The Metaverse Economy
Metaverse Series: Part 1: The Metaverse Landscape| Part 2: The Metaverse Economy | Part 3: Gaming in the Metaverse
Non-Fungible Tokens (NFTs) are a type of currency in which each unit is unique and can not be reproduced. Let us take the example of a dollar bill. A dollar bill can be traded at any bank or financial institution for another dollar bill that looks the same, and that can be used in the same manner. One dollar bill is worth the same as another dollar bill. However, this is not at all the case for a non-fungible token — it is not fungible, and as such, it can’t be used in that manner. Rather, each NFT must be sold for currency (cryptocurrency, generally), which can then be exchanged similarly. You can not exchange one NFT directly for another, whether or not it looks similar, for both tokens are not the same, and as such, have different measures of value. In the decentralized economy of the metaverse, non-fungible tokens are key to expanding the market.
In the introduction to this section, I gave a brief explanation of fungibility and then expounded further on the potential use of an NFT. However, I am yet to explain what an NFT is, generally. A non-fungible token is a piece of digital content linked to the blockchain. It can also be defined as a cryptographic token that is unique for individual intellectual property. As I explained earlier, the contracts involved in an NFT can not be duplicated or replicated, and as such, they represent something unique. Furthermore, a non-fungible token can not be divided. As a rule of thumb, NFTs are generally based on the Ethereum blockchain, and Ethereum is also used to buy NFTs (on the marketplace OpenSea, for example).
As you have probably noted from the previous section, non-fungible tokens are essential, perhaps even vital, to the composition and operation of the metaverse’s economy. Furthermore, they have a variety of uses and come in all shapes and (digital) sizes. In any case, NFTs are involved in pretty much every aspect of the metaverse — they represent property ownership, they are important for social interaction, they feature heavily in gaming and the gaming-based metaverse economy, and so on and so forth. This report will go further into detail on all of the above, but for right now, just know that non-fungible tokens can and are used in all of those aspects.
The most well-known use for an NFT, and the most common image associated with them, are the digital images that are sold through marketplaces on the Internet such as OpenSea. These NFTs are still non-fungible tokens, and are still purchased with cryptocurrency (Ethereum), but are essentially the simplest form of what can be considered an NFT. They are simple pictures, where proof of ownership is recorded in the Ethereum blockchain. These images can be of anything and are bought and sold with relative ease. They also do not involve virtual or augmented reality in any way, which may be a bit of a shock, given the term “metaverse”, and the fact that these images do not involve gaming or any other part of the metaverse in any way. Truly, it is not entirely agreed upon whether these NFTs are part of the metaverse or not, but they are an easy introduction to the metaverse economy.
Does the concept of buying plots of land that, at their core, derive down to nothing but 0s and 1s rankle you a little? Does it perhaps seem just a touch dystopian, that as our actual world deteriorates around us, land that is part of a virtual world is being developed and sold for hundreds of thousands of dollars? Well, no matter, for the metaverse has already made both of those a reality. Today, you can forgo your life savings and sink them into making a purchase of virtual land, and even turn a profit on it.
Land, too, is an NFT today. It is all too easy to purchase plots of land through platforms like Decentraland and then work on developing them or finding other uses for them. These plots of land, interestingly enough, are actually considered NFTs. Consider this — are plots of virtual land unique? Does each unit not store the same amount of value? Is the proof of ownership for the land registered somewhere on a blockchain rather than through a bank? Is the land acquired through cryptocurrency? If your answers to those questions are all ”yes”, then you have found yourself an NFT. As such, virtual land that you can buy through various platforms in which real, fiat currency (eventually) changes hands, as well as platforms such as Second Life and even Fortnite, is classified as an NFT.
It is quite easy to understand what a plot of land in the real world can be used for. A plot of land can be developed — one could build a house on it, establish a farm, build a business, charge rent on the land — essentially, the list of potential uses is endless. This could not possibly apply to the metaverse and virtual real estate, right? Incorrect — all of those functions can be performed virtually as well.
With the eventual goal of making virtual worlds just as interactive and accessible as the real world, it is natural that people would choose to build houses for their virtual selves and friends, that businesses with the goal of selling goods and services would be established, that rent for others interested in starting businesses would be charged, etc. Of course, there is a further impediment — it is easy to imagine the sort of business that could be started in the real world, but what kind of business could be started in a virtual one?
Well, the answer to that question comes back to non-fungible tokens, the metaverse’s best friend. Businesses in the metaverse would have to be ones that sold other NFTs — imagine buying clothes for your virtual avatar, for example, or other fashion accessories. Virtual real estate can also be used to hold events, such as musical concerts, or something of the like.
One last thing that needs to be discussed when speaking about the metaverse’s economy is the concept of decentralized finance or DeFi. Finance today is run by large banks and financial institutions, as well as the government, and as such, can be considered “centralized” — the decisions are made by a select few. The metaverse is decentralized — decisions are made by the community, as there is no one that truly owns an institution or something of that sort in the metaverse.
Though NFTs can and do live outside of the metaverse, the metaverse provides a new area of growth and value for many digital NFT assets.
