Is Digital Real Estate Worth the Hype?

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As we all know from the headlines (and when I say headlines, I mean memes), Facebook has rebranded to Meta and doubled down on all things digital reality. The new name “Meta” is a nod to the term metaverse—which is what tech folks are calling this new genre of digital environments. There are really infinite possibilities around where the metaverse can go, but in its current form, you can explore the metaverse not too dissimilarly from how you might explore this universe: you can buy a house in the metaverse, you can shop, you can see Justin Bieber live in concert.

Facebook didn’t invent the metaverse, and they aren’t the only player in the space, but they have raised the profile of conversations around digital reality. As people have taken the metaverse more seriously, they’ve wondered how to get in on the action— and the current craze is digital real estate.

Here’s how it works: there are virtual words popping up— the most well-known right now is probably Decentraland. In principle, the value of digital real estate acts just like real real estate. There are a certain number of pieces of property in these digital worlds, and the price of that property fluctuates with supply and demand.

Recently, piece of digital real estate in Decentraland sold for 2.5 million. That sale was through cryptocurrency— specifically the mana coin, which is the currency of choice in Decenraland. Why was it valued at 2.5 million? Well, that plot of digital land has been designated as the downtown “fashion district” in Decentraland—and the hope is that real-life luxury brands will want to lease space in that district, or at least, put up ads.

So with that in mind, I think it’s time to dive into the question of the ROI on digital real estate.

There are really two questions here. The first question gets to whether you can make money from digital real estate. From this vantage-point, you want to ask yourself: what is the trajectory of the metaverse? Does it have room to grow?

The limitation here is not the tech or the innovation. Like any project coming out of Silicon Valley, the tech will only get better. So the question really boils down to whether the metaverse will grow in popularity. It’s a tough question, I certainly don’t have a crystal ball, but I will say people sure do like escapism. And hey, who wouldn’t have liked to being able to meet up in the metaverse in March 2020 and actually get to see their loved ones?

Large companies are certainly contemplating these same questions about whether there’s a profit opportunity in the metaverse, and some companies are answering this question with a resounding “yes.” Grayscale, which is a digital currency investor, has estimated that the goods and services in the metaverse will soon be worth $1 trillion. Maybe it’s worth laying a stake in that digital ground, then.

The issue here ties back to our ongoing conversation about intangible assets. Don’t forget: digital real estate isn’t intrinsically valuable, or backed by a tangible asset. Not to mention that digital real estate deals are made in crypto, and because of crypto’s volatility, this digital real estate market, by extension, will also likely be a volatile one.

Here’s another thing that makes me nervous: the whole assumption around the value of digital real estate is the promise that you’ll be able to resell your property to someone else at a higher price later on, right? It’s not like actual real estate, where you might buy property because you want to nest there; or, maybe you think the neighborhood is cute and you want to be a regular at the local diner and the county is within a good school system. But with digital real estate, the only force that’s adding value is really the popularity of the digital world. And right now, there are many developers that are trying to hurl themselves on this fast-moving train to the metaverse. It’s hard to say what this arms race is really adding up to. Could this be like the video game industry and there will be lots of popular digital worlds to choose from? Or is there only room enough for one digital world, and all others will fizzle out? If the latter is true, then you’ll only get a good ROI if you happen to choose to buy digital real estate in the world that makes it.

But here’s the second question I promised you— not from a money-making perspective, but from a human perspective: do we want to move our experiences from the real world to a digital one?

Humankind has a lot of questions to answer right now about how to make our world— the real world— a better place. I don’t know if we’re quite ready to tackle the existential questions within a whole different universe. It’s that whole question of whether or not you should start a new project when you haven’t finished the first one. Should we start a whole new universe when we haven’t quite figured out how to be good to this one?

From where I’m standing, it seems wrong to spend millions creating a new world, when that money could be really well-served helping people that are in need in this world, the real world.

If you’re looking for my stamp of approval on a digital real estate investment, here’s what I will say— it’s the same spiel I’ll give you if you want to play the lottery: there is a chance that you will make a ton of money, but the chances of that happening hinge on factors beyond your control. Depending on your goals, a tried-and-true, safer investment opportunity has a higher likelihood of working out for you. So while I don’t want to rob you from becoming the next digital real estate tycoon, I do want to always urge you to make the decisions that have the highest chances of working out in your favor.

xo,

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