Beginner’s guide to Play-to-Earn vocabulary - Part I

Are you new to Play-to-Earn (P2E)? Do you get lost in P2E vocabulary? Here's a guide to help you understand the most commonly used terms in the industry.

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Play to earn may sound complex to some people who entered the crypto space in the NFT boom. Here, people encounter terminologies like governance tokens, utility tokens, sustainable economy, breeding, etc., which have not been used previously. On top of that, play-to-earn includes gaming terms that may be unfamiliar to those in the crypto space. As a result, some explanations are required for newcomers to better understand the space.

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If you're here, you probably couldn't handle the abundance of play to earn vocabulary. In this blog post, we will go over the most common ones and explain them to you in simple terms.

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What is P2E, Play-to-Earn?

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P2E is the abbreviation used for Play-to-Earn games. These games made cryptocurrencies and NFTs an integral part of their ecosystem and through these technologies games became financially rewarding in various manners. As it is seen from the name, players get monetary rewards for the experience they get from playing those games with the help of cryptocurrencies. The earnings stem from owning in-game assets and selling them in the NFT marketplaces, or crypto token earnings which they get for completing the task or winning the competitions within the game. The whole system is completely automated and on the user side, it usually does not require complicated procedures. 

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What is Play-and-Earn? 

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The play-to-earn concept, like any other technology, evolves and is replaced by new ideas. The term "play-to-earn" has recently evolved to "play-and-earn." The entertainment aspect of the games is highlighted in the play-and-earn concept. Unlike the first generation of P2E games, developers strive to create entertaining gameplay that players can enjoy while earning rewards. The entertaining gameplay keeps the community engaged in the game and discourages them from withdrawing their rewards. This process adds another layer of longevity to the game. It is expected that the well-known problem with the previous generation of P2E games - a continuous token withdrawal that weakens the game ecosystem and has the potential to bring the game down, probably will not threaten the ecosystem in the play-and-earn concept. 

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What is GameFi (Gamified Finance)?

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GameFi is a mash-up of the words "game" and "finance." It primarily refers to blockchain-based play-to-earn games that provide monetary incentives to players. These rewards can be earned as cryptocurrencies by playing and completing tasks in the games or by defeating other players in PvP, PvE, and other various game modes. Furthermore, players can earn NFTs, which can then be sold for a profit in the marketplaces. Players can use their rewards to advance in the game, unlock new game modes, or withdraw them to convert to cash. As a result, players can profit monetarily from those games while also enjoying the gaming experience.

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At its core, GameFi should consist of free-to-play games which enable players to play games without any upfront payment, but also allow players to earn while playing and enjoying the games (Play and Earn). Besides free-to-play games, there are pay-to-play games where players need to acquire some NFTs or other in-game assets to play the game. 

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What are tokenized games?

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Within the context of P2E gaming, tokenization is the conversion of items within the game ecosystem to crypto tokens with the help of blockchain technology. Blockchain technology provides the player with the ownership of the assets that they possess. Those items can be easily transferred from one person to another with the help of blockchain technology. Given that all the transactions are being recorded on the blockchain, anyone can view any transaction  using specific blockchain explorer websites such as etherscan, and polygonscan. Game developers use low-gas fee blockchains to lower the costs on the player's side and to ensure seamless transactions among players. 

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What is a token? What are ERC-20 tokens? 

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ERC-20 token is the fungible token that is created using the ERC-20 standards on the Ethereum blockchain. Fungibility provides an interchangeability feature that enables tokens to be sent and received easily without any distinction. For example, all 100-dollar bills (ERC-20 tokens in our case) are the same and it doesn’t matter which one you pick out from your wallet.

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Fungible type of tokens is used to distribute cryptocurrency rewards to the play-to-earn players. These could be fungible tokens from various blockchains such as ERC-20 (Ethereum), BEP-20 (BSC), or others.  Due to their usage in the gaming environment, which will be covered in more detail in the sections that follow, these tokens are primarily separated into two categories: governance and utility (or in-game) tokens.

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What is a Governance token? 

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Owners of the governance token have the power to select how the P2E game will be developed and run as well as cast votes on various issues inside the game ecosystem. This is similar to how traditional companies are managed by their board of directors. The number of tokens a holder owns in relation to the token's total supply is used to calculate their voting power. Usually, if the token holder has 10% of the governance token, then he has 10% voting right in the decision-making process. It can be considered as becoming a shareholder of the game by holding the governance tokens. Governance tokens are mainly utilized in the DAO- the Decentralized Autonomous Organizations. 

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What is DAO? 

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DAO is short for Decentralized Autonomous Organizations which is the decentralized way of governing the project, game, or any other blockchain-based organization. DAOs are built on smart contracts developed by the organization. Since the purpose of a DAO is to enable decision making and governance through transactions on the blockchain, it serves as a transparent public system. Governance token is the core element in the DAOs. Token holders can participate in the voting process freely, with their own will. Furthermore, DAOs bring the community together and encourage them to engage with each other within the organization. Consequently, the creation of a DAO is intended to facilitate and strengthen the connection between the community and the organization which has been subject to criticism in the traditional set of organizational structure. 

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Part II of the vocabulary is available here.

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About

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Parea Labs is a Web3 Gaming company that is driven by visionary ideas to provide various blockchain solutions and the excitement to build a user-focused, adaptive, and innovative gaming experience for all.