Immersion Imagery | Credit: Shutterstock
Virtual landowners have found a way to put their investments to work, but with unintended consequences.
For the modest price of 10,000 MANA tokens (or $7,000) per day, anyone can rent land parcel 27,87 in Decentraland, a 3D virtual world that runs on the Ethereum blockchain. Renting the plot would give the tenant the right to build anything they please—a shop, an event space, an art installation, or whatever else—to host friendly passersby. But the real winner would be their landlord, who goes by the name Beatrix#7239, their virtual pockets bulging with cash.
Not every property is as expensive as parcel 27,87, which is located in the center of the world map, close to where people first spawn into Decentraland. And no one has taken up the rental offer on these terms yet. However, a market for leasing virtual real estate is beginning to take shape, creating a new source of income for virtual landowners who buy up attractive spaces in the metaverse.
In the past nine months, brands like Mastercard and Heineken have rented plots for one-off events or product showcases and, in December, Decentraland released tools that allow anyone to rent virtual land.
The objective was to democratize access to the virtual world, explains Nico Rajco, who led the development of the rentals feature for Decentraland. Everybody benefits, he says, because renting gives new users an ideal “jumping-off point” and landowners can earn a passive income.
But the rental system is also subtly changing the social fabric of the virtual world, dividing people into those who have and those who have not.
When Decentraland launched in 2017, people were given the chance to purchase the ownership rights to 90,601 parcels of virtual land, each represented on the Ethereum blockchain by a non-fungible token (NFT). At the time, plots were sold for roughly $20 apiece, but by the end of 2021—at the height of the NFT boom—land was routinely changing hands for tens of thousands of dollars. One company, Metaverse Group, purchased a single Decentraland plot for $2.4 million.
In line with the slump in the crypto market, demand for virtual real estate has cooled off, leaving landowners looking for new ways to profit from their investments. The new Decentraland rentals system gives them a way to do just that.
The earliest adopters are mostly brands and artists that want to host events or put on shows in Decentraland, with tenancies ranging in duration from a single day to multiple months. The appetite for renting virtual real estate also remains small; there are currently around 300 plots listed on the marketplace and only 40 are occupied by tenants.
But Rajco imagines a scenario in which land rental becomes ubiquitous among all kinds of users. He also says that what’s already been constructed on the land could become a factor in the decision to rent; in the same way an Airbnb customer takes into account the quality and location of a property, the same would be true of virtual real estate. (Building on virtual land costs nothing once the plot has been purchased, but elaborate projects require coding expertise.)
Although Decentraland is among the most popular blockchain-based virtual worlds, it’s far from the only of its breed: Somnium Space, SuperWorld, and the Sandbox are all variations on the same theme. Some have offered in-built rental functionality for years.
One virtual landlord, Chris Bell, who owns one of the largest portfolios of land in Somnium Space, says he earned $18,000 in rental fees in 2021. After cutting his teeth letting out condos in the physical world, he has created something of a virtual real estate empire, amassing 100 plots. The same set of golden rules—buy in a desirable location, invest in improving the property, and set the right rental price—apply in the virtual and physical domains, Bell says.
Sam Huber, CEO of LandVault, says the real money is in combining land rental with auxiliary services like virtual property design and development. His company, which aims to offer a simple “end-to-end” service for renters, is currently able to recoup the cost of purchasing a plot in as few as two months.
Although letting out virtual property is extremely niche, an entire industry has already been established around the concept. There are not only virtual landlords, but property managers and real estate agents to aid them and developers to help design and construct the buildings they want to rent out. There are even investment firms that specialize exclusively in virtual property.
The idea that someone might be willing to pay to temporarily occupy a virtual piece of land is curious in itself, but even more interesting is what this says about the trajectory of these blockchain-powered virtual worlds and the social dynamics forming inside them.
Implicit in this arrangement, says Philip Rosedale, creator of Second Life, is the formation of a new “winner-takes-all” class system. The landed gentry sit atop the social pyramid and below them the professionals and tenants—the latter precluded by price from mounting the property ladder themselves.
The development of sophisticated industries might be construed as a sign of the increasing maturity of virtual communities. But it could also be a sign of disease, says Rosedale, whose own 3D online world pioneered the concept of virtual real estate in the early 2000s.
“The accumulation of wealth in virtual economies is of great concern,” claims Rosedale. Because there is no ongoing cost of ownership for virtual landowners, he says, there will be an “inexorable” and “destructive” consolidation of wealth in the hands of a minority.
Similar theories are raised by Roger Burrows, a sociologist and professor specializing in digital culture and social inequality at the University of Bristol, and Vassilis Galanos, a lecturer in sociology at the University of Edinburgh.
The evolution of virtual real estate is “profoundly political,” says Burrows. He sees virtual worlds as places people go to cocoon themselves among others who share their political beliefs. In this case, so-called cryptonatives have constructed a world over which they preside, as owners of the land, built around the same suspicion of government and public institutions on which the crypto movement was founded. Nominally, anyone is welcome, but only as a tenant.
Burrows says metaverse worlds are simply reflecting what’s happening in the physical world, where ultra-wealthy people like Elon Musk and Peter Thiel separate themselves from “the great unwashed, the difficult and the messy.” The result will be a series of virtual enclaves populated by people with a “misunderstanding of the world” and “fear of otherness,” he says, eliminating any remaining hope that the metaverse will deliver on its promise to unite people from different walks of life.
A different interpretation is that virtual worlds provide the ideal setting for a theatrical simulation of class struggle—a new form of slumming it. Having never experienced class struggle before, theorizes Galanos, those with excess wealth enter into a game that requires them to compete for social status in a virtual community. “It’s like playing Monopoly,” he says.
The platform operators are less concerned about the class dynamics that might emerge within the worlds they have created. The thrust of their argument is generally that hierarchies are native to all human communities, or that exploitative setups will be ironed out as the market matures. “A lot of human nature will be reflected in the metaverse,” says Sam Hamilton, creative director for Decentraland. “Some people will always find ways to game systems and generate wealth.”
Others maintain that the metaverse is a force for inclusion, not division. Hrish Lotlikar, cofounder of metaverse SuperWorld, understands the temptation to treat the virtual rental market as an allegory for class division, but says its evolution is more a reflection of modern attitudes to ownership. Instead of buying a movie, people subscribe to Netflix, and instead of owning a car, they use Uber. In the same vein, he says, some people will prefer to rent virtual land for short periods of use.
Either way, these experiments are playing out on a small scale for now. Although Decentraland attracts tens of thousands of people during events like Metaverse Fashion Week, only around 7,000 visit the world each day on average.
The secret to Second Life’s enduring success and steady social equilibrium—two decades on, the platform still attracts 40,000 concurrent users—is the relentlessness with which it mimics reality, claims Rosedale, all the way down to its system for taxation.
“If you make something more lifelike than social media, you end up with a situation where people are just as good to each other as they are in real life,” he says. But if you make the wrong design choices with virtual worlds—that’s when things go wrong.
Updated 01-20-2023, 10:45 am EST: This story was updated to correct the average number of daily visitors to Decentraland, which is around 7,000 a day, not fewer than 1,000 a day.
Source: Metaverse Landlords Are Creating a New Class System | WIRED
Latest Crypto News: 5ire, Network Capital Launch Blockchain Module With NITI Aayog; Square Yards Unveils Real Estate…
Metahood raises $3M to build a platform for trading metaverse real estate