A Virtual Future: What Does the NFT Real-Estate Boom Tell Us

Companies spending millions of dollars to buy “land” in a cartoon-ish world might sound like something from a sci-fi movie. Yet, this once outlandish scenario is now becoming reality. With cryptocurrencies on the rise, many investors are starting to set their eyes on what might be the next-big-thing: non-fungible tokens as real-estate.

The idea of digital assets is nothing new. For years, gamers have traded pixelated properties in video games. Now, this activity has been turbocharged by the rapid growth of non-fungible tokens, or NFTs, which are cryptographic assets on a blockchain with unique metadata, giving each NFT a unique digital identity. These tokens are akin to fine art or jewelry, but in a digital form. So far, the most commonly traded NFTs are digital artworks like the Bored Ape Yacht Club Collection. Recently, however, as the interest in digital life increased as a result of the pandemic, hype over metaverses—virtual, game-like worlds operating on blockchains where users control avatars to walk around, interact with the environment, and trade—turned virtual land into a type of NFT. In this universe, people can buy and sell both graphic and fictitious land, as well as digitized versions of physical sites like the Eiffel Tower or the Taj Mahal.

The NFT real-estate market has been booming ever since. In June 2021, Republic Realm, a company that manages and develops digital real estate, paid $4.3 million for land in a platform called The Sandbox, the biggest virtual-property investment to date. In November 2021, Tokens.com, a blockchain technology company, spent $2.4 million on a plot in the online world Decentraland’s Fashion Street district, planning to host digital fashion events and sell digital clothing for avatars. Similarly, SuperWorld, a virtual planet where people can buy digital versions of any location on Earth, claims that their average user now spends some $3,000 on digital property. On the platform, the Taj Mahal and the Eiffel Tower are selling for the cryptocurrency equivalent of around $200,000 and $400,000, respectively, while their current owners paid under $400 each. Investors in this market are earning incredible amounts of profit. Additionally, once people buy their NFT real-estate, they earn a share of any of the commerce that happens on that piece of property, creating the prospect of income over time and providing more incentives for potential investors.

Many think that buying NFT real-estate right now, while they are still in front of the bell-curve, will prove to be lucrative in the future. “This is like buying land in Manhattan 250 years ago as the city is being built,” said Andrew Kiguel, the chief executive of Tokens.com. Like Kiguel, investors and the general public alike all believe that the boom will continue and that the market will rapidly expand in the next few years as more and more people start to invest in their own NFT real-estate. The NFT market as a whole is poised to see massive growth: it is already worth more than $7 billion, and the creation and immediate success of virtual real-estate will further expand its value. Depending on who you ask, current predictions project that the metaverse may eventually be worth between $1 trillion and $30 trillion.

Furthermore, some technologists say that the  metaverse will grow into a fully functioning economy and offer a synchronous digital experience that will be as integrated into our lives as email and social networking are today. Michael Gord, a co-founder of the Metaverse Group that created Decentraland, said, “As more people participate, it’s where you’re going with friends, where you’re having experiences like conferences and concerts… It’s inevitable that the metaverse will be the No. 1 social network in the world.” It may seem bold to claim that the future will be a new realm where the divide between the digital and the physical is rubbed away, but the foundation is already being laid.  After all, celebrities like Justin Bieber and Ariana Grande, as well as luxury brands like Gucci and Burbery, are already hosting concerts and setting up virtual stores on NFT “land.” 

Although the outlook for NFT real-estate and the metaverse as a whole is generally positive, these fields are not entirely stable. For one, virtual-property sales involve the exchange of the cryptocurrency unique to a given metaverse: Decentraland has mana, and Sandbox uses digital tokens known as sand. The price of these currencies is subject to extreme volatility, even relative to established cryptocurrencies such as bitcoin or ethereum, which are difficult to predict asset classes. These currencies could crash to zero if a particular metaverse goes defunct. Additionally, unlike physical land, the value of NFT real-estate is in part a function of its scarcity. However, hundreds of metaverses already exist and more will emerge as technology improves. This creates a paradox: while towering virtual-property prices predicate more metaverses, a booming metaverse number means less scarcity and lower prices.

With NFT real-estate still being relatively new and underground, there exists both great potential and great risk in the market for NFT real-estate investment. More importantly, though, as cryptocurrencies, metaverses, and NFTs gradually seep into people’s collective knowledge and the economic system as a whole, it is crucial for people to consider the future of the world’s societal and economic structures. If NFT real-estates mark a foundational milestone in the formation of an omniverse, then it can be imagined that endless possibilities, opportunities, and innovations are to come.

By: Arielsie Li