At the end of June, a particular piece of land brought about a record sale at more than US$9-million, which may not be particularly noteworthy given the fact that you can buy a property of that value pretty much anywhere. However, it is the ‘where’ that makes this exceptionally extraordinary because this particular parcel of land isn’t physical; it exists in a virtual world called Decentraland, and is, to date, the highest ever paid for a piece of digital land.
Consider this fact as proof of what may be one of the weirdest property booms ever: Virtual property prices have increased by some 3 000% in the past six months. And there are thousands of these properties available right now in several ‘metaverses’.
Before I lose your attention completely, you need to understand the buzzword ‘metaverse’. Simply a ‘meta’ is a Greek prefix meaning beyond, and ‘verse’ is an abbreviation of universe. So metaverse relates to a place that exists beyond our known ‘physical’ environment.
This is not as novel as you may think because we already have virtual experiences, for example, games, where we can also create avatars of ourselves; online meetings are in the virtual space; and even social media. In effect, by using the internet, we are already in ‘meta’ space because we live in a very connected world, which has gained even more momentum in a non-physical Covid world. The transition in our minds to a metaverse, therefore, should not be a big leap or demand some fantastical imagination.
A metaverse world offers experiences, allows for the building of new environments, and the acquisition of assets.
You can, for example, buy digital art, attend a concert, play in a casino, study at a university, interact socially and yes, even build an empire. A metaverse has its own economy, currency, technology, and ethos; it is, perhaps, a utopia.
A metaverse world is built on blockchain, which will likely make you think about cryptocurrencies, particularly relevant regarding Decentraland because this metaverse is powered by the cryptocurrency Ethereum blockchain.
To buy anything in a metaworld requires the purchase of digital tokens. In Decentraland, for example, these are called MANA. Roughly 1.00 of Ethereum (June 2021) will buy you 6 000 MANA, which can be used, among other things, to purchase parcels of LAND.
On this LAND you can create digital environments, applications like games, and communities. If you choose to buy parcels of land that are adjacent to each other, you can merge these into ESTATES. These ESTATES can include virtual offices that can be supported by professional property management companies like Metaverse Property, which apart from selling LAND, can also rent out a property on behalf of a client, visually maintain it, and collect rent.
Because Decentraland is, in essence, owned by its users, there may be a feeling of being on the brink of chaos, yet Decentraland is governed through MANA, LAND, and ESTATE holders, and whose voting powers are determined by the amounts of MANA, LAND, and ESTATE they own. There is also a Security Advisory Board, voted in by the Decentraland community, that plays an oversight role, and ensures, among other things, the security of smart contracts, ensures bug fixes, and any negatively affecting activity.
So, who is buying LAND? Sotheby’s for one, which acquired a small plot in Decentraland’s art district (reported the New York Times), on which it constructed a replica of its London galleries. Republic Realm is another such buyer.
A digital real estate investment firm, it was Republic Realm that acquired the record-breaking 259 parcels of land for US$913 000, or 1 295 000 MANA, and the organisation is already in negotiations with a real-world hospitality brand that intends to co-develop a hotel on one of the parcels.
Parcels of land are acquired through Non-Fungible Tokens (NFTs), which are digital tokens somewhat like a cryptocurrency. They can’t be exchanged like-for-like, which makes them unique. An NFT can be anything that can be contained in a digital file, like a piece of digital art, or music, but only if it is believed to have some value, just as it works in the physical world … willing buyer, willing seller! NFTs are, however, limited in volume in the same way as fiat currencies, and similarly, the number of land parcels in a metaverse is limited.
Investing in such digital real estate is without a doubt, highly speculative. As we have seen over recent months, cryptocurrencies are highly volatile.
Adding an extra layer of volatility is the conversion, for example, of Ethereum to MANA. Throw into this mix the dramatically changing price of digital properties, equally applicable to those surrounding a piece of land.
What emerges is a serious inner battle between danger and excitement.
Is the acquisition of property in a metaverse a good investment?
To consider it as a way to make money, say some experts, is ill-advised. Others suggest that an economy based on NFTs is likely to emerge as bigger than a real-world version within the next decade.
Many of us are still of the mind that assets are tied to real-world value, but as the lines blur further between digital and physical, and regardless of what you think, the fact exists: that despite having no intrinsic value, property speculation in metaverse worlds is increasing. Metaverses may not yet be mainstream: could be a bubble, which when burst will leave you with, well, absolutely nothing. But could they give us a future where humankind can live, work, play?
While I, and others like me, may enjoy the fantasy of being in a surreal place, of being able to catch a movie with friends who are far away, or wear designer clothes and go home to luxury property, there is still that one thing at least that will be missing: where in a metaverse can I get a burger, and actually feel like I’ve eaten it?
Metaverses are definitely adding a new dimension to property transactions and acquisitions in this day and age.
