Virtual real estate is exactly what it sounds like- property that you can purchase in a virtual world. You are purchasing virtual property with real money that has been converted into cryptocurrency to complete the transaction. This property is intangible and only has presence online in that virtual world; a virtual world is often referred to as a metaverse. As preternatural and unusual as this may sound, there are many well-known brands/companies that are investing and partnering with these metaverses to obtain virtual property. This includes brands and companies such as Adidas, Atari, HSBC, J.P Morgan, Louis Vuitton, Samsung and Snoop Dog.
A metaverse is defined as “a virtual reality world where users can interact, game and experience things as they would in the real world”. In these metaverses, users (real people) interact as avatars (cartoon-like characters). It is closely related to a multiplayer video game that is conducted in real-time, however, there is a large sense of community and many social events held in the metaverses.
Where do you buy virtual real estate?
The two most popular metaverses to buy property on are called Decentraland and The Sandbox. Both metaverses possess a marketplace where players can sell and buy digital assets that are usable within the metaverse. This includes anything from wearables (clothing and accessories for your avatar) to property. Users can pay the owner’s asking price or bid and compete with other interested users. Their marketplaces allow for users to conduct authentic and safe transactions. In Decentraland, there is even the possibility for users to get a mortgage for virtual property with a 10% down payment. This may sound all a little too familiar in the real world…
Decentraland is most well known for its districts. They have a Fashion District where they just recently held their first four-day fashion week, where avatar models wore pieces from designers. Decentraland also has a Music District called Festival Land. In Festival Land, they hold interactive music festivals and parties; the artists perform live either in Decentraland as their avatar or as their real selves (via camera). The notable aspect of these events being interactive leaves users feeling like they’re at a concert in real life.
The Sandbox, on the other hand, is popular for their in-game events. This consists of both the game developers of The Sandbox and all the users creating and hosting games on their virtual property. There are different games within the metaverse on different creators' properties.
Is this hype? Or should I be paying more attention?
There are many ways for users and big brands to make money in these metaverses. Some think that “the digital world may grow to a $1 trillion business in the near future”.
Many investors, companies and users see the possibility of obtaining a high ROI and monetization capabilities associated with the possession of virtual property. Some of the more obvious features that virtual properties hold include changing, building, decorating, renovating and selling the property. However, there are unique income-generating features virtual properties have to offer. Virtual property owners are able to lease/rent out their property; the users that rent it will most likely use it to host an event such as a party or for brand promotion. They can even charge admission just like any event in real life as well. Another popular way virtual property owners are making money is by converting their property into a digital art gallery. Digital artists can display their work in the gallery and users can purchase their digital art. Virtual property investors and companies say it is vital to purchase property that are in ‘hot-spots’ or prime locations for the users that are wanting to take advantage of the income-generating features of virtual real estate.
Since Facebook's rebrand to Meta and its clear investment into virtual reality space, the prices of virtual properties have skyrocketed up to 500%. To date, the most that has been spent on a parcel of land in a metaverse was for $4.3 M USD. Investors believe that location and scarcity of virtual property are some of the main reasons as to the massive jump in virtual property prices. Similarly to real life, everybody wants to have the best location and there is limited land available to purchase. For instance, a user in The Sandbox metaverse recently spent $450,000 USD to be Snoop Dogg’s neighbor.
If you are still overwhelmed by the idea of virtual real estate, consider this scenario. You are a property investor in New York City. One of the beautiful cast iron buildings in SoHo goes up for sale. Every investor is going to try to get their hands on it. Why is that? SoHo has everything to offer fellow New Yorkers and its visitors. It has a great selection for shopping, art galleries, museums, its architecture, you name it. Most of the amenities that drive up the price of the building, other than its structural superiority, is its prime location.
How do the transactions work?
A big concern around purchasing virtual property is its safety and authenticity. As is previously mentioned, all properties and items from the metaverse are a digital asset. Let’s say you’ve obtained a virtual property in Decentraland. Your property is a unique parcel of metaverse real estate that is secured by a non-fungible token (NFT). The NFT is your proof of ownership of your virtual property and is able to be identified in a wholly unique way. Your NFT exists on the blockchain which allows its authenticity to be verified by anyone. The blockchain acts as a ledger to store, track and verify these virtual transactions. Since most of the metaverses store their transaction on a decentralized ledger, it makes them quite difficult to hack. Blockchain technology has been used for over the past decade to keep many digital assets, like copyrights and trademarks, secure.
Despite the excitement, purchasing virtual real estate is still risky. Cryptocurrency is highly volatile, but can be very rewarding. If you invest in virtual real estate, you should only invest what you are prepared to lose. There has been obvious success in the metaverse and it appears that it will keep growing financially. There are many cool aspects involved with owning property and participating in the metaverse; a decade ago we wouldn’t have thought it possible to see and hear our favorite artist perform to us from our home at the cost of $20.
That being said, this is in no way financial advice. Just like if you want to purchase physical real estate, do your research!
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