CRYPTOCURRENCY GAMES
Updated: Jan 18, 2022
By Justin Philip Tuazon, Allan Jose Mesa Jr., Jerilyn Shaine Camila, Pierre L. Saldajeno
Have you seen some of your Facebook friends promoting investment in Axie Infinity? This article aims to explain what cryptocurrency games are and how it is possible to earn money through them. Indeed, it might seem surreal, but it is possible to earn money while playing these games.
According to Mehrotra (2021), a cryptocurrency game (or crypto game) is a game where players can obtain in-game items that they can trade for cryptocurrency, which they can then sell for fiat currency (e.g., Philippine peso, US dollar). For example, in the popular crypto game Axie Infinity, there are two kinds of cryptocurrencies - Axie Infinity Shards (AXS) and Smooth Love Potion (SLP). Players are able to directly obtain cryptocurrency through completing in-game activities (e.g., in-game quests) in most crypto games. Recently, cryptocurrency games saw a sharp rise in popularity in the Philippines, fueled by the ongoing pandemic. So, if you heard about Axie Infinity (I’m sure you did!), yes, that’s definitely one of the most popular crypto games here in the Philippines. In fact, 40% of the total Axie players are from the Philippines (Ghosh, 2021).
Some crypto games use non-fungible tokens (NFTs) for trading or selling in-game items, so it is also important to talk about NFTs when discussing crypto games. However, before diving into NFTs and their role in crypto games, we need to understand first what the terms “fungible” and “non-fungible” mean. According to Frankenfield (2021a), fungibility refers to “the ability of a good or asset to be interchanged with other individual goods or assets of the same type” (para. 1). An example of a fungible asset is money. For example, you can exchange a 100-peso bill for two 50-peso bills, five 20-peso bills and so on.
According to Ethereum.org (n.d.), a fungible asset is interchangeable with another of the same type because they are primarily characterized by their value instead of their distinctive qualities. On the other hand, non-fungible assets such as furniture cannot be traded or exchanged freely because of their important unique characteristics (Ethereum.org, n.d.). For example, a small steel chair generally cannot be freely interchanged with a very wide wooden chair because both chairs have features that make them unequal or different.
NON-FUNGIBLE TOKENS (NFTs)
What are non-fungible tokens, then? According to Sharma (2021), an NFT is a uniquely identifiable cryptographic token that exists on a blockchain (a certain type of database) that has some set of data associated with it. This means that an NFT is the only digital token of its kind. Just like there are no two people in the world who are exactly alike, there can never be two NFTs that are completely the same. Because of the uniqueness of this token, it is non-fungible (hence its name). As stated by Sharma (2021), this is in contrast to cryptocurrencies, which are identical and interchangeable digital tokens (i.e., fungible).
So, what are some of the ways NFTs are used? As mentioned by Sullivan (2021), NFTs can be used to represent other assets, either digital or tangible, because of the non-fungibility of NFTs. He also emphasized that an NFT and the associated asset are separate entities. When you buy an NFT with an associated asset, you are buying the token itself and not the asset (Sullivan, 2021). They added that the link between an NFT and an asset does not necessarily result in transfer of rights and obligations, but such transfer can be done by way of contract between the involved parties. As we will see shortly, the asset itself (e.g., artwork) can sometimes (but not always) be included in the NFT. You may recall from before that an NFT can have a set of data coupled with it. The set of data associated with this particular NFT can include signatures, among other things (Sharma, 2021). This may prove useful in verifying the authenticity.
Now, let us consider a real-world example where an NFT is used to represent or signify ownership of a digital artworks. The NFT-based digital artwork “The First 5,000 Days” by artist Mike Winkelmann sold for over $69 million this year (BBC, 2021). According to Morse (2021), Dannie Chu, the CEO of MakersPlace (the company that minted and published this NFT), said that “The buyer of this artwork is purchasing an 'NFT' (non-fungible token) which contains the high resolution digital artwork file itself, as well as an indelible signature of the artist and all transactions associated with the artwork — basically digital proof of authenticity and uniqueness” when referring to the NFT-based artwork. Morse added that Lee Azarello, who used to be an Ethereum smart contract security auditor, described an NFT as “a transaction among a number of parties to agree on ownership”.
While many people can have copies of an NFT-based digital artwork, people who actually own the corresponding NFT own the authentic artwork digitally “signed” by the artist (Morse, 2021). Conti and Schmidt (2021) said that NFTs allow people to own genuine pieces and described NFTs as “digital bragging rights”.
