GameFi - Blurring The Reality And The Fantasy
source: pixelplex.io
What is “GameFi”?
Blockchain technology and cryptocurrencies have proven their huge potential in the video games industry. One of the first games utilising this is CryptoKitties and The Sandbox, which gained overnight success and raised significant awareness towards blockchain-based crypto games and collectables. “GameFi”, a combination of “game” and “finance”, now refers to games that make use of blockchain technology and cryptocurrencies.
Distributed Ledger Technologies (“DLT”) in Games
GameFi mainly refers to games that rely on a blockchain platform, which implements a series of distributed ledgers storing records in a sequence of linked blocks. In simple terms, a ‘distributed ledger’ is a system for recording and synchronising data across multiple identical copies at separate sites. This could be adopted into games where players trade items with virtual in-game currencies. For example, when a certain item is traded in-game, the transfer of ownership of such item will be recorded in all nodes, i.e. players, within the entire network. This can be contrasted with the traditional ‘central ledger’ system, where a single authoritative record of transactions is stored in the database of the game developer. Through the distributed ledger technology, the in-game transaction will be stored in all ledgers within the ledger. Participants will, therefore, not have to worry about the game being manipulated or corrupted by a single ledger. The attention gained from media and investors around DLT has led game developers to start exploring the possibilities of adopting DLT into gaming and the potential of using NFTs as tradable in-game items.
Features of GameFi
Trading virtual items and the P2E model are the core fundamentals of GameFi projects. Traditionally, virtual assets are owned by game developers. The assets are lost when the player quits the game or when the company ceases them. Contrastingly, users gain complete ownership of the in-game assets purchased, as well as finding opportunities to boost their earnings. P2E blockchain games offer economic incentives to players, in which they can exchange in-game currencies for cryptocurrencies, and earn NFTs as rewards upon players' effort in completing tasks, progression of levels or victories against other players online. Players can ultimately trade those virtual goods as NFTs, which can be sold for cryptocurrency or in-game currency. These marketplaces are freely accessible to all players, with no restrictions on the number of virtual goods a player may purchase.
Huge potential exists to leverage blockchain technology for interactive entertainment applications and investment opportunities. However, as always, these new opportunities raise potential legal issues. The current regulatory activity concerning DLT and crypto mainly focuses on Initial Coin Offerings only. As a result, little attention has been paid to the legal issues surrounding crypto games and collectables. Part 2 of this series will give a general overview of these legal issues, as well as the current climate of the regulatory framework in different jurisdictions and the future of GameFi.
By: Hendry Wong