Will NFTs (non-fungible tokens) help grow societies and economies within the metaverse?
Before long, a typical day in the metaverse may closely resemble the familiar real world we all share. The immersive virtual world is rapidly becoming a reality thanks to major advances in VR and 5G communications.
Virtual environments like this have existed for years in the form of online games. But we may soon experience an age of immersion with the metaverse that fosters innovative means of interaction for gamers and non-gamers alike.
Prototype next-generation metaverses like Decentraland and The Sandbox already show the beginnings of a virtual society. Individuals settling land, interacting socially, and exchanging goods are commonplace.
Any society, whether physical or virtual, needs a functional economy. In the metaverse, the economy relies heavily on the authentication of digital properties. Assets like a home, car, farm, books, clothing and furniture can be bought, sold, traded, or rented.
Interoperability for travel and trade between virtual realms with different laws and rules also needs consideration, and NFTs provide a solution.
NFTs within the metaverse act as records of digital ownership stored in the blockchain. This way of proving ownership will enable authentication of possessions, property, and even identity within the metaverse economy.
Do NFTs provide a safe way of trading in the metaverse?
NFTs started in the digital art realm, but they are clearly going to become a lot more powerful. They can represent any digital type of asset in virtual worlds, so their potential applications are tremendous.
NFTs are secured by a cryptographic key. They can’t be deleted, copied, or destroyed. This enables robust, decentralized verification of one’s virtual identity or digital possessions. Proof of ownership is absolutely necessary for metaverse societies to prosper and also, to interact with other metaverse societies.
But, beyond the hype of multi-million dollar digital art sales, the importance of NFTs may lie in enabling the start of something resembling genuine human society: virtual realms based on free markets for the secure exchange of services, goods, ideas, independent ownership, and social contracts.
What does an economy based on virtual land look like?
As you make your way through Decentraland, you’ll discover such things as people chatting by fountains, joggers on seaside promenades, shoppers in fashion boutiques, and casino croupiers inviting guests to high-stakes poker games.
These interactions are the result of the virtual real estate development that people investing in land and building environments have propagated. They just so happen to capture the imagination of other Decentraland visitors in making use of the space.
The experience is far from hyper-realistic, as the creators of Decentraland will admit. But the potential is clear, even in this earliest of phases. Just as with physical communities, people will spontaneously flock to interesting places in the metaverse. Popularity naturally increases the value of virtual land just as it would in places like Paris or other real-world destinations.
A key economic concept of virtual worlds is the adjacency of land. All metaverse parcels are contiguous to others in a fixed location within finite geography. This creates scarcity because of the limited supply. Scarcity of land means property value will rise and fall based on the universal laws of supply and demand.
The framework of these metaverses supports a social experience with an economy driven by the existing land owners as well as the distribution of content.
NFTs allow property transactions that drive the metaverse. They show indisputable proof of ownership, more secure than any land deed.
When it comes to metaverse property rights, you simply can’t fake anything because of how the smart contracts are defined and the way in which NFTs are programmed. When you own an asset, you can demonstrate ownership fully. Furthermore, users can assert ownership rights based on the terms and conditions of a given virtual environment.
What kind of investments and businesses have we seen in the metaverse so far?
The implications of this revolution became clear in an emphatic fashion over recent years. To take but one example, the digital property investment fund Republic Realm purchased land in Decentraland for a sum of more than $900,000. They plan to build a virtual mall called Metajuku, modeled on the Harajuku district in Tokyo.
Activities like this presuppose that it won’t be long before REITs (short for real estate investment trusts) begin to sniff out opportunities in the metaverse.
Property value moves in line with economic activity, which is booming in projects like Decentraland currently. And this is precisely what the creators of the platform envisioned when they launched the virtual world in 2017.
The value proposition to developers is that they can capitalize on the economic interactions between applications and their users. To allow these economic interactions, a platform must facilitate three things: trading of currency, goods, and services.
Fashion was one of the first sectors to cash in on the economic potential of NFTs and the metaverse. Luxury house Burberry created NFT accessories for Blankos Block Party, and Louis Vuitton has launched its own NFT-studded video game, dubbed ‘Louis The Game’.
Meanwhile, RTFKT, a bespoke shoemaker to the metaverse, designs limited edition NFT sneakers that users can equip their avatars with in these virtual worlds. They have already earned millions of dollars in sales.
The Future Use Of NFTs In The Metaverse
With such momentum already seen in these early days – “the Iron Age” of the metaverse – the business model for virtual worlds, underpinned by NFT technology, promises yet untold economies of scale.
As of 2021, estimates showed 300 million crypto users worldwide. The next wave may take us to a billion or even two. That is surely going to happen through metaverses with the integration of virtual worlds and blockchain tech, and more specifically, NFTs.
NFT technology is extremely safe and can be used in various ways. It is one of the building blocks of Web 3 – the decentralized, blockchain-based internet. This new tech is not only for recording and facilitating the transfer of ownership in the metaverse. It empowers people to monetize content creation whilst providing an endless amount of new investment opportunities.