Advisors who never got on the crypto bandwagon may be relieved that Bitcoin and the like are looking, well, very 2021. And the current rage, non-fungible tokens, or NFTs, could cool off any day now. But the next crypto-related obsession that clients may get hooked on is lurking just around the corner: buying virtual real estate. That makes this a good time for advisors to start learning about this corner of the metaverse.
Virtual real estate means claiming rights to some building or area in a video game that you hope will rise in price over time. It is a form of speculation on the metaverse, the imagined world that Meta Properties CEO Mark Zuckerberg has said will be the successor to the Internet.
You can do some buying and selling today using cryptocurrency, but it’s clearly very early in this fledgling property market. The hype is running well ahead of the actual functionality of the marketplace.
How it started. For years, video games have dabbled in the idea of real estate. You can create a virtual ranch home in the children’s game Minecraft, and you can surround it with a wondrous estate of fanciful plants that stretch to the horizon.
The game of virtual real estate became much more specific, and more intense, in 2018, when video games started to make use of the tools of blockchain technology, the basis of cryptocurrencies such as Bitcoin and ether. Blockchain makes possible contracts that can be digitally signed by counterparties without any central authority to bless those arrangements.
That nimble technology for agreements allowed video games to introduce transactions between gamers, and a marketplace for goods and services for those transactions. Real estate is one of the main forms of simulated property created by these smart contracts inside of games.
For example, Decentraland, a software maker founded in 2017 and based in Beijing, operates a video game of the same name where you can move your avatar, your likeness, around a street plan with all sorts of fanciful buildings. Decentraland has a marketplace where players post listings of properties they’ve created. Those properties can be bought by players using the ether cryptocurrency. The property is the right to control that building’s use in that section of the virtual world.
A hot property, the Altair Genesis, described as a “premium estate” at the edge of what Decentraland calls The Crypto Valley, its version of Silicon Valley, recently was listed for 1,120,000 Ether coins, the equivalent of $3.5 million at current Ether exchange rates. Prices drop sharply into the hundreds of thousands of dollars for properties in less-desirable areas—basically, not near any significant landmark.
Real estate speculation in a game such as Decentraland is based on the notion that control of locations in the game landscape will increase in value as the game grows in popularity. It’s akin to owning a billboard on the side of U.S. 101.
That’s the theory, but how it functions is still quite crude. Decentraland can be played only via a desktop Web browser. Mobile devices are not yet supported. On a common laptop, without a powerful graphics processing unit (GPU) chip from
Advanced Micro Devices
to render the virtual world, the experience of walking around the landscape is abominably slow, just like most video games. Hence, the marketplace’s addressable audience is constrained at the moment.
Reality strikes. For all the talk of a vibrant market, the in-game experience of Decentraland is mostly a barren wasteland of empty buildings with garish architecture resembling the less-desirable parts of Vegas. As a property market, Decentraland has all the promise of a White Castle drive-through, turrets and all.
Discussion forums around buying property on Decentraland, hosted on the social network app Discord, consist mostly of confused buyers asking how they can purchase the supposedly most desirable parcels of land—parcels that for one reason or another appear to be unavailable for sale.
Despite those limitations, parties are starting to claim rights to pieces of Decentraland, which is giving the game a head start as a property market.
For example, Tokens.com, a 24-year-old software company based in Toronto, traded on the over-the-counter market under the ticker “SMURF,” has used its subsidiary, Metaverse Group, to promote properties in Decentraland as rentable office space.
Metaverse Group has so far found a few tenants from the real world willing to pay to be associated in the game with those properties, including a law firm, a venture capital firm, and some tech companies. What they are paying, and what rights their leases afford, is unclear. Nor is it clear how parties such as Tokens.com managed to secure such property to begin with.
What you see in Decentraland is a growing trend rippling throughout the game world. Real estate is going to be a central element for both new games and existing games because the Ethereum blockchain that underlies the Ether crypto-currency, and which is is increasingly the blockchain technology of choice for applications, has become a kind of broad technology toolkit to easily spawn new games.
A new sandbox. Similar to Decentraland, The Sandbox, created by 11-year-old video game maker Pixowl of San Francisco, a subsidiary of Hong Kong holding company Animoca Brands, lets you walk around in what looks like a version of MineCraft, chasing after rewards to find in a virtual world that looks a bit like a lego landscape of brightly colored, anachronistic buildings.
The Sandbox has its own crypto-currency, built on Ethereum, called $SAND, which you can buy on crypto exchanges. Similarly, Decentraland promotes the $MANA token. Buying into these tokens is like being in a strange cul-de-sac of crypto, far away from Bitcoin. A good way to get a handle on these virtual worlds is to visit OpenSea, a broad marketplace of virtual goods. It hosts the marketplace offerings of Decentraland, The Sandbox, and many others under the category of virtual worlds, so you can learn about different games and see their properties.
As with much of crypto, caveats and open questions abound. Unlike with real real estate, there is no scarcity value because there is no scarcity. There are merely arbitrary controls on the generation, and transfer, of game features.
The big question is whether the title to property in a video game ultimately can appreciate in value as an asset, or will fizzle like many a speculative bubble. That depends a lot on how such games evolve in both functionality and popularity.
For advisors, virtual real estate is clearly a very early trend, but one that some clients may be curious about well ahead of it developing into a real market.
Tiernan Ray is a New York-based tech writer and editor of The Technology Letter, a free daily newsletter that features interviews with tech company CEOs and CFOs as well as tech stock news and analysis.