Finding Value in Digital Real Estate

As technology continues to improve and develop, we’re constantly introduced to new ideas. The metaverse is one such example. It’s a concept that is both new and evolving, and while many people are still unaware of what it is, others are jumping aboard full force in hopes of profiting from rapid appreciation.

Definitions

The metaverse is an alternative, digital reality. It’s a comprehensive term that refers to any form of an interactive digital reality. This can include a video game where you control a character and make decisions as that character. It can include a website where you create a character, or avatar, and engage in real world like activities. It can also be a virtual reality world. The movie Ready Player One is a commonly cited example of how one can think of a virtual reality world co-existing with the real world.

The abbreviation NFT stands for non-fungible token. The word fungible means substitute and so something that is non-fungible essentially means that it’s unique and cannot be substituted with something else. An NFT then is basically a unique token. Practically speaking, it’s a record that acts as a unique certificate of ownership.

In the real world when real property is sold a deed is used to convey the title to the new owner. In the metaverse, deeds and titles are replaced with NFTs, which act as evidence of ownership… in this case evidence of ownership in a virtual piece of land.

Digital real estate, as its name suggests represents parcels of land that exist in a digitized world. Picture a virtual reality world where characters of real people are walking around and interacting. The built environment that they’re walking around in, the buildings, the stores, the park, a river, a mountain top, or whatever space that a person’s avatar (virtual character) is occupying is a form of digital real estate.

Creating Value in a Digital World

Imagine if you were tasked with the responsibility of creating a virtual world that other people would soon occupy. At the outset there’s nothing there. Everything needs to be created. It’s the Earth before God created it.

While the phrase metaverse is singular, in reality there are multiple metaverses. This concept is similar to social media services or email providers. You can’t sign up with “social media”. You have to choose an individual social media content provider. Metaverses operate the same way.

Basically, a technology company creates a virtual world and invites people to participate in it. Companies such as Decentraland and Sandbox create parcels of virtual land that users purchase for their own use. They can develop, rent, or sell their property just as they can in the real world.

As different users start to “develop” their virtual land, that particular metaverse begins to grow. It’s analogous to a social media company that provides a place for people to post content, while it’s the end users who actually build the site. If nobody ever used Facebook or LinkedIn it would have no value. The value exists because of all the people that have contributed to building it up.

While one person decides to build a virtual school, others may create a gaming store, a financial services company, and IT company, or a casino. Each of these businesses exists strictly in the virtual world. The more that people create in the world, the more value there is. A built up digital world will attract more people than an undeveloped digital world, just as a busy city will attract more people than a ghost town.

Further adding to the value is the artificial establishment of scarcity. We think of the internet as having no bounds. We can always make more websites, add domain extensions, or add storage capacity. But the companies that create metaverses only create a limited amount of virtual land. Like a limited number of tickets to the Super Bowl, scarcity drives up value.

If you’ve ever played SimCity or even Monopoly, you can picture it like one of those games, where there is only so much land available. Decentraland and Sandbox are two of the biggest metaverses or digital worlds currently out there. Decentraland has 90,601 parcels of digital real estate, while Sandbox has 166,000 parcels. Once they’re gone, the only way to acquire digital land in that particular metaverse is by purchasing it from someone else.

Growing Digital Real Estate

Similar to commercial real estate in the real world, the goal is to provide a service to others. This could be renting out space for artists to display their work, basically a digital museum, or a place for authors to sell their work, like a digital bookstore. Elsewhere, a virtual landowner may build a concert venue and rent the space to an aspiring musician. These businesses are not unlike their real world equivalents in purpose. The difference of course is that instead of existing in the real world it exists within a digital world.

As development occurs, people will be drawn towards centralized business districts where they can find more activities, more interaction with others, and more things to do or buy. This is similar to being downtown in a city as opposed to in a quieter and more rural area. Depending on the particular metaverse there may be limited zoning restrictions that determine what can be developed where. Putting all of this together creates disproportionate value, and disproportionate value provides opportunities for profit.

If for example, you owned a vacant parcel of virtual real estate and then built a shopping mall and rented out the space to small business owners you’d have created value. If others then develop other desirable amenities around your parcel, your land becomes even more valuable.

Speculation

The people and companies who are purchasing and developing digital real estate are frequently speculators. They’re betting that a relatively inexpensive parcel of digital land will in time appreciate in value.

If everyone congregates around a centrally located area and you own space in that area, your digital land will increase in value. You can then sell it at a later date for a profit.

While we’re still learning what the future will hold for the metaverses, many people are flocking to buy digital real estate in the hope that it will appreciate. Imagine being able to go back in time and purchase pieces of land in what would one day become New York City, San Francisco, Tokyo, or London. As metaverses become more popular and more developed, these speculators are banking that the value of their digital land will increase.

What Draws People to a Metaverse?

The metaverse is an evolution of technology. When telephones were first invented, people enjoyed the fact that they could now talk to family and friends for hours even when they were far away and couldn’t get together in person. Today, we have video calls where two or more people can be in different locations, and unlike the telephones of old, can see, as well as hear each other.

The next step in this evolutionary process seems to be the creation of a three-dimensional world where people can remotely interact with one another. Virtual reality allows another way for us to congregate with others while physically remaining apart. Just as video calls are more personal than audio only phone calls, a virtual reality world is more interactive and more engaging than a two-dimensional video call.

It also allows people a sense of anonymity such as we’ve become accustomed to on the internet that we know today, where people are comfortable being someone that they’re not in real life. Shy people may feel bolder, the weak feel stronger, and people may be more confident sharing their private interests, including those that might otherwise socially ostracize them in the real world.

Another possibility along those lines is that you can be someone other than yourself. For instance, you could experience what it’s like to be a different gender, a different race, a different religion, and see how people interact with you.

The metaverse also allows people to experience things they might not otherwise be able to. For example, a person in a wheelchair could go skiing virtually. A person from Madagascar could experience New Year’s Eve in Times Square. A person concerned about the current proliferation of viruses and increases in crime in our world could travel somewhere virtually that they wouldn’t feel comfortable being in real life.

Conclusion

The metaverse is still new and the form in which it exists today will certainly change. As an investment, it’s certainly not without risks. For example, the particular metaverse that you choose to participate in may fall out of favor. Rules and regulations may be established in the real world that change the way the metaverse is experienced. It’s also possible that while people may spend more time in digital worlds, profiting from those digital worlds may take a different form that what people today can anticipate.

Regardless of what happens, it’s worth at least understanding what the metaverse is. Technology moves quickly and opportunities that don’t exist today could develop in the future. Additionally, even if you’re not personally interested in the metaverse, in our tech hungry society, you’re sure to know someone who is.