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Play-to-Earn: how gaming on the blockchain works

October 10, 2022

9 min

Play-to-Earn: how gaming on the blockchain works

What is Play-to-Earn? A chance for gamers to turn fun into profit, but above all, to be in control of their gaming experience. In the world of crypto gaming every sword is an NFT and rewards are paid out in cryptocurrencies. Everything is owned by the players thanks to blockchain technology. Let’s find out how Play-to-Earn works, its advantages and how to make money with crypto games in this environment called Gaming Finance, or GameFi.

What is Play-to-Earn (P2E): history of the gaming economy

Games that pay in crypto: it sounds like a dream, but it is the reality of Play-to-Earn. However, the possibility of receiving rewards while having fun is not a novelty introduced by Web3 and blockchain technology. Crypto gaming is the more modern version of Play-to-Earn (P2E), and is part of GameFi (Gaming Finance). It is the result of a journey that started in the physical world, before online gaming even existed.

We are talking about a change in the paradigm of ‘gaming’ as a reversal in power relations. Today, the crypto Play-to-Earn paradigm allows gamers to truly control their gaming experience, taking control away from centralised entities. Users’ adventures, in this new ‘gaming economy’ model, are independent from companies. Above all, their experiences can also be monetised thanks to NFTs and cryptocurrencies. They do not lose time playing at all, but can gain new resources. Even more importantly than rewards, gamers also gain freedom. To understand what Play-to-Earn is, we have to go back over the history of gaming.

Pay to Play: Pac-Man and tokens

Arcade games, housed in classic arcade booths, represented gaming in its stage of infancy: the first consumer version of video games. Pac-Man is an example of Pay-to-Play. Each game session costs a token, with the hope of beating the previous record within the time limit. The fact that the number of attempts is limited by payments defines this type of game as ‘coin-op’, or coin operated.

The advent of online gaming reintroduced this model. World of Warcraft requires payment of a monthly subscription to participate in role-play adventures. However, participants in modern Pay-to-Play platforms have never owned their progress. In fact, the content of traditional games is stored in centralised databases, controlled exclusively by the game companies. Players pay for an experience whose value does not belong to them and over which they have no decision-making power.

Fun Fact

Vitalik Buterin noticed ‘the horrors of centralised systems’ from playing World of Warcraft. He stopped playing after his character was deliberately deprived of a powerful feature. It is precisely this event that, according to some, motivated him to create the decentralised Ethereum protocol.

Free-to-Play: battle pass and skins

The Free-to-Play model then removed barriers to entry, offering fun for everyone free of charge. Mobile gaming has spread this model exponentially, but the best-known examples are on PC or console. Playing League of Legends or Fortnite is free, because the developers’ income comes from selling premium content, such as additional challenges (battle pass) or avatar customisations (skins). The latter only have aesthetic value because they exist exclusively within the platform: all in-game assets are only ‘lent’ to players, they do not freely dispose of them (so they cannot sell or trade them). The experience is still subject to the control of the developer company and is not rewarded by economic incentives.

How Play-to-Earn works: Crypto Gaming

The history of the gaming economy takes us back to the early 2000s: Play-to-Earn was born when certain Free-to-Play games, such as Second Life and Runescape, gave rise to real markets for gaming objects. Accessories and land of these virtual worlds (the first examples of metaverse) could be sold between players in exchange for real money; these transactions, however, took place outside the game infrastructure. The lack of regulation opened up the risk of social engineering: exchanges were often opportunities for cheating, because they did not enjoy a secure backing.

The possibility of financial return defined this type of games as P2E, although still no player actually owned the exchanged resources, and payments were not protected. The blockchain provides the solution for this, thus evolving the concept of P2E: a shared, immutable ledger that tracks and certifies exchanges, recording only valid transactions. Moreover, smart contracts, automated codes on blockchain, can programme virtual marketplaces where buying and selling can finally take place in a transparent and decentralised manner.

