Over the past few years, games that use blockchain technology have been active in developing and attracting new players. The decentralized games market, commonly known as GameFi, has seen a lot of popularity.
The GameFi industry started back in 2013, and since then, the sphere has been slowly developing, but in 2021 the popularity of decentralized games exploded along with the boom in nonfungible tokens (NFT). According to the DappRadar analytical service, the total value of one of the most popular blockchain-based games, Axie Infinity, exceeds $550 million.
But the GameFi industry is not without its problems. Many projects “launch” without regard to their development stages.
While the price trend of Bitcoin’s (BTC ) can affect or hinder the success of GameFi projects’, it is not always a direct correlation.
Despite the bear market, many GameFi tokens are seeing a rise in price due to the NFT component. Investors aim to make more money off the resale and digital items of their in-game heroes, instead of focusing on improving game mechanics.
When choosing a GameFi project to invest in, you should consider the marketing and technological components. This includes how actively the project is promoted and the benefits that the token offers its users. Beware of GameFi token projects promising a pie-in the sky, as there are many scams in this space.
One of the biggest GameFi scandals was in the fall of 2021 when the Squid cryptocurrency based on the Squid Game show collapsed to almost zero after rising to $2,800.
The token, which was based on but not affiliated with the Netflix series Squid Game, first appeared in October 2021. It was a crypto-game that consisted of six rounds. This is similar to the deadly competition featured in the series’ plot.
To participate in each round users had to pay with Squid Tokens. The game was due to launch in November. Developers would receive 10% of the funds raised, and the winners of the game 90%. Users noted that the purchased currency was not available for sale at the time the token was released.
Furthermore, observers started to grow suspicious when it was discovered that there had been no official connection between the token, Netflix and the authors of the series, so they began to warn users about a possible scam. The scammers quickly withdrew all the money after such warnings were widely spread. According to multiple reports, the scammers took $3. 38 million in total. The leaders of the “classic” gaming industry are extremely suspicious GameFi and tend not to engage in the industry. This is a warning sign that users should be cautious. Gabe Newell, CEO of Valve — one of the biggest video game developers in the United States — in February 2022 commented on his firm’s decision to stay away from the GameFi sector.
Newell stated that NFT games and blockchain mechanics were “superficially sketchy” and that NFT creators are “not people you want to do business with.” He also said that because of the volatility in token prices, players are unable to decide when and what they should buy.
Epic Games CEO Tim Sweeney joined his colleague earlier this month by calling the Fortnite Token a scam and stating that the company is preparing legal action to shut it down. Fortnite Token’s creators responded by calling it a fan-made project without a specific owner or company. Fortnite Token first appeared in late 2021 and, without a doubt, was trying to tie into Epic’s mega-hit battle royale game.
How do NFTs fit into gaming?
To understand GameFi, one should get acquainted with NFTs and their integration with smart contracts. An NFT is an asset that has a digital receipt and is stored in the blockchain.
The smart contract is associated to the NFT. Although it sounds professional and serious, it’s really just a tiny piece of code. This little bit of code could be any type, even a link to a JPEG file on a central server. In fact, NFTs are dominated by smart contracts.
A smart contract is used to manipulate an NFT object among games. It is not a multifunctional tool. It does not include a model or textures, descriptions, sound, animation, sound, or sound. It allows for easy transfer of items or characters from one title to the next. To allow integration between two games, they must all be run through the same infrastructure. These integrations are not possible in the current gaming industry.
Furthermore, an NFT game can work only if it has a large pool of users with its own economy, where players can buy and sell in-game items in the form of NFTs. Many traditional games have these economies.
Eve Online, for example, sells and purchases ships for real money while Counter Strike: Global Offensive offers skins to buy apartments and cars. NFTs are not worth anything. It is up to the NFT owner, however, to convince their users that they have real value.
Even if developers don’t want to fool players but are actually developing their game, they still need to convince the users of the uniqueness, novelty, and point of interest. This is extremely rare.
How to spot a scam game?
NFT scam games are often large-scale and premeditated. These investors are often beginners and not experts. Scammers use advertisements and attractive sites to lure novice users. Pay attention to the following details.
The project’s team
Developers of professional projects always have accumulated experience. You can easily find their biographies online, which include a record of past successes.
However, GameFi has many serious projects that are launched anonymously. Because they hide behind pseudonyms and nicknames, little information about them can be found.
Reviews on professional platforms
When studying a project, one should never rely on advertising slogans. You can read about the project on professional platforms. The community of blockchain experts responds quickly to new projects. Any idea can be analysed from all sides within a matter of hours.
But scammers have learned how to trick users. Some groups promote projects by posting positive reviews on third-party websites. Under the pretense of real users, they pre-register hundreds of accounts on large forums. They send the training manual prepared text to any command they receive. Investors can’t just rely on reviews.
Projects on social networks
Be sure to look through the social networks of the project and pay attention to the number of people involved by their activity in chats and comments and the nature of the messages. Secret projects are not possible without users.
The easiest way to check the project’s smart contracts is to use such resources as Etherscan or BscScan. Block explorers can provide information such as when the project was launched, the number of users, and the amount of tokens it has.
Future income of the project
Every project is created to make money, and it is important to understand where the added value will come from. It is important to understand where the project’s profits come from before you invest.
There are many GameFi projects that are built on a multilevel marketing (MLM) system. This is similar to network marketing which isn’t a scam. Many good projects have used MLM in order to attract new customers. However, if there is no other source of income than network marketing, it is most likely a scam. MLM must also include value-added features. Real projects cannot promise huge profits.
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Ethan McMahon, an economist at Chainalysis, told Cointelegraph that one should pay attention to the links that appear on a project’s website:
“Scam projects like Squid Game often start with just a white paper, a landing page and a token listing on a major crypto exchange. Fake partnerships, non-existent workers, and/or 3D rendereds stolen or pre-made may be some of the possible red flags. Broken links and typos are other potential red flags. It’s worth verifying that you are able to play the game. If not, it could be a pump-and-dump or rug-pull scheme.”
Although the NFT gaming market is indeed overvalued, NFTs as an investment have yet to reach their potential. It is important to understand NFTs more than just believing that they are a collection of items that you get after grinding for hours. Skeptics have a negative view of NFT games because they are subject to volatile trading in assets that don’t have a clear use case.
NFTs should have intrinsic value. A strong connection to real assets and services is necessary for the NFT market’s maturation.
Pedro Herrera, head of research at DappRadar, believes the future of crypto gaming is bright, hinting that it might move on without NFTs:
“In my perspective, blockchain games will be massive, but we are still a couple of years away from seeing an actual mass adoption event. Traditional gaming is a $60-billion industry where people spend around $20 billion per year on game purchases like wearables, guns and skins. Traditional gamers will start to turn their attention towards blockchain games when the first AAA blockchain game combines a great gaming experience with crypto assets. There is also the Web3 metaverse, where MMORPGs are expected to become the dominant way of playing and socializing. The future of blockchain games looks bright. As for scams, there will probably be a couple, but it is more common to see them in NFTs.”