What is the metaverse and why are investors buying virtual properties?
Likened to the goldrush, the wild west, or buying a block in downtown Manhattan when it was still one big farm, virtual real estate in the Metaverse is currently experiencing a boom, with pixel properties being snapped up for prices that, in some cases, are on par with (expensive) real-world homes. But what exactly is a metaverse? And why would anyone risk real money on something so intangible as virtual property?
The metaverse
Strictly speaking, there is not just one, but many metaverses - virtual worlds that you can enter and explore using a digital avatar to interact with others in the same virtual space. Think Second Life or Fortnite. Most people associate these spaces with online gaming. However, some believe that these platforms could transform the way we work, shop, socialise, and engage with the world around us. While a centralised, single Metaverse is still a thing of science fiction, there are currently a host of decentralised metaverses, such as Decentraland, Sandbox, or Roblox, that offer users the chance to own and create their own virtual spaces, in many cases, with a view to monetising their holdings.
NFT's - what are they?
A key concept in the metaverse is the NFT, or non-fungible token. Based on blockchain technology, which decentralises data and is the backbone of cryptocurrencies, NFTs are unique digital tokens that represent non-divisible ownership. You may have read about NFT artworks being bought and sold by collectors for exorbitant amounts of money. Well, NFTs are also making waves in other markets, and real estate is one of them. Parcels of pixel-land in metaverses are often listed as NFTs and can be traded using cryptocurrencies, just like real-world properties can be bought and sold using dollars and cents.
What is the attraction of the metaverse for investors?
Enthusiasts are convinced that these metaverses are going to become an everyday part of our lives, places where we interact with colleagues and friends, merging the real world with the virtual in a hybrid omniverse. They claim that the potential for commerce in the metaverse is huge and that owning the “land” where both commercial and social interactions take place will provide high returns for investors, especially as there is a finite amount of real estate in each metaverse.
Who is buying properties in the metaverse?
Many crypto-savvy techies have invested in pixel-blocks, and several celebrities have jumped into the fray, buying plots and building experience-based content where they can host avatar-populated parties or sell NFT-based merchandise to fans. Snoop Dog is building a mansion in Sandbox, and Paris Hilton owns an island in Roblox. Global corporations are also purchasing virtual land to build spaces for new consumer experiences, with some already offering designer NFTs for avatars, virtual pets, or metaverse properties. One recent ABC article also pointed out that everyday Australians are showing a tentative interest in metaverse property, with some already having invested in apartments or large plots of land for themselves and their children.
What's the catch?
It’s true that some early investors have made a lot of money on their investments, with Time magazine reporting that virtual properties have gone up by as much as 500% since October 2021, when Facebook announced it was placing all bets on virtual reality and changed its corporate name to Meta. However, many experts share an overwhelming sense of unease and warn of an inevitable bubble, pointing out the seeming absurdity of spending hundreds of thousands of dollars on something that doesn’t even exist in the physical world.
Summing up
A recent Grayscale report on the Web 3.0 and the metaverse describes “a set of interconnected, experiential, 3D virtual worlds where people located anywhere can socialize in real-time to form a persistent, user-owned, internet economy spanning the digital and physical worlds”. If current trends continue, many believe that this third-wave Web will revolutionise how we interact socially and do business, much as earlier versions of the internet did in their day. Some believe that taking an early plunge into these virtual worlds represents an almost unrivalled investment opportunity. However, even fervent proponents of the metaverse acknowledge that virtual real estate is highly speculative and highly risky. Quoted in an article for CNBC, real estate theorist Mark Stapp makes it very clear that he would not invest anything he wasn’t ready to lose into virtual real estate, a sentiment echoed by many other pundits.
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