Have you ever been browsing the web only to come across your favorite game with the word "hacked" in the title? What does it mean, out of curiosity you happen to click the game, what's different?
You decide to carefully examine the description, seeing indeed what the difference is, just after reading it you find out you have twice as much cash and health in the game then the normal flash game, woah, pretty cool?
The word hacked when referred to online gaming means nothing more than cheats, yep, it's really no different than going to your game console and entering a few combination's to activate cheats, the only difference is that most online flash games come with cheats, in other words the games are "prehacked".
Just how are cheats added to online games, well there are a few ways, you can use some tools to modify the actionscript code (as3, as2 etc..) or you can use an additional download known as a cheat engine to inject the game with cheats, usually the hex code is modified, the values are typically found and converted using the Windows calculator, really not too complicated, at least once you know what you're doing.
Hacked Games typically have more health, cash or other simple values.
What is better? Now the question comes down to which on is ultimately better? Well to be honest, that is entirely up to you, hacked games definitely can take the challenge out of the game, however on the other hand some may argue and say games with cheats make them a lot more fun/entertaining to play.
Personally I play a little bit of both, I usually try the game without any cheats applied, after playing the game I will see if there is a hacked version available, if so I usually try it and compare it to the original game. In some cases the hacked games is much much better, while other times it doesn't even compare.
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