“RIDICULOUS AND cool. “This is the architectural specifications for a new office tower under construction in Crypto Valley, a business district of Decentraland, a virtual platform built on the Ethereum blockchain. The building, owned by Tokens. com, a blockchain investor, will be a cross between a nightclub in Ibiza and the Bellagio complex in Las Vegas. In a fantasy world unencumbered by something as pedestrian as physics, a rotating corporate logo will float in the sky. above the tower as nearby clouds launch branded lightning bolts.The purpose of the tower – to provide office leases for businesses and event space for crypto conferences – is unremarkable by comparison.
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Gamers have traded pixelated properties and other digital assets for years. Now the business has been boosted by the growth of unique digital artifacts known as non-fungible tokens (TVNs), and by the hype around the Metaverse – an emerging virtual market that could, depending on who you ask it, ultimately generate revenues of between $ 1 billion and $ 30 billion.
Real money changes hands. Some sales involve replicas of the physical world. Legacy users, a TVN-powered Recreation of London, spent $ 54 million on in-game lands (which is still in development with no launch date). SuperWorld, a virtual planet where people can buy digital versions from anywhere on Earth, says the average user spends around $ 3,000 on real estate purchases. The Taj Mahal and the Eiffel Tower sell for the cryptocurrency equivalent of around $ 200,000 and $ 400,000, respectively. Their current owners paid less than $ 400 each.
Wholly invented worlds also attract investors. In November, Republic Realm, a company that manages and develops digital real estate, paid $ 4.3 million for land on a platform called Sandbox, the largest investment in virtual property to date. That same month, Tokens.com spent $ 2.4 million on land in the Fashion Street district of Decentraland. Night clubs and casinos where users can earn virtual money line the streets of the gambling district. In its arts district, Sotheby’s, a real-world auction house, has opened a virtual gallery. Small packages that sold for around $ 20 apiece when Decentraland launched in 2017 can now sell for up to $ 100,000. Somnium Space, a competing platform, reported more than $ 1.8 million in land sales by its users over a 30-day period in November. In other virtual worlds, concert halls broadcast the performances of digital avatars of pop stars such as Justin Bieber and Ariana Grande. Empty virtual stores may soon be rented out by fashion houses such as Gucci, Dolce & Gabbana, Burberry and Balenciaga, all of which have sold brand name items in one metaverse or another.
Will the digital real estate boom last? As in the physical world, profits depend on traffic and people’s willingness to spend real money. For this to happen on a large scale, the user experience needs to improve. Popular metaverse platforms like Decentraland and the Sandbox are clunky. The average user might not want to fork out on graphics cards, VR headsets, and the super-fast broadband that gamers use to make cyberspace more real.
The second risk is volatility. Virtual property sales typically involve the exchange of the cryptocurrency that is unique to a given metaverse. Decentraland has MANA; Sandbox uses digital tokens called SAND. The price of these can fluctuate wildly, even compared to established cryptocurrencies such as bitcoin or ether, themselves an asset class that is difficult to predict. They could crash to zero if a particular metaverse explodes.
To reduce risk, early investors like Republic Realm are diversifying their holdings. The company claims to own land on 23 metaverse platforms. But unlike physical land, whose value is in part a function of its scarcity, each virtual realm is indeed limitless. So, in principle, is their number. Hundreds of budding metaversees already exist and more will emerge as crypto technology improves. This is a paradox. The surge in virtual property prices is linked to the take-off of the metaverse. But a booming metaverse means less scarcity and lower prices. The laws of physics can be easier to circumvent than the law of supply and demand. ■
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This article appeared in the Business section of the print edition under the headline “Almost There”