🏡🏞📈Why Blockchain-Based Virtual Worlds Will Accrue The Greatest Aggregate Value Within The NFT Space
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🏡🏞📈Why Blockchain-Based Virtual Worlds Will Accrue The Greatest Aggregate Value Within The NFT Space
Facebook, Amazon, Google, and Apple. They are some of the largest companies in the world, and they all are platform businesses. In fact, seven of the ten largest companies in the world are platform businesses. So why are platforms so valuable? It’s because they create massive network effects: the more activity on the platform, the more value accrues to its users.
Imagine if Facebook allowed users to completely own their own profile pages, and the more content a user added, the more valuable the profile became. This monetary incentive, combined with the network effect of a social network, would have caused Facebook's growth to skyrocket even faster than it did.
This type of user-owned network was not possible when Facebook first launched, but now, because of blockchain technology, it exists. Blockchain-based virtual worlds are the first iteration of wide-scale user-owned networks. Developers sell virtual land to users, who are then able to build anything on their plots. Giving ownership to users changes everything. They suddenly have skin-in-the-game and this changes the dynamic between platform creators and user. Instead of viewing the user as an extractive resource (extract money and user-generated content from the users) they view them as an additive resource. Users are incentivized to tell others about the platform, they have unlimited options for creativity, there is even the built-in aspect of sociability that comes with a virtual world platform because you can see your neighbors. It is for these reasons and more that blockchain-based virtual worlds will create the most value within the NFT ecosystem.
Skin In The Game: Ownership vs. Renting
Think about the difference between owning a unit in an owner-occupied apartment building versus renting in a typical apartment building. The owner-occupied building has a unique dynamic because, well, it’s owner-occupied! The owners have skin in the game and care about maintaining the property extremely well and developing positive relationships with tenants.
As a renter, the incentive to maintain the property and build relationships is not as strong. The renter doesn’t really care because they have little skin-in-the-game. However, the incentives switch if we offer the renter the ability to purchase the unit and become an owner. Suddenly, he/she will want to become closer to the neighbors and help maintain the building. The mentality changes and the owners will likely have a happier and healthier living experience due to putting more effort into maintaining the building and maintaining tenant relationships.
I would argue that a renter versus owner dynamic is impacting blockchain-based virtual worlds. Users, who used to “rent” on platforms like Facebook, are now suddenly owners in blockchain-based virtual worlds. Thus the amount of time, money, and effort they will put into their virtual property is significantly higher.
Limitless Optionality - Creative Freedom
Optionality is the other significant factor contributing to blockchain-based virtual worlds aggregating massive value. Users that purchase plots of land within these worlds can build literally anything - whether it be a house, car, or piece of art. This creative freedom touches upon humanity’s innate desire to create, which is a huge driving force toward these platforms. Many other games and projects within the NFT ecosystem do not have the same creative freedom that blockchain-based virtual worlds do. Here are a few examples of limitless creativity from the blockchain-based world Cryptovoxels:
This amazing build features a scientist looking through a microscope in his laboratory. This build has no apparent functional use-case (does not contain a game or an NFT for sale). It is more akin to a piece of art.
This build is the Block Eureka art gallery. I’m unsure if the NFTs inside are for sale, but nevertheless this is a great example of a beautiful gallery displaying NFTs.
This comical build is meant to poke fun at the cryptocurrency exchange Bitmex and its CEO, Arthur Hayes. Many people compare Bitmex to a casino, so the creator intended for the build to be entertaining. It serves no functional use (a user cannot actually play any of the gaming screens), at least not yet.
As you can see, these types of platforms allow users to scratch that creative itch we all have. While creativity and user-ownership forge strong incentives for growth, the primary growth catalyst is the sociable environment within these virtual worlds.
Natural Social Environment
The social aspects of blockchain-based virtual worlds make them the stickiest NFT projects. When users encounter each other while exploring a world there are bound to be interactions, whether it's a wave, emote (dance move), text chat, or voice chat. Users enjoy interacting with other users!
These environments are like new age chat rooms. In the past, people would enter chat rooms to discuss some sort of predetermined hobby or topic. Blockchain-based virtual worlds are natural social platforms for the NFT space because they act as internet chat rooms for people interested in NFTs.
Additionally, people love to show off, and these worlds are the perfect place to do so. When users build houses or structures they can display their NFTs, and this again leads to engagement because other users will see the displayed NFTs and initiate dialogue. These virtual worlds will naturally grow into the social networks of the metaverse.
Blockchain-Based Virtual World Market Activity
Today only four projects occupy the blockchain-based virtual world landscape: Decentraland, Cryptovoxels, Somnium Space, and The Sandbox. All of them are live (meaning users can enter, navigate, and build) except for The Sandbox, however, their market is open and allows trading activity. According to nonfugible.com, the lifetime market activity of these four platforms is around $28m. This is an extremely impressive trade volume for something so new and for something that many consider to be a video game.
Numbers as of July 19, 2020 (data provided by nonfungible.com)
Decentraland: $24,289,271
Cryptovoxels: $1,902,873
Somnium Space: $1,419,707
The Sandbox: $1,233,272
Total: $28,845,123
Future
I believe that not only will many more blockchain-based virtual worlds be created, but also that NFT projects will begin to create their own blockchain-based virtual worlds. The first major NFT project that is doing this (as far as I know) is Axie Infinity. They have had a thriving game ecosystem of Pokémon-like creatures, which users can breed and battle, but are now developing a virtual world to reap the benefits I mentioned earlier. The most interesting part about the upcoming Axie Infinity virtual world is that the team is adding functionality directly into the land. Unlike current virtual worlds that are completely dependent on users for activities, the Axie team is building resources and quests directly into their world.
This is just the beginning! We will continue to see more and more blockchain-based virtual worlds being built with new functionality, and they will continue to add value to NFT space until, inevitably, they accrue the largest value by far.