Property investing is going digital.
The rise of new technology and the fast-growing metaverse mean that some investors are focusing their efforts on virtual investing.
But for those not already familiar with the concept, assessing whether virtual investing is for you can be a difficult choice to make.
Virtual investing has grown very quickly in a short amount of time.
From cryptocurrencies to non-fungible tokens (NFTs), there has been an explosion of interest in digital assets in recent years.
At the heart of all of it is a technology called a blockchain. Blockchain is an open-access, extremely secure record of transactions shared between a network of online connections.
The blockchain functions by collecting information together in chunks – such as the exact timing and date of a transaction between peers – and strings the information together in a chain, hence the name, blockchain.
When put together, a blockchain records a timeline of unalterable and unhackable data that is an accurate record of who bought what, when and from who.
While blockchain can be complicated to understand, the growth and application of the blockchain has helped digital assets become much more accessible and reliable.
Using this technology, digital currencies and NFTs can be bought and sold accurately. And, as these digital assets have become more accepted in the mainstream, the possibility of an entirely virtual marketplace for digital goods has become more viable.
This is where the metaverse comes into the picture. Encompassing a virtual world where people have digital avatars and socialise in digital spaces, metaverse users can buy and sell digital goods, such as clothes and artwork, via the blockchain and cryptocurrency.
Digital real estate builds on the fundamentals of the blockchain explained above, meaning it can be bought and sold between peers.
But what exactly is real estate in the metaverse? The metaverse is a virtual rendering of our own environment, including cities, communities, shopping centres and land.
So digital real estate is simply metaverse users buying up ‘parcels’ of digital land with cryptocurrency. From there on, the normal rules of property investing apply; as new virtual neighbours form or attractive ‘apartments’ become available, investors can spend thousands of pounds on acquiring the digital property, in the hope of selling it on for more in the future, or potentially just holding it as a digital asset.
Different metaverses will work in their own ways, but in all cases, buyers will need a way of financing a purchase to buy virtual property.
Usually this will be a cryptocurrency, or potentially an NFT. Rather than receiving property deeds, paperwork and administration, buyers will receive a unique password and access to a parcel of digital land, meaning they will be able to get straight to work making land or property whatever buyers want it to be.
Depending on which metaverse buyers want to become a part of, they will need to make sure they have the right virtual currency.
Two of the most popular metaverses, Decentraland and The Sandbox, use the unique MANA and SAND currencies respectively. They will also need to make sure they have the right digital wallet to store their cryptocurrency. Once they have the right cryptocurrency and wallet to store it in, buyers will then simply link their wallet to the NFT marketplace that allows them to buy property.
Once buyers own virtual property, they can then decide what to do with it. They can hold it themselves until it appreciates in value, or they could rent it out to another user or business.
Digital property investing can make buyers lots of money. Some investors are paying hundreds of thousands of dollars’ worth of cryptocurrencies to acquire valuable slots of land.
Andrew Kiguel, CEO of Tokens.com, has stated that:
“[Digital real estate] prices have gone up 400% to 500% in the last few months”.
Famous celebrities such as Paris Hilton and Snoop Dogg have spent thousands snapping up virtual properties – one investor paid $450,000 to be the latter’s digital neighbour.
Had someone invested their money into a digital property a few years ago, it would almost certainly be worth much more today, but as always, this doesn’t mean that just any investment will return a profit.
The highest sums are being paid in the most popular metaverses, notably The Sandbox, while prices are growing at much slower rates in smaller communities. So although buying property in The Sandbox could be more expensive, it could potentially make more money in the future.
The biggest problem facing any industry that relies on cryptocurrencies and NFTs is volatility.
Prices and demand for digital goods is extremely volatile and can change dramatically from one day to the next, meaning that investing in any cryptocurrency brings with it a lot of risk. For this reason, it is always a good idea for buyers to invest cautiously and only stake what they can afford to lose.
Some parcels of land can today be found for more affordable prices, but buyers should remember that digital land parcels, like cryptocurrencies, are finite.
There is a limited number of parcels that investors could buy, meaning that once all parcels have been purchased, the prices will likely start rising sharply. Bearing this in mind, buyers could be priced out.
There’s also no way of knowing exactly how a virtual property market works, as there is no real way of assessing whether prices are high or low. All crypto-related industries are still in their infancy, so it’s vital to exercise caution and to invest wisely.
As with any investment, while individuals could make a lot of money with a virtual property investment, they could also lose all the money they invested. There may be safer, longer-term investments they could make.
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