March 16, 2022

Virtually Real, Real Estate: An Intro Into "Real Estate" In The Metaverse

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Key Takeaways

  • In recent months, the volume of commercial real estate transactions has exploded… in the metaverse. Real estate in the metaverse?

In recent months, the volume of commercial real estate transactions has exploded… in the metaverse. Real estate in the metaverse? Yes, it's a thing, and it's booming. Metaverse real estate or, virtual real estate, was one of the hottest and most highly speculative investments of 2021 and that trend seems to be continuing in early 2022.

Proponents of investing in virtual real estate liken the fast-moving, high-priced market to investing in Manhattan real estate 250 years ago, while skeptics counter by saying, "calling it real estate doesn't actually make it real estate."

Setting aside the debate as to whether virtual real estate is actually real estate, it's helpful to understand what virtual real estate is comprised of and how it compares to real estate in the physical world (i.e., "actual real estate" or simply just "real estate").

Actual real estate is defined as property consisting of land or buildings. Real estate can also be defined as land, everything that is permanently attached to the land, and all the associated rights of ownership, including the right to possess, sell, lease, and enjoy the land. Real estate is both finite and, in the case of raw land, permanent. It is generally identified by a legal description (the geographical description of a parcel of land that identifies its precise location) and its boundaries can be shown on a land survey. Ownership rights to real estate are generally vested through a physical deed recorded in the land records of the jurisdiction where the real estate is located. As an essential part of human life, real estate provides us with a place to work, live and play.

Now that we have a brief understanding of actual real estate, let's turn to the metaverse - what is virtual real estate; how is it identified; and can it actually be considered real estate?

Virtual real estate is comprised of designated pieces of code in an interactive web experience. These pieces of code are partitioned to create individual "plots" (basically individual pixels) within certain metaverse platforms, such as The Sandbox or Decentraland, and are made available to purchase as NFTs on the blockchain. Simply stated, virtual real estate consists of a limited number of advertising blocks within a particular metaverse platform.

Today, if you open The Sandbox on your preferred web browser, you'll see a flat map of brand logos scattered throughout land-shaped plots made up of colorful pixels. Each of those pixels is parcel of virtual real estate worth real money. Like real estate in the physical world, there is a limit on how many parcels are available to purchase, creating a finite inventory of virtual real estate. For example, Decentraland has 90,601 individual 50 x 50 foot plots, each traded as a type of NFT known as LAND, which can be purchased using a cryptocurrency called MANA.

Rather than assigning a traditional legal description to each plot of virtual real estate, the plots are identified by their coding. Instead of vesting ownership rights via deed, ownership rights to virtual real estate are encapsulated by an NFT, which includes the owner's smart contract and rights to ownership.

The debate whether virtual real estate is actually real estate will likely continue for as long as the virtual real estate market continues to grow. Though one could argue that virtual real estate is not real estate at all, but merely an instrument used for advertising in the metaverse, it is difficult to dispute that the metaverse is a real thing in which people are going to congregate. The "real estate" within the metaverse is meant to provide participants with the opportunity to promote their content and products and host virtual events in the metaverse and, as such, virtual real estate appears poised to be a valuable asset whether it is "real" real estate or not.

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