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

Beginner’s P2E guide to Play-to-Earn vocabulary continues here. In the first part, we briefly talked about Play-to-Earn, Play-and-Earn, GameFi, tokenized games, ERC-20 token standard, governance token, and DAO. However, we could not finalize the vocabulary in the first part, so we decided to make a series to help beginners dive deep into P2E gaming. 

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Let's begin to learn some new P2E terminology in this blog. 

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What is a Utility Token?

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The utility token is the type of crypto token that is intended to provide specified benefits within the designed ecosystem. In the P2E framework, utility tokens are in-game currencies that are earnable via gameplay and are used for various purposes. As well as governance tokens which we mentioned in Part I, utility tokens are fungible tokens and they can be in ERC-20 or any other fungible token standard. For example, SLP in the Axie Infinity game is a utility token. 

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In-game utility tokens are usually uncapped which means there is no total supply for those tokens. Uncapped token supply enables the game creators to have control over the token supply and empowers them to take crucial steps if needed. According to the demand for the token, the in-game token supply can be adjusted by the managing team, however there are downsides to this if the in-game utility token is directly convertible (or heavily connected) to the primary token (e.g. governance token) as it will create continuous inflation. 

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What is NFT renting in P2E games? 

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NFT renting is a self-explanatory term that means one person grants temporary ownership to another person in exchange for a rental fee. It can be in 2 forms: collateralized and collateral-less renting. In collateralized renting, the borrower deposits a sum greater than the cost of the NFT and leases it from the owner. After the renting period, the original NFT will be returned to the owner. For collateral-less renting, the borrower gets a wrapped NFT that carries the same characteristics as the original one. When the lease time expires the wrapped NFT gets burned and the original NFT owner receives the lease money. In both cases, transactions happen on the blockchain with the help of smart contracts. 

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NFT renting is one of the crucial points in P2E games. The importance of the NFT rentals became eyeballing when the entrance to the P2E games became more expensive than a regular person can afford. The entrance barrier to the games, which requires owning 3 or 4 NFTs to be able to play the game and earn rewards has increased as the price of those NFTs inflated due to the demand. Individuals with excess NFTs or those who no longer play the game began to rent out their NFTs to others for small fees, allowing everyone to participate in the play-to-earn games. In the play-to-earn space, NFT rentals result in the formation of the "guild" structure. Guilds began to buy NFTs in bulk and rent them to scholars, and scholarship managers became intermediaries in the process. 

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What are Gaming Guilds? 

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P2E gaming guilds are the organizations that provide tools, training, resources, and NFTs to players and enable them to be part of the P2E space. The importance of the gaming guilds is to provide resources for those who cannot afford to play games. As those players earn rewards, they pay some share of that reward to the guild and scholarship managers. Due to the high demand for those guilds, many have emerged, such as Yield Guild Game, Merit Circle, and Good Games Guild. Guilds are getting funds from the scholars and putting them into the treasury and those funds are utilized as an investment towards mainly new & emerging games. 

What is NFT Breeding? 

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NFT breeding refers to the process of combining 2 NFTs and getting an offspring that carries unique characteristics. Usually, the offspring has some of the characteristics of both parent NFTs. Some P2E games have even added a token-burning mechanism to the breeding mechanism, requiring two NFTs and tokens to successfully breed NFTs. NFTs used for breeding can or cannot be burned as the preference of the game. 

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What is a Cryptocurrency Airdrop?

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Cryptocurrency airdrop is a process that involves sending (airdropping) crypto tokens to crypto wallet addresses to boost the adoption of the cryptocurrency project. It is basically free token drops to wallets that are shortlisted or randomly selected by the project. This is used as a marketing strategy for a cryptocurrency project. 

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What is an NFT? What do ERC-721 and ERC-1155 mean?

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NFT is short for non-fungible tokens and refers to the tokens with unique attributes which due to their originality cannot be traded for each other. Almost any digital asset ranging from pictures to social media posts such as tweets can be in the form of NFTs. Originality characteristics of NFT allow businesses to use it for various purposes such as a ticket to an event or for a loyalty program. 

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NFTs are typically divided into two types: ERC-721 tokens and ERC-1155 tokens. In general, ERC-721 tokens represent NFTs where they are unique, and separate transactions are required to send those tokens, as opposed to ERC-1155 tokens. ERC-1155 tokens are primarily used in games that require multiple copies of the same NFT. For example, ERC-1155 ensures that the same character NFT can be used by multiple players in the game. That's why the importance of NFTs in P2E gaming is considered exceptional. 

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What is a Scholarship Program in Crypto?

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A scholarship program is referred to the practice where scholars lease NFTs or in-game assets from NFT owners, or gaming guilds and pay a small portion of the rewards earned to those owners. This program emerged when the price of NFTs rose significantly so not all players could afford those NFTs to play the game. 

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What is a free-to-play P2E game? 

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Free-to-play games are those games that enable players to access most of the gameplay without any payment or do not require advance payments to begin those games. F2P games provide players with a free gaming experience, unlike pay-to-play games. The F2P concept is also an existing framework in blockchain gaming. Those games usually do not require NFT or multiple NFTs, or upfront payments to begin the game. P2E game developers try to make their games free in order to make the game accessible to the masses. 

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What is the gas fee in blockchain? 

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A gas fee is a name given to the transaction fees on the Ethereum network. This fee is considered compensation for the nodes which use power to process new transactions sent by individuals. The transaction fee is paid to those nodes in the main currency of that blockchain, and in the case of the Ethereum blockchain, it is ETH. The gas fee is paid by someone who initiates the blockchain transaction. Nodes are "selective" about the transactions, meaning they choose the transaction with a high gas fee to process first then the transaction with a lower gas fee. 

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Part I 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.