What is Digital Real Estate?

Written By Alex

In short, you can consider any digital asset that “can be owned” to count as digital real estate. This includes anything from the relatively new NFTs to something like a website. However, these days, the term “digital real estate” tends to refer to something a bit more specific.

Everyone is talking about the metaverse!

But back in the real world, inflation has been rising, and mortgage rates have fluctuated. This new piece of virtual property – digital property – has been gaining much attention lately. Before we can explain what digital real estate is, we need to explain the virtual world it is located inside.

So, what is the Metaverse?

The metaverse includes several different technologies, spanning things like digital currency and, of course, augmented reality. The metaverse is like a 3D virtual reality that you can browse using the internet.

While this might sound futuristic, people have been spending money within digital worlds for a long time. For example, games allow players to purchase things like skins – which are located in the game – with digital tokens that need to be purchased.

Of course, this isn’t an exact analogy. These days, discussing the metaverse harkens back to how people talked about the internet in its early days. The metaverse is something new and unfamiliar, with no one knowing exactly how it will unfurl.

Now, let’s discuss the role digital real estate might play in the metaverse.

What Is Digital Real Estate?

As we alluded to above, digital real estate = virtual properties you can own. In the past, email domains were an example of digital real estate. Then, social platforms emerged as the most common form.

Today, we have a range of virtual “items” that can be owned, like digital currencies and NFTs.

NFTs are a common form of digital real estate, usually taking the form of pixels or plots and sometimes including logos. Here are a few examples of virtual worlds that allow users to buy parcels.

  • Decentraland
  • The Sandbox
  • Axie Infinity

These virtual worlds are devoted to creating entirely digital experiences that mimic “real world” markets and commerce. For example, supply is limited, and prices can be driven by demand.

Much like the real world, locations can still be important to users in the digital world. Did you know that someone recently shelled out $450,000 to be Snoop Dogg’s neighbor in the virtual world?

Is Digital Real Estate Valuable?

Currently, experts are expecting that digital real estate will have a market opportunity of around $1 trillion.
Existing platforms like Web 2.0 corporations were valued at around $15 trillion. Taking Decentraland as an example, there has been a 500% increase in the price of plots of land.

Let’s look at some notable sales that have occurred in the metaverse.

Republic Realm: In November 2021, 792 parcels were purchased from Atari at $4.28 million4. This was a record-breaking quantity of parcels.
Decentraland: Decentraland uses “MANA” as their in-game currency. 116 parcels of digital property were purchased from Decentraland for 618,000 MANA, which converts to around $2.4 million. Specifically, this property was located on Fashion Street and will eventually be a location for virtual fashion sales and displays.

Of course, digital real estate comes with risks – not unlike all other investments. There is an opportunity for big returns, but a degree of risk comes with that.

Currently, there is a lot of ongoing speculation. However, no one can truly predict the future. It is too soon to tell which major players and products will dominate.

Buying Digital Real Estate: The Pros.

Like all other investments, the exact nature of your investment will dictate some of the benefits and risks. But in general, here are some potential pros:

Diversification: Investing in the digital world is a way to expand your portfolio. Again, just like in the real world, you can diversify within those assets to adjust risk, perhaps choosing a majority of safer investments alongside a few higher-risk ones.
Self-employment: If you end up turning a significant enough profit, it might be a viable option for you to consider going into trading digital real estate, just like day traders.
Scalability: digital investments can scale quickly because money isn’t being traded for physical labor. You can even automate to better adjust for market changes without needing to oversee the process constantly.

Cons of purchasing digital real estate

As we’ve mentioned previously, the precise nature of your investments will impact the pros and cons. Here are some things to consider:

Volatile markets: It’s mostly agreed, but digital real estate is expected to be very volatile. Metaverse platforms might really take off or lose traction and fade away. Even if these platforms find success, there’s no way of predicting which exact platform will take over. There’s even the possibility that the most successful platform hasn’t even been created yet.
Non-standardized currency: Most of the purchases you’ll be making require cryptocurrencies like MANA or Ethereum or tokens based on such. Thus, the stability of the cryptocurrency involved will influence your ability to cash out.
Unforeseen taxes: People have been comparing the metaverse to the Wild West because legal authorities and regulations have yet to catch up. Right now, there exists no property tax on digital real estate, but who can predict whether these may appear in the future?

How To Purchase Digital Real Estate

Again, the virtual world has a lot of similarities to the real world, allowing you to buy or sell whenever you choose. However, it would help if you got well-versed in the technology and currency required to make a purchase and a familiarity with the value being offered. Areas that are in high demand will come with bigger price tags.

Here are three steps to buying your first piece of digital real estate:

Step One: Choose your platform. The platform you decide upon will influence which currency you need to pay. As mentioned, Decentraland uses MANA, which Ethereum powers.
Step Two: Decide on a storage method. This is necessary for the purchase of the real estate. Decentraland and Sandbox need an extension called “MetaMask” to store properties.
Step Three: Buy your parcel! Making an informed and intelligent decision on your property is crucial. You can search for parcels using various sorting methods and filters before bidding for the plot on OpenSea. Now, all you need to do is wait for the seller to accept.

Digital real estate used to be worth hundreds apiece, but today the price has ballooned into the thousands. Technology is also changing fast, so you need to stay updated on changing risks and valuation to make the best possible decision.

The Future of Digital Real Estate

With all the buzz around the metaverse, it’s clear that digital real estate offers exciting but uncertain possibilities. There is an enormous possibility for innovation, yet the market is a young and ongoing development.

To recap, what exactly is digital real estate in today’s Web 3.0? There’s still a lot left undetermined about this new technology in the metaverse and unknown possibilities to profit and get involved. Remember, the most important thing is to understand the factors around purchasing digital assets to be confident in your returns.

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