Owning land and property has long been considered a worthy investment. But as the world goes ever more digital, a whole new sphere of property and land ownership is occurring in a different reality – Virtual Reality (VR).
It was Second Life, many argue, that popularised the monetisation of virtual land and other assets. The Second Life economy allowed users to get a job, run businesses and sell and lease property and other assets via the platform’s marketplace and in-game currency – Linden Dollars.
Linden Dollars are exchangeable for real-world currency and famously saw a Second Life user, Anshe Chung, became the first ‘virtual millionaire’ by selling her digital land, and other assets. In 2006, Chung’s net worth exceeded $1 million solely from her Second Life entrepreneurship.
Eventually, Second Life’s popularity waned as it became outdated. Huge swathes of users looked for new immersive experiences and brands sought other opportunities – in Virtual Reality.
Today’s virtual worlds
Many investors – particularly early adopters – look to buy virtual land as a commodity, sit on it while virtual land ownership soars in popularity, and eventually hope to sell it at an increased price.
This has been the case with VR platforms such as Decentraland and Somnium Space, both of which allow their users to buy plots of virtual land, which they can build upon and potentially monetise.
In Decentraland’s case, digital 1,100-square-foot plots in the platform’s Washington DC-sized Genesis City were selling for as much as $200,000, Bloomberg reported in June.
Back in December 2017, there was a public auction of 45,000 individual parcels of land. Each was priced at 1000 MANA – then around $100 – which raised a massive $28 million for Decentraland’s founders.
This was on top of the US$26million the platform made in 30 seconds during an initial coin offering (ICO) raise earlier in 2017.
Many early investors will be those from the VR community who long dreamt of building property – from dream homes to outlandish architecture – in an immersive VR environment and sharing their creations with others.
The more business-minded VR fans who will be familiar with virtual worlds like Second Life may decide to become virtual property developers and tycoons. They will be the ones who buy, sell and lease land to develop exciting and unique properties and activities to serve a whole range of purposes.
Indeed, Somnium Space has seen an influx of seasoned investors and business-minded people – who have far exceeded the number of typical VR fans – buying shares in the company in order to own virtual land.
Such investors are aware that virtual land and property are among the most valuable digital assets you can own in a virtual world.
The future of virtual land & property ownership
While VR land and property ownership is an emerging market, the initial reaction from investors and the VR community has been highly positive and has generated tens of millions of dollars in its early days.
To predict what the future landscape may look like, we can look to the Second Life model to gauge what might happen.
Brands will again utilise the opportunity of a whole new world in which to promote their products but on a far grander and more immersive scale.
Beyond those who will buy virtual land as a commodity in order to sell it at a higher price, many will develop property and open digital stores – from boutiques to malls – like those that featured in Second Life.
Other virtual property owners will host popular activities that generate a lot of footfall, and may begin to lease their building space for real life brand adverts.
So just as the world’s biggest brands inject their logos and marketing messages into the consciousnesses of the public at mass gatherings, such as music concerts, sports matches and city centres, the same will occur at VR events.
For example, Somnium Space recently held a live VR concert with pop singer Kirsa Moonlight. I expect this type of event to become hugely popular as other platforms, brands, artists and VR property owners discover this new way to interact with the world.
Virtual Reality already is and will continue to have, an impact on the global economy. Already VR worlds like Somnium Space, High Fidelity, AltSpace and others are hiring real people to do work in VR. More and more people will find their daily jobs in VR and will never work in the real world again. Think of it a bit like the way mobile phones leapfrogged landlines in Africa and India – there was never any need to install landlines. The same could happen with young people searching for a job. They will work in VR, managing stores, concerts, events, etc. and will leapfrog ‘real world’ jobs altogether.
Early investors in digital worlds where the amount of available land is finite will, therefore, need to think very carefully about the locations of the plots they reserve – and may make many of the same considerations that a landowner of property developer would in real life. For example; Is the plot central to the virtual world/city? Is it likely to see a lot of footfall? Will it be big enough to host the property they intend to build?
On the flipside, should a virtual world have an unlimited amount of land on offer, this would naturally decrease the value and could see the forming – and later the bursting – of virtual property bubbles.
This is one of the reasons why worlds like Somnium Space have a finite supply of land. In a world with an infinite supply of land, land ownership would have little value, investors would not have much interest and virtual property developers would find it harder to monetise their land.
For VR property investing to make any sense, VR worlds must be like real worlds: finite. So I do not expect the creators of virtual worlds to make them boundless in the future.
As these digital worlds arise, I’m sure we’ll see many real-life land hoarders and property tycoons move into VR. Those with real-world property skills will be well placed to transfer to the virtual world. But, as building a VR property doesn’t actually require the real world skills of bricklaying, plumbing, electrical installations or even access to large sums of money, it opens the market to many who dream of building something unique but simply don’t have the skills, or the available funds. VR levels the playing field – making imagination, creativity and an entrepreneurial mindset the key skills of the VR future. Much like Anshe Chung, there are likely to be many more virtual millionaires who will make their successes solely in virtual worlds.
The risks & how to mitigate them
But, as with almost every investment or new venture, there are risks. In the digital world, this can feel even riskier as we’re not purchasing something we can physically touch. There is concern that digital assets can be more easily stolen or that it will be much harder (or perhaps even impossible) to prove ownership.
Of course, property fraud is always a risk in the real world too, but we’re always more confident of ownership when our asset is something physical – that we can see, touch and feel.
To tackle such scams in the digital world, we’ll begin to see new legislation drawn-up in order to cement ownership of digital assets and to protect consumers from theft, fake assets and duplicate selling of a single asset.
Emerging as the most powerful and reliable guardian of digital assets is the blockchain. The digital ledger records each and every transaction makes it fully transparent and unable to modify, therefore mitigating many forms of fraud
Beyond the use of cryptocurrencies, the blockchain can also be used to verify and protect the sales of digital assets and prevent duplicate transactions. The blockchain-based network can also be used to facilitate the execution of smart contracts, which, like a real-life contract, make clear the terms of any deal to ensure fairness for all parties.
Somnium Space joined the VRBA (https://www.vrblockchainalliance.org/) to take on exactly those issues. Among some of the most important goals of the alliance is to secure digital assets transfer, but also digital IDs, which don’t have to be stored by private corporations, but are on the blockchain.
Smart contracts could be used to cement ownership of digital land and property, as well as any other digital asset in a virtual world, such as avatars, possessions, and identities.
So, just as creativity and innovation have allowed for the existence of VR property and land, the same blue sky thinking should be able to overcome the challenges that it may face.
VR has already facilitated wonderful virtual, immersive activities and meaningful interaction between people from across the world. And as the concept progresses, I’m confident that VR land ownership and property development will blossom.
In the near future, I expect that the world’s most successful property developers will have made their millions in VR. So, looking to new opportunities in this world and the many other emerging virtual realities, it’s certainly an exciting time to be alive!
Written by Artur Sychov, Founder, Somnium Space