Digital real estate refers to land and buildings in virtual worlds such as metaverse platforms. Sometimes the term is also used to refer to digital property more broadly, to include things like websites. However, we will focus on the former meaning in this article.
The concept of digital real estate seems counterintuitive at first glance. After all, it is possible to create a virtually infinite amount of virtual real estate or land at almost no cost, just as you can copy and paste a document onto your computer as many times as you like.
Imagine: if everyone could have their own beach mansion in the real world, a beach mansion probably wouldn’t be worth much.
What is digital real estate?
It is possible to create virtual worlds where land is scarce, just like in the real world. If the number of parcels of land in a virtual world is limited, real estate in that virtual world can actually increase in value, provided there is sufficient demand.
This concept is often used by metaverse platforms, which aim to create virtual worlds that are similar to the real world in many ways. These platforms often attempt to mirror the concept of real-world ownership, allowing users to buy and sell virtual services and goods such as clothing, vehicles, real estate, etc.
In many cases, digital real estate is represented by non-fungible tokens, commonly known as NFTs. The reason for this is simple: NFTs exist on blockchains, which provide a transparent record of ownership that is very difficult to falsify.
NFTs can also be exchanged between different users through a simple transaction, making it easier to sell digital real estate. The process of investing in digital real estate is often as simple as buying and selling NFTs.
Here are some examples of metaverse projects where virtual real estate can be purchased:
- Otherside – A metaverse by the creators of Bored Ape Yacht Club.
- Decentraland – A virtual world powered by the MANA token.
- The Sandbox – A metaverse with major partnerships.
- Voxels – A virtual world using the Ethereum blockchain.
- Somnium Space – Somnium Space – A metaverse focused on virtual reality.
Is digital real estate a good investment?
Digital real estate is much riskier than its real-world equivalent, to say the least. The biggest risk of digital real estate investing is that all the virtual worlds where it is actually possible to buy digital real estate are still in their infancy. In other words, platforms like Decentraland and The Sandbox have yet to demonstrate that they can attract and maintain a large user base.
Although many visionaries and technology experts have predicted that the metaverse will see significant growth in the future, the demand has simply not been strong so far. This becomes clear if you take the example of tech giant Meta – even though Meta has invested billions of dollars in its metaverse efforts, its Horizon Worlds platform only has about 300,000 users. as of February 2023. The number of users of blockchain-powered virtual worlds like Decentraland is tiny, even compared to Horizon Worlds’ 300,000 users, which is already not very impressive in itself.
When you buy real estate in the real world, you can be sure that your investment will always have some value, even if the investment ends in a loss. If you buy digital real estate in the metaverse, however, the worst case scenario is much worse. If the platform your digital real estate is on doesn’t get a significant user base, your investment will become virtually worthless over time.
Of course, there are benefits to digital real estate investing as well. If you are investing in digital real estate that is linked to a relatively popular virtual world, the buying and selling process is fairly straightforward and there should be enough liquidity to complete a transaction in a reasonable amount of time. With metaverse platforms still in their infancy, buying digital real estate can provide you with significant gains at this time.
Overall, digital real estate is a highly speculative investment. Always evaluate your financial situation before making an investment and never invest more than you are willing to lose.
What should you watch out for when investing in digital real estate?
Whether you are buying digital real estate as an investment or for your own enjoyment, it is important that you have the ability to sell your digital property if necessary. Before you buy digital real estate, make sure that the market for that particular type of digital real estate is sufficiently liquid. As an example, you can check out the land market for The Sandboxor the Decentralized Land Market.
When it comes to digital real estate represented by NFTs, it’s easy to find trading volumes and sales figures because all transaction information is stored publicly on a blockchain. If you are considering selling your digital real estate at some point, avoid illiquid markets.
Metaverse platforms and virtual worlds vary in the degree of customization they allow. Some platforms offer only cosmetic customization, while others allow users to create interactive experiences on their virtual terrain.
If you’re buying virtual real estate, it’s good to have options to customize your digital property to your liking. A highly customizable digital property can also be easier to sell, as the buyer will be able to customize the property after purchasing it.
When evaluating a digital real estate asset, it is important to think about the likelihood that it will remain in place for a long period of time. If the platform on which the digital real estate is based is entirely dependent on a single company or entity, it could be shut down in the future if the platform is no longer viable to operate from a business perspective. In such a scenario, digital real estate would simply disappear.
