Crypto and virtual worlds

An interesting application for nonfungible tokens (NFTs) is the Decentraland project. The creators of Decentraland raised around $25 million USD via an ICO to help establish their goal of building a fully decentralized world using the Ethereum blockchain. Decentraland shares many qualities with the well-established game known as Second Life. Second life peaked in 2009 with an economy worth $600 million USD and in that same year its residents cashed out $55 million USD.

Decentraland differs from Second life in that they do not charge rent on digital land as Linden Labs do. A private island on Second Life typically costs $1000 USD to set up and $295 USD per month to maintain. Users of Decentraland will not face the same economic issues as users of Second Life where the creators have time and time again imposed changes on the digital environment which have often had negative effects on the value of digital assets contained within.

Decentraland’s economy is based on a token known as MANA. MANA was used to purchase individual land parcels in ………

Ailin Graef whose Second Life persona is Anshe Chung was the first person to make $1 million USD within the Second Life platform. Many of the MANA token holders are hoping to emulate her success. As far back as in 2009, the Crystal Palace Space Station went onto virtual auction in the Entropia Universe massive multiplayer online role-playing game (MMORPG). Entropia Universe which was well known for its “real cash economy”. $1 can buy you 10 PEDs (Project Entropia dollars) in the virtual world. The Crystal Palace is a huge virtual space station that orbits the Planet Calypso. The auction ended, and player Buzz “Erik” Lightyear won the Crystal Palace for 3,300,000 PED. That translates to $330,000 USD.

Decentraland launched their marketplace for virtual land in March. Late last year they completed their first terraform event, during which over 70,000 parcels of land were generated. Users spend over 161,000,000 MANA tokens on virtual land. At today’s price, this is worth approximately $10 million USD.

Whilst MANA is fungible (swappable another identical item) the land that is purchased is done so through an NFT. Since its inception over 850 parcels of land have changed hands on the open market. Not all parcels sell for the same price. The land in Decentraland is divided up into districts. The participants in a district have a say in the purpose of the land.

The Decentraland virtual environment is divided into 100m² parcels, with a non-fungible digital asset for each plot of land. These assets recognize the designated owner of the parcel and describe what its contents are. Landowners are free to develop any kind of 3d structure that they wish on their land parcel. Possible uses include virtual shopping malls or even entire games.

NFTs or Non Fungible Tokens are a cryptographic token representing something unique. Each NFT differs from every other NFT and hence they are not interchangeable. They differ from cryptocurrencies in that whereas with cryptocurrency one coin is interchangeable with any other without difference NFTs represent unique items within a blockchain. NFTs came to prominence with the advent of the Ethereum based game CryptoKitties. Each CryptoKitty is unique and some are rarer than others. NFTs entered the mainstream when CyrptoKitties went viral. They subsequently raised $12.5 million USD in investment. RareBits produced their own NFT and raised $6 million USD and Gamedex, which is a collectible cards game platform that raised $800,000 seed round. All of these NFTs are currently built on the Ethereum platform although NEO are developing an independent NFT platform based on their own nonfungible standard. By establishing digital ownership of this asset you can trade your in-game resources off platform without having to worry about seeking the permission of the game creator. NFT’s can also be used with digital art to prove ownership and authenticity.

Non Fungible Tokens on the Ethereum network use the ERC-721 protocol as a standard. Games such as CryptoKitties, CryptoPunks, and Decentraland.

As potentially an owner of a land parcel could profit from it, maybe by renting it to someone else it is unclear at this stage if it should be considered a security. Digital land could be considered a security if those parcels of lands contributed entitle the contributor to District profits/revenue. This would essentially make the NFT land Tokens a security because the contributor is receiving profits based on a contribution they made.

The total MANA supply following the token sale is 2,805,886,393. Our MANA contract stipulates an inflation of up to 8% per year. However, this inflation will not begin until a later date.

2.805 billion MANA translates into less than 2.8 million land parcels: on the one hand, Genesis City parcels may sell for more than 1,000 MANA per parcel. Additionally, we’re preparing other use cases for MANA, which are going to lower the available token supply that can be devoted to obtaining land.

Each land is 10m x 10m, or 100 square meters (a Vive play area is about 4mx4m). Hence, the initial size of the world will be under 280 million square meters.

If the entire MANA supply was to be converted at 1,000 MANA/parcel and it was arranged in a big square, it would be of about 16 km or 10 mi on a side.

Therefore, the land area in Decentraland will be something less than:

the size of the original square of land allocated for Washington DC (10mi on a side)

Twice the land area of San Francisco

1/3 the size of Singapore (719.9 km2)

17% of the size of the land area of Hong Kong (1,649 km2)

The initial area of land opened in Dec 2017, called Genesis City, for the Districts and for the first auction, was a square of 300 x 300 parcels or 90,000 parcels. Most of these were either contributed to Districts or purchased in the Genesis City Auction in Dec 2017. There remained some unsold parcels in Genesis City, which might be sold in a subsequent auction.

Which Land Should I Buy?

Some thoughts on what land to acquire.

Private Land

Land outside of districts is privately owned.

You would buy it from its current owner.

They would sell it to you using the Land Manager.

Land near plazas, near districts and near roads will have higher traffic, and generally costs more.

Land far from such facilities is generally less expensive.

District Land or Membership

A few districts, like Arena, are actually private lands purchased together by people who wanted to be neighbors with some common theme or interest. If you wanted to buy land in such a district, it would be a private purchase from the owner(s) of particular parcel(s).

Most districts are entirely or mostly pooled land.

In general, you cannot purchase pooled district land. However, pooled land districts may have a mechanism to buy into membership in the district. If you are interested in being involved in some way with a district, contact the leadership of the district through its public channel in the Decentraland chat.

It is estimated that there are 2.3 billion gamers across the globe who will spend $137.9 billion on games in 2018. This is a 13.3% increase on the year before. It is expected that the global market will grow to $180.1 billion USD by 2021 having grown from $70.6 billion in 2012. For an industry to achieve 10% plus growth per annum for an entire decade would be a huge achievement for a single company let alone an entire industry that is already well established.

No one at this stage is sure if Decentraland will be able to emulate the successes of other virtual worlds. The benefits of being an early adopter are at this stage unclear. The price of MANA which currently is trading around $0.07 USD although back in January it was trading over $0.27 USD. We are currently waiting to see what interesting uses will be found for the land. Participants are hoping that it will not end up like Second Life where vast swathes of land ended up either remained undeveloped in the hope that its value would appreciate in the future or just ended up covered in nothing but advertising boards.

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