Bombay, June 29: Three-dimensional models of our world are recreated as virtual avatars and draw hundreds of millions in real money. The biggest draw after cryptocurrency is the Metaverse real estate market which is expected to become a multi-trillion market by 2030.
Big companies and big names are betting on the virtual world. The argument is that internet users already spend hours in various apps, so they will be interested in exploring a world that can give them something new and entertaining. The gaming community is estimated at three billion people, but these numbers are unconfirmed. Early players like Adidas and Meta (formerly Facebook) are leading the way and betting that technology and infrastructure will allow people/users to spend more hours and therefore money in this virtual reality.
Adidas launched into the Metaverse on December 21, with its NFT labeled In the metaverse available for purchase that would allow users to access Adidas Original products and experiences. Closer to home, Union Square House, a real estate brokerage firm in Dubai, has announced the launch of the first Metaverse mansions in the MENA region this year. The multibillion-dollar company will join the dozens of platforms selling real estate in the Metaverse, though new entrants bring fresh competition every week.
With so many sellers entering the market, the question is who is investing in the ever-expanding virtual universe and how is its value assessed? Particularly as the crypto market was rocked by this year’s crash. How does a user or buyer assign value to an asset that doesn’t have a track record or understand risk?
For the uninitiated, the process of investing in the virtual real estate market involves buying and trading non-fungible tokens (or NFTs). NFT should not be confused with cryptocurrency as the former is a unique cryptographic token which is not mutually interchangeable. NFT is also not divisible like real-world currency.
Some real estate companies that have decided to acquire land in the metaverse are those that are already exposed to other digital assets and customers who understand the risks and benefits of crypto-based virtual worlds. However, a saying that has transferred well from the real to the virtual is “location, location, location”. Real estate in the Metaverse is valued based on potential location, neighborhood, neighbors (Snoop Dog, Paris Hilton), and development potential.
Does investing in the metaverse carry huge risks?
The Metaverse real estate market can be kindly described as the “Wild Wild West” of the 1800s or the United States West Coast Gold Rush of the same century. The market is unregulated and ungoverned. If the platform you bought with, for example The Sandbox, disappears into the ether of the Internet, your virtual property bought with real money disappears. The same goes for the possibility that a new buyer will be taken in if the seller acts in bad faith.
The other critical issue is land valuation in Metaverse platforms. Platforms like Meta have introduced artificial scarcity by putting a limited number of plots up for sale, mimicking the real world where land is a finite resource. But, nothing prevents these same platforms from programming more in the virtual world, where the earth is an infinite resource or rather something controlled by the platforms themselves.
The other important risk that a buyer should be aware of is that the process of virtual real estate transactions itself brings a double risk factor. The transaction of purchasing virtual land is done through NFTs, which are tied to cryptocurrency and are themselves extremely volatile. Double jeopardy!
What are the potential benefits and possible use cases of metaverse real estate?
While many brands and businesses have chosen to stay away from cryptocurrency due to regulatory issues, The metaverse sees brands rush to acquire visible and therefore marketable real estate. Brands congregate next to influencers who attract users, which in turn brings more brands to the marketplace so to speak. Metaverse is becoming the next frontier for advertising. For brands like Adidas, the Metaverse today consists of buying advertising space on the Internet. Global companies like JP Morgan, HSBC and Samsung are among other companies that have already bought land in the virtual world.
In addition to using virtual land as a billboard space, Metaverse Real Estate is the revolutionary star of the digital asset portfolio. Land plots in the most popular Metaverse platforms such as Sandbox and Decentraland already sell for 10 to 13 times their original value within a six to ten month time frame.
But, the lesson of Facebook teaches us that even with two billion users, platforms can stagnate and therefore ensuring engagement and loyalty can promise growth. Metaverse Real Estate must be built in a community that encourages and rewards engagement through community activities, events, and festivals in order to have a chance to mature.
As of June 2022, Metaverse is bringing in billions of dollars, but its virtual nature and the endless possibilities of the internet don’t guarantee the future of these real estate assets. To date, there are more questions than answers regarding factors such as governance, warranty, user access, standardization and the future of the market.
And the big question remains unanswered for all tech moguls: how will the virtual world build a unified economy to manage a virtually infinite space?
(The story above first appeared on LatestLY on June 29, 2022 at 5:10 p.m. IST. For more news and updates on politics, world, sports, entertainment and lifestyle , log in to our website latestly.com).