypto
, games were siloed worlds and players didn’t really own their in-game assets.With blockchain-based games, in-game assets are stored as tokens (aka NFTs), and players can fully own these assets, and sell them on free markets for a price of their choice.
This is why it is common to refer to gaming in crypto as ”GameFi” which is a term that combines the words Gaming and Finance together, referring to crypto games with a financial element.
There are plenty of parallels, including staking, liquidity mining, NFT trading, and NFT fractionalization.
Let me break this down a bit more for you by highlighting and explaining the Key Features:
Tokenomics
Play to earn
Ownership
1. Tokenomics
Like the majority of crypto projects, each crypto game tends to have its own economy created around its own cryptocurrency.
This allows them to design an incentive scheme around their token economics that makes it more attractive for the community to hold the tokens, which will then benefit its price growth.
Let’s look at how Axie Infinity designed their AXS token:
AXS has a maximum supply of 270 million tokens.
in order to breed characters, you need to send tokens to the community treasury, removing these tokens from circulation;
users can stake their AXS to secure the network and receive rewards for this;
Putting all these together, holding AXS is quite attractive to investors, and this will benefit the price growth of the token.
2. Play to Earn (P2E)
I’m sure you heard about this term before, and it is exactly how it sounds: players can earn in-game tokens/coins or rare items in the form of NFTs.
The basic principle of play-to-earn is that players now have the opportunity to convert the time, money, and effort that they invest in games into tokens that can be converted into money.
The more you play the game, and the better you become at playing, the more your earning potential increases. Sounds too good to be true? Starting to understand why gaming in crypto is so popular?
3. Ownership
Blockchains are monetary building blocks.
They provide the technical features required to enable strong property rights, so players can possess true ownership of the in-game assets they earn.
And the impact of this is not just within the game itself, but also outside the game.
By doing this, the connection established between the virtual gaming world and the real world becomes quite strong, as the rewards earned by playing games have real utility in the outside world.
When a player can take a character out of the game and exchange it for other types of cryptocurrencies (and to FIAT money if they want to), ownership means a lot more.
The minute virtual goods are coupled with real, actual ownership, that can be traded for actual utility in the real world, they aren’t that virtual anymore.
What are some of the most popular games?
For those curious that would like to give it a try, here is a top 5:
Axie Infinity
DeFi Kingdoms
Alien Worlds
Splitnerlands
Bomb Crypto
Now, what are some of the Issues in Crypto Gaming?
Even though the track record of GameFi so far has been quite promising, it is still very new and part of the volatile crypto space, so it does come with its challenges as well.
Entry barriers
This varies from game to game, but in general, the escalating prices can present high entry fees for newer participants.
Going back to the example of Axie Infinity, Players need to purchase 3 Axies to start playing the game, and during the rapid growth last year, this cost went as high as $1,500 which is not possible to afford for many developing countries.
As a solution, many Guilds were formed, but the Axies still belong to the Guilds.
Regulations
Governments across the world are moving toward some form of a regulatory framework, and this will include GameFi.
Potential Ethical Issues
Technically, anyone can play these games as long as they understand the mechanics and cost of entry.
So if users under the age of 18 become players and start earning from games, would these cases be considered child labor? It’s not an easy answer.
Outlook
As we are still in the nascent stage, there are three main areas we can expect to see further maturity:
Quality of Content (and game quality),
Business Models (this is related to their incentive schemes and gaming economics),
Regulatory Compliance
Additionally, even though the gaming industry as a whole shrunk for the first time ever in 2021, it still accounted for $178 billion in total revenue.
In-game NFT trading volume, based on DappRadar, surpassed $6 billion in total sales in 2021. TokenTerminal reports Axie Infinity alone generated $1.2 billion of protocol revenue in 2021.
Based on the size of this industry alone, it is not hard to see that the potential of Gaming in crypto is really huge, to say the least.
Thanks for making it this far! Here is my Articles Pipeline for the next few weeks:
Most relevant news during July
Project deep dive: Polygon
Project deep dive: Vechain
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