Gateway to the Metaverse Economy: 5 Transformative Functions of NFTs
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As non-fungible tokens (NFTs) enter the mainstream, they are approaching a “coming of age”. In this next phase, investors are rapidly discovering new use cases for NFTs beyond the initial frenzy of digital artwork and collectibles. A great example is the seamless connection of NFTs with the metaverse industry, a rapid development that will inevitably shape the NFT application and exponentially increase adoption in the long run.
Significantly, metaverses hold great promise for a more open and equitable economy that is decentralized and backed by blockchain. But, in essence, NFTs will serve as a gateway to a metaverse, as they reinforce the identity, community, and socialization upon which the metaverse economy is built.
While the first NFT was created in 2015, it’s safe to say that recent developments in the metaverse industry are now setting NFTs on a new path into the future. As a result, a multitude of speculative opportunities are emerging for companies, investors and entrepreneurs. In particular, the metaverse relies on NFTs to perform the following five transformative functions.
Open the next frontier of play
The gaming industry already outstrips all other forms of entertainment spending, including amusement parks, movie theaters, concerts and live spectator sports. Therefore, it shouldn’t come as too much of a surprise that when Mark Zuckerberg announced the Facebook name change, he specified gaming as one of the main motivators for the rebrand.
Gaming has long been associated with virtual reality (VR), so consumers are already familiar with 3D avatars and world building. Today, VR games are largely conducted through standalone apps on a desktop computer, mobile phone, or VR headset. This provides a more immersive experience compared to traditional video games. But in a metaverse, which is essentially a unified, interoperable VR space, players can interact with each other and play games through human-computer interaction (HCI).
The unique interoperable environment unlocks the next frontier of gaming, enhanced by social gaming, play-to-win (P2E), and portable gaming assets. Notably, NFTs hold the keys to unlocking all of these concepts. For example, NFTs serve as in-game currency for P2E. Basically, the more value you add to the game, the more you win. Additionally, P2E gaming itself is largely unbiased and more democratized than traditional platforms. With the ownership capabilities offered by NFTs, players fully own their assets, instead of revenue being controlled by a centralized gaming operator.
Advancing the creator economy
NFTs are intended to virtually represent innovative or unique assets. Although not formally a currency, items minted as NFTs can be sold and traded on virtual platforms. Armed with this transactional power, NFTs are ushering in the next wave of the creator economy.
The creator economy is technically as old as humanity itself, built by artists, writers and other creators on physical media. But the term “creator economy” was not officially coined until the digital age. Today, more than 50 million independent content creators, curators, and community builders are part of the creator economy in the United States.
With NFTs attached to the decentralized blockchain, each asset contains codes and functionality that cannot be replicated. In addition, the property cannot be stolen and its value is exclusive to the owner. The code may incorporate additional rights and obligations, such as a seller’s fee that provides the creator with a percentage of any subsequent transactions of the digital asset. The key mechanisms of “smart contracts” and “copyright tracking” improve intellectual property rights and ownership, solving key problems creators have faced in the cyber age.
The metaverse industry is a major breakthrough for the creator economy, providing a virtual world where content can gain value and creators can earn equity for their work. These defining characteristics are only possible because the product is linked to secure, transparent and decentralized NFTs.
Unlock new social experiences
NFTs will play a prominent role in activating the communities, personal identity mechanisms, and social experiences that will define the metaverse. For example, users can explore a specific hobby or show their support for a project by purchasing NFT assets. As a result, like-minded NFT owners will be able to come together to form communities, share experiences, and collaborate to create relevant content.
NFT avatars are also a core concept in a metaverse’s socialization system, representing not only a player’s real self, but also an identity they imagine. Users could use NFT assets to build this identity and access new experiences in a metaverse.
In a metaverse, NFTs can be seen as the extension of our real identities, granting each of us complete ownership, control, and flexibility to create our virtual persona.
Connecting the physical and digital worlds
It is necessary to note that the social experiences of the metaverse model can also be transferred offline, with NFTs effectively bridging the gap between the physical and digital worlds. For example, the Bored Ape Yacht Club (BAYC), a conglomerate of primate avatars created by four pseudonymous founders, is making inroads into the connection between virtual reality and physical reality. BAYC NFT owners are admitted to exclusive clubs and community features, such as first access to new NFT collections, NFT upgrades, and even “real life” private events. In November 2021, BAYC hosted an exclusive yacht party and warehouse rave at ApeFest in Manhattan.
Building the virtual real estate market
The metaverse industry is also taking real estate into a new realm, with some “plots” of virtual real estate space being valued at millions of dollars. For example, in the browser-based metaverse Decentraland, a virtual land asset recently sold for $2.4 million by crypto investor Tokens.com. Additionally, in December 2021, a user spent $450,000 to become a neighbor of rapper Snoop Dogg’s Snoopverse, an interactive world he’s developing in the Ether-based Sandbox platform.
Indeed, NFTs represent the virtual terrain and allow it to be traded. To keep the value of the digital real estate market from a meteor, space is inherently limited. For example, Decentraland is made up of 90,000 plots of land each measuring approximately 50 feet by 50 feet. This maintains “digital scarcity,” a concept that has long been discussed in relation to cryptocurrency.
A recent position paper from JPMorgan revealed that the average plot of virtual land in the four major metaverses doubled in the six-month period from June to December 2021, rising from $6,000 to $12,000. The value of virtual land is growing as fast as that of physical land, but no increase in interest rates will halt or slow the price acceleration.
The metaverse industry is still in its infancy and is continuously shaped by cryptocurrency trends and then reshaped changing digital behaviors. NFTs are on a similar path.
While it may be quite simple to figure out how NFTs enable virtual ownership and identity, the metaverse model creates an interoperable environment with seemingly endless possibilities for consumers to gather, socialize, play, earn and to carry out transactions. Therefore, in the future, companies need to shift the needle of their NFT investments from exploration to activation, as NFTs are the keystone of value creation and user engagement in metaverse economy.
Jonathan Teplitsky is the CEO of PipeFlarea platform to help game developers monetize their work.
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