Why choose crypto gaming? Here are some of the advantages of play-to-earn provided by blockchain, in addition to security:

  1. Any game item can be tokenised into an NFT (Non Fungible Token): the ownership of a certain item can be saved in a smart contract. NFTs are an acknowledgement for the efforts of players, who can thus own their wins simply by storing the tokens in a wallet.
  2. NFTs are permanent: they survive server shutdowns precisely because the blockchain makes them independent of the game. Moreover, the modularity of smart contract codes and interoperability between various protocols allow them to be compatible with multiple games, increasing their use cases.
  3. Gamers can monetise their progress: NFTs exist independently beyond the limits of the game, have real value and can therefore be sold, even on secondary markets (such as OpenSea).
  4. The value of tokenised gaming assets depends mainly on their rarity: NFTs are sometimes unique, and in any case produced in limited quantities. Scarcity is a cornerstone of crypto gaming,
  5. Tokens can give their holders voting rights on the developments of a gaming platform, or of an individual gaming experience. This is what is called decentralised governance in the crypto world, which is essential to involve users and distribute decision-making powers.

How does one earn with Play-to-Earn?

NFTs are not the only tokens that incentivise Play-to-Earn. Crypto games can issue utility tokens on a blockchain developed by the same team, but it is more common to leverage smart contracts from other blockchains to create one’s own game tokenomics. The in-game economy is the tool through which players can exercise their will, in an ecosystem that recognises effort and skill: this is the P2E meritocracy that, coupled with DeFi models, gave birth to GameFi.

Decentralised Finance (DeFi) provides users of crypto games with several solutions regarding Play-to-Earn models. Let’s delve into an example of blockchain gaming. Axie Infinity is GameFi’s most famous model: a blockchain video game in which you can go on an adventure with Axies.

Axies, in-game items and even plots of land (Lands) in the Axie Infinity metaverse can be sold as NFTs, but this is not the only form of reward. The ecosystem incentives are also based on the tokenomics of two cryptocurrencies: Axie Infinity Shard (AXS) and Smooth Love Potion (SLP). AXS and SLP, being ERC-20 tokens, can be sold on centralised exchanges, such as Young Platform, or paid into DEX liquidity pools such as Uniswap.

Fun fact

It was Andre Cronje, the creator of Yearn Finance, who popularised the term GameFi, via a tweet in September 2020, but the origin may be earlier.

Buying and selling tokens, however, is not the only way to earn money with Play-to-Earn: NFTs such as Axies, or rare items, can be lent to allow other users to participate in crypto gaming, receiving rewards in return. This is the purpose of the Yield Guild Games, a DAO that lends NFTs to players who cannot buy them, as they are sometimes very expensive. P2E rewards can also be the object of other Yield Farming strategies, such as lending, liquidity mining, staking, not to mention the aforementioned governance processes.

The future of Play-to-Earn: play before gain

Again, Axie Infinity is a good example to understand the industry’s outlook. At the end of 2021, the crypto gaming platform witnessed an exponential growth in users, reflected by the price increase of the AXS token. However, apart from the general bear market situation, the euphoria soon wore off, and the value of tokens and NFTs related to the Play-to-Earn game collapsed. This was due to the fact that some users were only interested in the rewards. They exploited the game as a simple Yield Farming protocol, abandoning it after the sale of the tokens, thus making gaming a marginal component.

In essence, the core of GameFi remains the gaming experience. Play-to-earn advantages enrich the video game with new possibilities, but the game must be the protagonist and the experience must be attractive even without monetary incentives. The blockchain gaming platforms The Sandbox, Decentraland and Gala Games seem to have got the message, hosting game development and experiences that prioritise player enjoyment.

The future of Play-to-Earn, with a view to the enjoyability of the adventure, also passes through the visual aspect. In crypto games such as Illuvium (Immutable X) and Star Atlas (Solana), the triple-A experience takes centre stage, based on the quality of the Unreal Engine 5 graphics engine. This takes precedence over the profit possibilities.