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If you are a player or investor in the GameFi industry or pay attention to the DeFi industry, chances are you have come across the term NFT. It is important for most players, especially beginners, to understand what an NFT is. A non-fungible token (NFT) is a distinct identifier that can cryptographically assign and prove ownership of digital goods.
Saying that NFTs are popular could be an understatement. Between June 2021 and June 2022, NFT sales hit $29 billion. NFTs have especially driven this for digital artworks (NFT art), which have sold millions, sometimes tens of millions.
However, NFTs are increasingly taking unique roles within the GameFi industry, as explored below.
What does NFT Mean?
NFT means non-fungible tokens (NFTs), which are created generally employing the same type of programming used for cryptocurrency. These cryptographic assets are based on blockchain technology. However, NFTs cannot be exchanged or traded equivalently like other cryptographic assets.
Therefore, an NFT is a digital asset that links ownership to distinct digital or physical items, such as real estate, art, or other items of value. NFTs represent digital proof of ownership of a given item.
How NFTs Work
Most NFTs are created and stored on the Ethereum network, although other blockchains, such as Tezos and Flow, also support NFTs. Since anyone can review the blockchain, the ownership of NFTs can be traced and verified easily, while the owner (entity or person) can remain pseudonymous.
Different digital goods or items can be tokenized. For example, GameFi uses customized tokens to confer value to players, especially in Play-To-Earn (P2E) projects. However, these tokens are eventually exchanged for NFTs to prove ownership.
While the NFT that conveys ownership is added to the blockchain, the item (for example, land, monsters, or rare minerals in GameFi projects) remains separate from the blockchain.
NFT in GameFi
GameFi, a combination of “game” and “finance,” refers to blockchain games that offer economic incentives to the people that play them. In this regard, players earn in-game rewards, including crypto tokens, avatars, virtual land, and other NFTs, by completing tasks. In GameFi, players can immerse themselves into a project’s metaverse to enjoy the experience while enjoying the opportunity to earn.
NFTs earned from P2E gaming are secured by decentralized finance (DeFi). In this regard, GameFi blends NFT and DeFi technologies to establish a manifold ecosystem of blockchain games that allows players to earn money.
NFTs allow crypto games to engage players both on the entertainment value while also enabling them to earn tokens.
What is the distinction between cryptocurrency and NFTs?
In the new era of gaming, blockchain technology has not only driven cryptocurrency adoption but has allowed the development of a massive gaming experience for players to earn NFTs, which can be converted to crypto, such as Bitcoin.
Inspired by Web3, which inspires new concepts like blockchain, decentralization, and token-based economics, NFTs have allowed GameFi projects to run on platforms like Binance Smart Chain (now known as BNB Chain) that allow the emergence of game-based trades of cryptocurrencies through the provision of a crypto wallet.
This dynamic shows that NFTs and cryptocurrencies rely on the same underlying blockchains. However, the creation and use of NFTs and cryptocurrencies are done for different purposes. Cryptocurrencies aim to act as currencies by storing value or allowing for the sale and purchase of goods – cryptocurrency tokens are fungible like fiat currencies. NFTs, on the other hand, create one-of-a-kind tokens that can show ownership and convey rights over digital items.
How to buy an NFT
NFTs can be bought, sold, or created from online exchanges or marketplaces. In GameFi, NFTs and cryptocurrency can be earned by progressing through various in-game levels or completing chores, or fighting other players in play-and-earn projects. The process of purchasing NFTs is highlighted below:
- Open an exchange account and crypto wallet.
- Purchase Ethereum – most NFTs are built on the Ethereum blockchain.
- Transfer Ethereum into a crypto wallet.
- Buy NFT.
NFTs and SocialFi
SocialFi combines the principles of social media and DeFi. SocialFi platforms provide a Web3 approach to developing, managing, and owning social media platforms.
Monetization is often carried out in cryptocurrencies, while identity management and digital ownership are driven by NFTs.
The Takeaways
While there could be several practical applications of NFTs in the future, they are mainly employed in GameFi and digital art today.
In GameFi, NFTs allow both the gamer and producers to make money, transforming the gaming industry as a whole and causing a change in ownership.
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