That is, in a nutshell, what NFTs are and how they are usually used. Now that we know these, it is finally time for us to talk more about NFTs in the context of crypto games and how “play-to-earn” crypto games generally work.
IN-GAME NFTs
In crypto games (also known as “play-to-earn” games), unique items are represented by NFTs. As said by Publico (2021) in an article, the usage of NFTs in video games provides “real stakes”. How so? In-game items and characters are in the form of NFTs, and this creates a market where players buy, sell, and trade the items they obtain as they play the game (Publico, 2021). The article also mentions that in-game items being minted as NFTs makes them scarce and valuable, which allows players to sell them for cryptocurrency and then convert the cryptocurrency they earn into fiat money.
Before a player starts playing, they must have a cryptocurrency wallet. The wallet allows a player to use their cryptocurrency to buy in-game tokens (Feign & Leech, 2021). The player’s NFTs are also listed in their wallet.
There are multiple ways in which people can earn with the NFTs collected in the game. In some games, in-game NFTs can be “melted” to recover the equivalent value in-game currency. In games that involve crafting some “rare” items, professional “blacksmiths” - people who are good at forging items - can auction their forges to other players. There are also games in which players create art pieces that can be auctioned similar to classical paintings and sculptures.
Many cryptocurrency games are based on Ethereum, which was created to facilitate the development of distributed applications (dApps) and smart contracts (Frankenfield, 2021b). dApps are applications that run on multiple computers on a network (Rando, 2015), and a smart contract is an agreement between a buyer and a seller that is self-executing and written into lines of computer code (Frankenfield, 2021c). In-game transactions are secured in the blockchain. Since blockchains are decentralized and stand on consensus, transactions remain secure (IBM.com, n.d.).
Although these games are labeled as play-to-earn, there are instances in which players can lose money when playing. Thus, cryptocurrency games are not endorsed to the public by the Banko Sentral ng Pilipinas (BSP) as an investment vehicle due to the volatility of the cryptocurrency market (Publico, 2021). There could be instances where the value of the cryptocurrency used in a game spikes down, and the equivalent value in fiat money of the in-game tokens become lower than the starting value when the player bought into the game to play.
SOME PLAY-TO-EARN GAMES
AXIE INFINITY
Axie Infinity is the most played cryptocurrency game in the Philippines (Publico, 2021). Similar to the Pokemon franchise, a player makes a team of three Axies, the in-game creatures. Axie Infinity uses Axie Infinity Shards (AXS) and Smooth Love Potion (SLP) as in-game currency; both are Ethereum-based cryptocurrencies. While Axie Infinity requires players to initially buy 3 Axies, there is an option to become an Axie Scholar. Being an Axie “Manager” or “Scholar” is not an in-game feature, but an arrangement that became popular in the Axie community. An Axie “Manager” would give a free Axie team to a “Scholar,” and the “Scholar” would play on behalf of the “Manager.” The “Scholar” will be given a cut from the earnings (Dash, 2021).
DECENTRALAND
Decentraland is an online world, similar to Roblox, Minecraft, and Fortnite. The in-game world is called “Metaverse”. However, almost everything in Decentraland, from land parcels to the wearables of in-game avatars, is an NFT (Marquez, 2021). Decentraland is, as the name suggests, decentralized; users can propose and vote on policy updates, LAND auctions, and the types of allowable content in the “Metaverse”. Decentraland uses MANA and LAND tokens. MANA is an Ethereum-based currency, and MANA is used to buy LAND tokens. Decentraland is popular among artists and businesses who want to explore a new artistic medium (CoinMarketCap.com, 2021).
THE SIX DRAGONS
The Six Dragons is the first open world role playing game (RPG) that uses blockchain. Similar to other RPGs, players can craft weapons and armor from reagents; reagents can be obtained by defeating bosses and by exploration. The game also features a Governance NFT, which gives the player a vote on future game development and elements (Ravi, 2021). The Six Dragons is one of the games that use the Enjin Coin (ENJ), which is also based on Ethereum. Crafted items have an equivalent ENJ value, and the player and developer can “melt” the item to recover the equivalent ENJ value (CryptoBlockDan, 2019). Crafted items can be traded among players.
CONCLUSION
Cryptocurrency games provide a unique experience. Unlike other games where there is little to no possibility of earning and investments where there is a need to wait for returns to materialize, prospective gamers (and investors) can utilize their time to earn. The possibility of earning while playing is what attracted users to crypto games and made them gain popularity so quickly. However, one should understand that there are also risks involved, such as in-game cryptocurrencies losing value. The next time you are bored and looking for a game to play, you may want to consider playing a crypto game - have fun and possibly earn while you are at it!
References:
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