May 08, 2023 - 7 min read
Explaining the essence of digital real estate, some prominent examples, and a step-by-step guide on how to buy some for yourself.
Digital real estate is virtual land or property that exists within decentralized platforms and enjoyed virtually in primitive versions of the metaverse. Virtual properties are represented as NFTs on blockchains, the supporting infrastructure which underpins their immutability, ownership, and transferability.
Owning, developing, renting out, and flipping digital real estate is gaining traction due to the growing developments in VR and AR, and the persistent trend of Web3 adoption by youthful investors. This article will describe digital real estate, how to buy some of it for yourself, and compare some specific examples of digital real estate protocols.
As with real estate in physical locations, the value of digital real estate can be derived from factors like location, size, current demand, and an estate’s unique characteristics. Demand comes both domestically from current users as well as from the overall success of a given platform or blockchain on which they run. For instance, the sale of digital real estate on Ethereum’s blockchain may have a wider audience of token holders who might drive demand and therefore the monetization of available real estate. In that sense, digital real estate is also a matter of liquidity when it comes to the blockchains on which it may be available for sale.
Speaking of which, digital real estate owners can generate income by leasing, selling, or developing their virtual land. Take Decentraland, for instance, a virtual world in which users explore a VR universe with their own avatar, and can create virtual businesses, host events, charge for ad space, rent out shop fronts, and swap crypto for in-game NFT items and resources.
Ethereum acts as the land registry for all of the digital property throughout Decentraland. Transactions settled and recorded on blockchains can’t be altered, providing both transparency and security. The immutability of the public ledger eliminates fraud and land disputes, not to mention the resulting cost of litigation.
Moreover, wearables are available for purchase in the NFT Marketplace for your avatar, like clothing or accessories. Other avatars can visit your digital real estate and enjoy the ambiance; plus you get to customize and then monetize the experience to your heart’s desire.
The most prominent example of digital real estate is called Decentraland which runs on the Ethereum blockchain. Decentraland is an immersive Web3 game which allows users to own, develop, and monetize land parcels known as LAND, which are represented as NFTs.
To help users create content, Decentraland offers an SDK that enables creators to build interactive 3D scenes and applications for their LAND and ESTATE parcels. This allows for creativity to flourish, and the result is a fully customized environment in which owners actually maintain control of that which they create. By leveraging Web3 to secure immutability and transferability of their assets, digital real estate investors can be sure that they can find patrons for their digital businesses and buyers of their real estate assets when the time comes for them to sell.
It has got traction too: Walmart, Samsung, and Sotheby’s Gallery all have presences in Decentraland. Classic video game company Atari even built a virtual casino in a district called Vegas City. Furthermore, Decentraland DAO empowers the community to collectively decide on the platform’s policies, updates, and future developments. MANA is the governance and utility token used for transactions like LAND purchases.
MANA has a deflationary mechanism. When users spend MANA to buy LAND, ESTATE, or other assets in Decentraland, a fraction of the spent tokens gets burnt. This helps control the overall supply of MANA and can contribute to an increase in its value over time.
Due to the unique ownership characteristics of Web3 assets, the scarcity of LAND, and the potential for revenue-generation, digital real estate in Decentraland (and the MANA token, for that matter) has seen significant appreciation in value, attracting investors of all sorts. If you want to get in on the action, this guide will explain how to get started on becoming your own digital real estate mogul. Having said that, this is not financial advice.
To make this guide thorough, we’ll assume you don’t already have a digital wallet or any assets. However, if you already have a wallet and think you’ve got enough ETH to get started, you can simply skip to step three below:
You’ll need a Web3-enabled digital wallet like MetaMask to store your crypto and interact with Decentraland. First, download and set up your wallet, making sure to secure your seed phrase in case you need to recover it on another device later.
To buy LAND on Decentraland, you’ll need some MANA first, and some ETH (or MATIC) for transaction fees. The most convenient fiat on-ramps are probably going to be the centralized exchanges like Coinbase, Binance, or Kraken.
After that, you’ll need to transfer your fresh MANA to your MetaMask wallet. While you may not need ETH (or MATIC) for gas fees while using Decentraland, sending, receiving, and swapping MANA tokens will require gas.
If you purchased ETH (or MATIC) and transferred it to your Metamask wallet, you can go to Uniswap to acquire MANA via the decentralized route. Again, once you have your MANA, you can buy LAND in Decentraland. No matter which route we choose to get our MANA, we will still need it later to get our swap our MANA for other assets or cash out back into fiat. Sorry, not a pleasant thought, we know.
Visit Decentraland and connect your Metamask wallet by approving an interaction with the protocol. This is just a signature that allows your wallet to interact with the protocol, you aren’t paying anything yet! Now, you can browse available LAND and ESTATE parcels (represented by ERC-721 tokens) or create random characters and go exploring what’s already been built.
Once you find a suitable LAND parcel, click on it to view the details. If you agree with the price and terms, then you can buy it by signing off on the smart contract transaction. If you’ve got the required MANA and enough ETH (or MATIC) to cover the gas fees, you should be good to go.
Give the network a few minutes to settle the transaction, and then you’ll become the owner of a LAND parcel in Decentraland. Verify your ownership by checking your Metamask wallet, searching for the transaction on a block explorer like Etherscan or MetaExplorer. Congratulations, we can verify that you’re active in the digital real estate market; a true mogul in the making!
Both Decentraland and The Sandbox have their own value propositions and target slightly different audiences. Deciding which platform has a more promising future depends on your interests, priorities, and how the adoption and development of several technologies plays out.
However, there are some differences in their market positioning that might affect their future potential. For instance, Decentraland seems to emphasize VR experiences and the monetization of digital art. The platform also focuses more heavily on social experiences like virtual conferences and art galleries.
On the other hand, The Sandbox emphasizes UGC and perhaps a younger demographic compared with Decentraland. From the voxel aesthetics to the world-creation mechanics, it seems to resemble other well-known titles for younger gamers like Roblox and Minecraft.
If you’re more interested in monetizing digital art and hosting VR experiences, Decentraland might be the better choice to invest in digital real estate since it seems geared towards a sort of metaverse world of businesses which mirror the physical one.
Nevertheless, both platforms have strong communities and active ecosystems both in terms of engagement and ongoing developments. Keep a close eye on active users, user growth, and major partnerships as early indicators of future success.
Digital real estate in Web3 represents a new frontier in virtual land and property ownership. The value of digital land parcels has risen significantly, providing opportunities for capital appreciation and monetization through various in-world activities. It’s made some individuals quite a lot of profit. We are not making any suggestions and providing no financial advice, but it’s still fun to get an idea of how other people have done well for themselves, isn’t it?
While these examples showcase the potential profitability of digital real estate, it is essential to note the speculative aspect of crypto assets, in addition to the basic risk involved with investing more broadly. Please conduct thorough research before the decision-making phase of your digital real estate journey; none of this article should be considered financial advice.
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