- People are buying up digital land in metaverses in what is the latest craze to sweep the tech world.
- But experts say this virtual real estate is more crypto asset than physical land.
- Digital land will be more useful for brands to build experiences, not for investors who want it to appreciate.
- For more stories visit Business Insider.
If you've been following the batch of buzzwords taking over the tech world recently, you will have almost certainly heard of the metaverse.
And if you've heard of that, then you might know some people are buying up real estate using nonfungible tokens (NFTs) in the digital universe.
From plots of land worth $450,000 in rapper Snoop Dogg's "Snoopverse," to video game giant Atari's crypto casino in Decentraland — where a buyer recently shelled out $2.43 million for a single parcel of land — over $100 million has been poured into buying metaverse real estate, according to the predictive analysis firm NWO.ai.
But there's a problem with equating digital real estate to the physical: the primary sources of value that apply to real-world properties don't apply in the metaverse, meaning your virtual land plot may not rise in value.
Experts told Insider these purchases are more of a crypto asset than anything, one that is speculative and "risky" to buy, as is anything currently relating to the metaverse — or anything blockchain-based for that matter.
"I'm sure that there are people who will make a lot of money in the short term," Louis Rosenberg, a 30-year veteran of AR development and the CEO of Unanimous AI, told Insider. "But long-term, it doesn't make any sense."
It might be too soon to speculate on metaverse land
A major factor driving people to invest in digital real estate is the growing popularity of metaverses and NFTs.
People enter a metaverse, like Decentraland, and can use the ecosystem's digital assets to buy plots of land. Then they can either buy, sell, or lease the space.
Just like anything in the crypto sphere, "if there are enough people wanting to spend money on it, then it becomes a market," Dexter Thillien, a tech analyst at the Economist Intelligence Unit, told Insider.
But there are two main things that are supposedly giving metaverse real estate its value: scarcity and location, two fundamentals of physical real estate.
Experts said they don't exactly apply to the metaverse, since you can't artificially introduce scarcity.
Which is why experts say prospective investors should be aware that their virtual land may not appreciate as they expect it to. The space will instead be used more so for brands to build social experiences, Janine Yorio, the CEO of metaverse real estate company Republic Realm, told Insider.
"Those who buy land merely for the aim of capital appreciation, I believe, are taking a greater risk than those who develop appealing activities and experiences on it," Yorio said.
Fixed-supply scarcity is the main source of value for much of the crypto world already, like for bitcoin, which has a limited capacity of 21 million coins.
"Proximity to important things of consequence, to events and entertainment venues, also drives value in the metaverse," Stan Miroshnik, partner and co-founder of 10T Holdings, told Insider, which might be why the Snoopverse landowner wanted to be virtual neighbors with the rapper.
But Owen Vaughan, the director of research at the blockchain company nChain, told Insider that there need to be guarantees that these platforms won't change the rules of the game and impact the value of people's property.
"Physical real estate changes slowly, but what could a metaverse platform change at the click of a button?" Vaughan said.
Miroshnik said the investment may be speculative, but it's still a "visionary" move — even though many investors aren't even doing anything with the land they're buying.
"You log in there now and it doesn't blow your mind — it's basically Roblox or some version of Second Life that we had a decade and a half ago," Miroshnik said. "So you kind of have to imagine the possibility of what's there."
Whether visionary or misguided, the metaverse real estate market feels forced, since it doesn't make sense to speculate on land just yet within this technology, Rosenberg said.
"In the metaverse, we don't even know which platforms are gonna be popular, let alone which locations in which platforms," Rosenberg said. "And so it's like somebody buying a piece of land anywhere in America and hoping that it becomes San Francisco or New York."