In the crypto and blockchain space, some projects are attempting to create more decentralized and resilient digital worlds that are operated by a community of users. In addition, the fact that these projects use NFTs to represent digital real estate also provides peace of mind to digital real estate owners.
For example, NFTs allow digital real estate to be transferred from one virtual world to another. It is not difficult to imagine a scenario in which two virtual world projects would allow real estate to be moved between the two platforms. This process would likely be much more convoluted for digital real estate whose ownership is recorded in traditional databases.
How do you buy digital real estate?
Let’s now look at the process of buying digital real estate. We will assume that you are looking to buy digital real estate on a platform that represents real estate with NFTs.
1. Choose the type of digital real estate you want to buy.
First, you will need to choose the platform on which you want to buy digital real estate. Some of the metaverse platforms that allow you to own digital real estate include Decentraland, The Sandbox, Somnium Space, and Otherside (Otherside is still in development, but it is already possible to buy virtual land for the platform).
Virtual worlds where real estate is represented by NFTs usually have marketplaces where you can see all the digital real estate available for sale. Some platforms have dedicated marketplaces, while others use general-purpose NFT marketplaces. If you don’t know where to find the marketplace of the platform you are interested in, the best thing to do is to go to the following address OpenSea and search for the project. If the project’s NFTs are not listed on OpenSea, check the official project website for more information.
2. Create a wallet for the blockchain you will be using.
Most metaverse platforms use the Ethereum blockchain to issue their NFTs. However, some platforms may use Solana, Avalanche or another blockchain. In order to purchase digital real estate, you will need to set up a wallet for the appropriate network. If the project is based on Ethereum, we recommend setting up a MetaMask wallet. Phantom and Solflare are good options if you are looking for a Solana wallet.
When setting up your wallet, remember to securely store your passphrase and never share it with anyone.
3. Top up your wallet with tokens
Next, it’s time to discover the token you’ll need to use to purchase the digital real estate you’re interested in. In many cases, this will simply be the native token of the blockchain you are using.
For example, Decentraland and The Sandbox’s NFTs are issued on the Ethereum blockchain. You can buy them on the OpenSea marketplace with ETH, the native token of the Ethereum blockchain. You’ll also need some ETH to pay for the fuel fee for the purchase transaction, so make sure you have some extra ETH in your wallet to pay the fee.
4. Buy digital real estate
The final step is to purchase the digital real estate using OpenSea or any marketplace where the NFT digital real estate is listed. After receiving the NFT in your wallet, consider transferring it to a hardware wallet for added security, especially if the NFT has a significant value. A hardware wallet such as the Ledger Nano S costs less than $100 but greatly improves the security of your crypto-currencies and NFTs.
If you’re looking for advice on specific metaverse platforms, check out our guide to buying land in the metaverse.
Digital real estate for beginners
Digital real estate is a rather exotic type of investment. Not only is the concept itself counterintuitive to many, but it also involves crypto-currencies and blockchain, which are new technologies that few people are familiar with. Here are some essential tips for beginners considering digital real estate investing:
- Digital real estate is a high-risk investment
- Digital real estate is usually related to a specific virtual world. So you need to consider the chances of this virtual world becoming popular.
- Digital real estate is usually represented by NFTs.
- You will need to create an NFT portfolio to buy, sell and store your digital real estate NFTs.
- Before you make the decision to buy digital real estate, be sure to analyze the market using tools like OpenSea. If the type of digital real estate you are looking to buy has low liquidity (low trade volume and small number of sales), it will be very difficult to find a buyer when the time comes to sell.
In summary, is digital real estate worth investing in?
So, is digital real estate legitimate? Yes, but keep in mind that this sector is still in its infancy. Metaverses and persistent virtual worlds are still far from reaching their full potential, and it’s very difficult to pick winners at this stage. Investing in digital real estate can be lucrative if you choose the right platforms, but the failure rate is likely to be very high. If you want to participate in the growth of the metaverse, it may be worth investing in the best companies in the metaverse instead.
Now that we’ve learned the basics of digital real estate, check out our guide to getting into the metaverse to learn how you can start experimenting with the metaverse yourself.