Crypto May Be Diving… But NFTs Are Set to Soar

Chris Lowe: Facebook made a big splash late last year when it changed its name to Meta. It said this move was to highlight the company’s focus on the metaverse.

You can see why Facebook would be interested. People are socializing in these worlds. Facebook thought, “Well, we’re a social media company, so we need to be involved.”

But you’re saying there’s another thread to this – whereby companies that are more blockchain-based and crypto-based are also developing virtual worlds within the metaverse.

Those are fundamentally different from Roblox and Facebook worlds, which aren’t blockchain-based.

So what are the differences between those two versions of the metaverse?

And how does an NFT fit into a metaverse world? How does a cryptocurrency fit into a metaverse world?

Luke Franks: There’s an example that I like to use that makes it clear why an NFT can have value.

A good way to consider it is to think about something that’s valuable in the physical world.

Take the Mona Lisa, for example. Think about why the painting is valuable.

It’s not because of the materials. The canvas and the paint aren’t expensive. Really, it’s valuable for three reasons…

First, we can prove who the creator was: Leonardo da Vinci, one of the most famous artists all time.

You can also prove that only one was ever made. That gives it scarcity. If there were 100,000 Mona Lisas, they’d be less valuable.

And then, the ownership. France owns it, and now it’s in the Louvre Museum in Paris.

So those three criteria – the creator, the scarcity of the piece, and the ownership now – are what fundamentally give the Mona Lisa value.

And NFTs built on the blockchain enable those same criteria for digital assets.

That’s because the blockchain is a public record that is owned and maintained by many users at the same time. It’s super secure, publicly available to view, and it doesn’t have one central point of failure.

The artist Beeple [Mike Winkelmann] was able to sell his collection of images for $69 million last year.

Digital art has provable worth because you can prove those elements on the blockchain. They are immutable, and you can’t dispute that.

That’s the basis for NFTs and why they can have value.

In terms of virtual worlds, Decentraland is a world that is somewhat like Roblox. It’s relatively basic. You can go and visit Decentraland today, and you can walk around as an avatar.

All the virtual land that they’ve programmed in Decentraland is owned by users as NFTs. The digital outfits that you can buy in the world are also NFTs.

You can build stuff and create experiences. But the ownership is with you, as a player. And so is the governance of that world.

That means any decisions are voted on by everybody who owns land in that world, or who holds the currency of that world.

So they’re fundamentally different from something like Facebook.

Facebook is a walled garden. It owns those ecosystems.

Whereas, in these decentralized virtual worlds, you can trade NFTs in various forms and add layers of utility.

If you own certain NFTs, they can unlock certain things for you. Or give you benefits – either digitally or in the physical world.

People are excited about the decentralized world. For the first time they get to own part of that. We’ve not been able to do that previously.

Chris: One of the big breaking stories is the price for digital land represented by NFTs.

It seems similar to domain names on the current version of the internet.

If you wanted to set up an e-commerce site today, you would go out and buy a domain name from GoDaddy. That would become your place on the internet where people can go.

Then you can provide your services… sell t-shirts, books, or whatever you want to do.

And it seems land in a place like Decentraland is similar. You need to own land to set up a business there. This is another important aspect of the metaverse.

Because it’s based around NFTs and crypto, it’s very easy to facilitate economies within those worlds. And that’s because cryptos can be cashed out for dollars, Euros, or pounds.

And those NFTs can also retain value, as you say, because of their scarcity and the way we can prove ownership.

Is that the way you think of land in these worlds?

Luke: I think that is a good comparison. There will be multiple virtual worlds. It depends where the attention is going – and what exciting experiences are being built there – as to whether they will have long-term value.

And certain ones already have the first mover advantage of bringing in some big IP [intellectual property]. Adidas and Atari bought some land in the Sandbox, as well as The Walking Dead.

When interesting brands and IPs own land in this world, that brings attention and gives that world value.

In the future, I don’t think you’ll have to own land to participate in those worlds. You’ll be able to go along to visit and have cool experiences. Like you would in the physical world… but with limitless creativity.

An interesting example is digital fashion. It’s an area that’s exploding at the moment. At first glance, you might ask why you would ever buy a digital piece of clothing.

People are beginning to buy them for their avatars. But there’s also a more general experience.

COVID has changed our shopping habits. We are not going to physical stores so much to buy fashion right now. But we might buy online.

If you’re scrolling through whatever website you buy your clothes from, you’re guessing whether those clothes are going to fit. You’re not sure.

Also, the experience of scrolling through pages of 2D fashion items isn’t particularly exciting or fun.

In these metaverse worlds, you’ll have an avatar that is your exact body shape. You’ll actually be able to go try on these clothes in 3D. And the experience will be exciting, and interesting, and different.

Owning the land now is a speculative play on that being the future. And it’s beginning to play out already.

You don’t necessarily need to own the land to go and have those experiences. But there’s an opportunity now to own the land. And brands will have to rent that land off you to build those experiences on top of it in five years’ time.

It’s a chance to move first and own a part of the networks that people are hoping will be valuable in the future.

It’s almost like owning a piece of the internet, which we never got the chance to do. But with blockchain, we can.

Chris: There’s another interesting aspect to these blockchain-based metaverse worlds – of which the Sandbox and Decentraland are probably the two biggest examples. Last year, they issued their own cryptocurrencies, MANA and SAND.

We’re in a big correction mode now in crypto. So those cryptocurrencies have come down a good deal. But they were up thousands of percent last year.

That’s where we can distinguish even further between these decentralized virtual worlds in the metaverse and the ones from big tech companies.

In the decentralized worlds, you can go out and buy cryptos like SAND or MANA.

You participate in those worlds. And you get to profit as they grow in value.

It seems to me, that’s a better proposition than what Facebook could offer. As we know, Facebook isn’t interested in sharing profits with users. It likes to keep them for itself.

But with these decentralized worlds, that’s the way they’re built.

As I understand it, Decentraland is a decentralized, autonomous organization. This means that if you own the MANA crypto associated with it, you also have voting rights.

That brings users into the fold, in a way that big tech doesn’t.

How will this competition between these two versions of a metaverse play out?

Luke: It’s a fascinating thing. There’s this grab for ownership and attention in the wider metaverse. Big, centralized companies are putting in a lot of money and making their plays, saying, “We want a part of this.”

But you’re exactly right. In these decentralized worlds, owners are not just able to share in the upside of the governance. They can also share in the value upside of these worlds, which are in the early phase.

Obviously, you can buy shares in Meta and benefit slightly from the wider upside… but not in terms of the details of what’s going on in the world.

You can also build value in those worlds yourself and own it like that.

Ultimately, I think these big tech companies will be forced to open up and be interoperable with the blockchain worlds.

If I’m a user, the experience has got to be much better in the centralized worlds to make me go there, compared with the world that I can build, where I can sell, or trade, and get value.

If I’m getting rewarded for the content I’m making, and contributing to the general growth of the platform… why wouldn’t I want to get paid for that?

Why would I use Facebook and get nothing other than the experience?

We’ll see how it plays out. I think that big tech will probably bring people in initially, just because of who they are and the resources they have. But really, open systems always win.