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Real Estate In a Metaverse Is Nothing More Than a Token Investment

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In 1995, two groups of developers in Sweden and Switzerland banded together to build an entire planet online, one that would be used as a set for a massive multiplayer online game. There were other of these so-called MMOs, but the difference was that on this planet, later named Planet Calypso, you could buy, sell, and earn in-game currency. The game, called Project Entropia, was commercially released in 2004 and its currency, PED or Project Entropia Dollars, were pegged at one-tenth the price of the U.S. dollar. The game did well and went on to set a number of records for most expensive digital assets ever sold, like a space station for $330,000 and a club named “Club Neverdie” for $635,000.

Project Entropia is an example of a metaverse, a universe that exists online that is played simultaneously by different users. While Entropia grabbed headlines at the times records were being set it did not become THE metaverse that many of those speculating on in-game investments hoped it would. The company that “owns” the game has never publicly stated how many people are in the Entropia universe, some have suggested that the number of average daily users is less than 2,000

Now there is a new metaverse making headlines with its property sales. In February 2020 a VR-based massive multiplayer game called Decentraland opened to the public. This metaverse was designed to be a place where land could be bought, sold, and used. Run by the Decentraland Foundation, the idea behind the world is to allow owners of the land to control the world by way of voting rights. The idea has caught on. Plots of land, originally purchased for tens of dollars, started selling for hundreds of thousands. Plus, it started to gain traction with real-world institutions. The art auction house Sotheby’s created a digital replica of its headquarters as a place to show digital art, for example.

Then the investment shops came in. An investment firm called Republic Realm paid $913,228 for 259 parcels of Decentraland with plans to turn it into a virtual shopping district. All of this investment has had many property investors wondering if they should consider purchasing metaverse real estate as well. If they do, they might be in for a bit of surprise, one that they could have avoided if they would have just talked with their kids. You see, unlike real estate, people can just leave and log into a different universe. Therefore, digital property is only as valuable as the metaverse is popular. And, unfortunately, for almost every newly created metaverse that means competing with Fortnite.  

Again: digital property is connected to the metaverse’s popularity. Entropia is said to have around 2,000 daily users. Decentraland boasted of its number swelling to 10,000 back in March. Fortnite is in a different league altogether. There are 350 million registered users of Fortnite and conservative estimates for daily users is around 12 million. While there is no real estate for sale in Fortnite (yet) the free game made over $5 billion last year on in-game purchases. 

Fortnite has never stated its intentions to be a metaverse but there have certainly been hints at it. In 2019 when asked if Fornite was a platform or a game on Twitter, Epic Games’ founder and CEO Tim Sweeney said, “Fortnite is a game. But please ask that question again in 12 months.”

There are also plenty of others that have predicted Fornite’s transformation into the metaverse, most famously the venture capitalist Matthew Ball who said in an essay:

“More broadly, a whole sub-economy on Fortnite has emerged where “players” can build (and monetize) their own content. This can be as small as digital outfits (“skins”) or dances (“emotes”). However, it has rapidly expanded into creating all new games and experiences using Fortnite’s engine, assets, and aesthetics. This includes everything from simple treasure hunts, to immersive mash-ups of the Brothers Grimm with parkour culture, to a 10-hour sci-fi story that spans multiple dimensions and timelines.”

There’s another big reason why video games will host the metaverse, the processors. Video game consoles have long had the power to render images at speeds needed for something like a metaverse. Laptops and desktop PCs have the same kind of processing power but are prohibitively expensive for many, particularly with the processor shortage we’ve had recently. Thousands of users experiencing the same digital space is a marvel of technology and telecommunications achieved by a select few. Only the legions of coders and developers employed by game designers like Epic are capable of rendering a metaverse at scale, giving them an edge in execution as well as hardware. 

The value of digital property is connected to metaverse’s (current and future) popularity. So investors in the space need to know more about the trends in video games and online platforms than they do location. There is certainly some crossover between “real” real estate investing and digital real estate speculation, but not enough to make someone who is good at one instantly good at the other. Digital real estate is a fascinating new component of the internet economy, but it should not be confused with the very different vocation of being a real estate investor.

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