Is virtual land and property an investment worth making?

By Artur Sychov, Founder, Somnium Space.

Owning land and property has long been considered a worthy investment in the real world – but what about the virtual world?

 

While it may sound like a futuristic concept to many, keen video gamers, Virtual Reality (VR) and tech enthusiasts will know that virtual land and property ownership is far from a new concept. In fact, ownership of digital land has been occurring for more than 15 years.

 

A brief history

 

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.

 

Many users also make money by creating their own brands and selling products. Even major ‘real life’ brands jumped on board, bought their own land and built virtual stores.

 

For instance, Second Life users could be seen walking around with cans of Coke, and strolling around virtual stores from the likes of Toyota, Nike and Sony, buying digital versions of real life products.

 

Eventually, Second Life’s popularity waned as it became outdated. Huge swathes of users looked for new immersive experiences and the brands sought other opportunities.

 

It seems almost inevitable that brands will find their way into new VR platforms that allow their users to monetise digital assets. With this, many more self-made millionaires will emerge through the buying, selling and developing of virtual land and property, not least through the upcoming VR successors to Second Life.

 

The current state of play

 

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 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 $26 million 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

 

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 land owner of property developer would in real life.  For example; Is the plot central in 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

 

But, as with almost every investment or new venture, there are risks. In the digital world this can feel even more risky 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 has 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!

 

 

ABOUT THE AUTHOR

 

Artur Sychov is the Founder of Somnium Space, an open, social, virtual reality world that has its own economy, currency, marketplace, games, social experiences and virtual land ownership. Somnium Space is interconnected, seamless and fully accessible from any device, from 2D mode on a desktop, to fully immersive VR mode on desktop or mobile.

 

Investors are currently able to buy shares and receive free land parcels via Seeding VR for a limited time. Investors should note that investing puts their capital at risk and investment returns are not guaranteed. Investments are not covered by the Financial Services Compensation Scheme (FSCS). Investors should read the full risk warning available on https://seedingvr.sharein.com/riskbefore deciding to invest.

 

Web:http://www.somniumspace.com/

Seeding VR:https://www.seedingvr.co.uk/invest/somnium-space

Facebook: https://www.facebook.com/SomniumSpace/

Twitter: https://twitter.com/somniumspace

LinkedIn:https://www.linkedin.com/company/somnium-space/

Instagram:https://www.instagram.com/somniumspace/

 

 

 

Citations

 

Second Life and the monetisation of virtual land and other assets: https://www.forbes.com/sites/omribarzilay/2017/11/30/how-blockchain-is-breathing-new-life-into-virtual-real-estate/#18aa903b511e

 

Anshe Chung, became the first ‘virtual millionaire’ by selling her digital land, and other assets: https://singularityhub.com/2011/08/23/entrepreneur-anshe-chung-makes-millions-selling-virtual-land-banking-and-fashion/

 

Decentraland: digital 1,100-square-foot plots were selling for as much as $200,000: https://www.bloomberg.com/news/articles/2018-06-12/making-a-killing-in-virtual-real-estate