Cool article on investing in virtual real estate. Get involved:
When our nomadic ancestors decided to settle down into an agricultural society, the idea of land ownership, homeownership, and real estate was born. In a mere 6,000 years, real estate has become the world’s largest asset class, and technological advancements developed contemporaneously improved our lives in many ways.
Despite this, the process of buying real estate has remained largely unchanged since Sumerians recorded property deeds on clay tablets. Recently, there has been a wave of blockchain-related technologies designed to streamline the process of buying real estate, mostly by obviating things like title insurance and legal documentation. Some of the same technological transformation that we have seen in other industries like transportation and communications are finally coming to the oldest form of investment.
These aren’t the only changes driven by faster computers and universal internet connectivity. Humans now conduct much of their lives through a screen, and virtual worlds that exist only on computers have cropped up. These are places where people can “congregate” by using avatars and have interactive social experiences–entirely virtually. These online communities are called metaverses.
In many ways, metaverses are structured like “real-world” cities—there are town centers, neighborhoods, and residential and commercial developments. They just happen to be virtual.
Recently, market-savvy individuals have discovered that these virtual neighborhoods could be sold off as plots for real-world dollars (aka fiat currency). Digital real estate investing has therefore become very real.
But, with real money at stake, we now have to question whether this is a case of deriving cents from nonsense? In short, no. When done correctly, digital real estate investors can derive dollars from cents in these virtual lands.
And guess what? The process of buying these virtual real estate parcels is happening in the most technologically advanced way possible (the blockchain!) because there are no legacy requirements for paperwork or title insurance.
### Is digital real estate investing really a serious thing?
Absolutely. Just to give you a snapshot of how serious this is:
1. Decentraland (a metaverse) had an ICO (Initial Coin Offering) and sold more than $24,000,000 of MANA (the Decentraland currency that allows users to buy and sell virtual land in this metaverse) in less than 35 seconds.
2. Genesis City is a plot of virtual land, roughly the size of Washington, DC, that investors can buy slices of for obscene amounts of money. Even a simple 1,100 square foot plot can go for as much as $200,000, according to Bloomberg.
3. Prices are growing aggressively. That hasn’t stopped people from forking over truly mind-blowing amounts of cash. Back in January, a plot of LAND in Decentraland went for around $2,000. But just two months later, prices shot up to over $175,000 for the same amount of virtual land.
### How to Buy Digital Real Estate
Many ask, what is digital real estate? It is an opportunity. It is a blank space to build whatever you want. And importantly, it is a real investment.
Taking a step back might be instructive here. In the transfer of real-world real estate, dollars are exchanged for real property and the transaction involves banks, finance companies, lawyers, and title companies. In a similar manner, virtual real estate is exchanged, usually for virtual currency, often in the form of Non-Fungible Tokens (NFTs).
Non-Fungible Tokens are distinct from each other and limited in volume. These transactions are enabled by the blockchain, a digital ledger that is duplicated and distributed across a database. Instead of keys, you get a password and the freedom to develop your virtual land with whatever your imagination desires.
Just as the supply of dollar bills is limited (which contributes to their value) these virtual currencies are of limited volume. Alongside this evolution of virtual currencies, the blockchain technology on which these cryptocurrencies are built has also been developing, and now ensures that the tokens have recognizable value. Just as the volume of tokens is limited (and monitored by the entire blockchain) the number of parcels of virtual land in these metaverses is also limited.
For years now, Linden Lab has had a similar offering in Second Life. To achieve uniqueness in their virtual representation, people within this game would use USD to buy “Linden Bucks” with which they could buy items in their virtual world. (In fact, the Second Life platform was sold last July.) With some minor changes, this seems to be the foundation of the current business model in newer virtual worlds, such as Decentraland, The Sandbox, Cryptovoxels, Somnium Space, and Axie Infinity, to name a few.
### Communities in the Metaverse—Businesses are Capitalizing on Digital Real Estate
It’s entirely fair to be skeptical of digital real estate investing. A logical question to ask would be, “who might profit from digital real estate investing?” The answer, before 2020, might well have been “nobody.” However, the coronavirus pandemic has shifted the way in which people interact.
Humans are social beings, and people have an innate desire for interaction. Digital real estate allows people to socialize and engage with others safely, and there is also commercial merit to the metaverse, particularly for large and even medium-sized enterprises. Virtual land allows these businesses to market their products in new spaces to new audiences, and serves a vital CRM function as well.
In this sense, digital economies are forming in the metaverse, because in this environment, you can really involve the visitor and transition them into becoming a very powerful brand ambassador in the real world. This space could be especially valuable for the digital artist, who could safely exhibit their work in virtual museums and galleries where visitors are likely to become buyers. The lines between the physical and the virtual are becoming increasingly blurred as digital real estate becomes more widely adopted.
### So companies can probably make money in the metaverse. Can individuals make money investing in digital real estate?
As with all investments, nothing is guaranteed, but investing in digital real estate has certainly proven to be a viable source of wealth generation for individual investors. There are several metaverses, each with their own cryptocurrencies. But, essentially, they operate the same. So, let’s use Decentraland as an example. Decentraland has an in-game denomination called MANA. As of this writing, 1.00 Etherium or ETH (a well-known crypto-currency) will garner you about 6,000 MANA. This sounds simple, but the sources of volatility in this model are plentiful and manifold:
1. The conversion from USD to ETH is really volatile in and of itself.
2. The conversion of ETH to MANA introduces yet another layer of volatility. Importantly, when you buy 2 ETH or their equivalent in MANA, it is not always exactly double the MANA purchased with 1 ETH.
3. The prices of properties can shift dramatically based on the surrounding properties.
4. Based upon the trends in the marketplace where you can transact, the properties themselves can shift in value.
Investing in digital real estate is highly speculative. But as of late, we have seen institutional investors pile into the crypto market. In its Q4 2020 report, Grayscale, one of the leading managers of crypto investment products, wrote that “institutions are here.” The report noted institutions accounted for 93% of all the capital inflows during the fourth quarter, for approximately $3 billion.
This volatility makes crypto-based investing captivating. On the one hand, it is very exciting—large increases in value can happen quickly. On the other hand, the market can easily have an equal and opposite reaction based on a number of factors. Currently, macrotrends appear to be in favor of crypto, and digital real estate offers a new way to gain exposure to these trends.