Are people crazy to buy Virtual land for Millions of dollars?!

On Feb 9, the world woke to the news that a piece of virtual land (9 adjacent blocks) on blockchain marketplace and gaming platform Axie Infinity has just sold for a record-breaking sum of 888.25 ether, roughly 1.5 million dollars at the time. The sale that happened on 23:00 UTC on Feb 8, 2021, was done by a user ‘Flying Falcon’ who explained his purchase via Twitter.

“We’re witnessing a historic moment; the rise of digital nations with their own systems of clearly delineated, irrevocable property rights. Axie land has entertainment value, social value, and economic value in the form of future resource flows.”

And this is not an outlier, 2 years back, in Decentraland, a virtual reality platform an estate (plot of adjacent land was sold for 210,762.80$ and just one plot of land (16*16 meter) was sold for 176,958.14$. There are countless other examples like this.

Major players in Virtual real estate place and their markets:

There are many Virtual Worlds surrounding us without us being aware of them, when you’re walking down the street or even looking out of the window they exist and are evolving all the time. Since the arrival of Virtual Reality and Augmented Reality, many companies came forward to building virtual worlds that are or can be visible through compatible devices such as computers, mobile phones, or even suitable headsets. Below are major players in space and how much people had to spend to date trying to buy a piece of it (Data source: Nonfungible.com).

Decentraland — A virtual reality platform powered by the Ethereum blockchain) had a total of 116943 sales of lands done, with transactions totaling $40,814,664.61. The average price of land in Decentraland currently stands at around $1,061.73

Axie Infinity — (A digital pet community centered around collecting, training, raising, and battling fantasy creatures called Axie) had a total of sales of 291838 done, with transactions totaling $10,074,756.22. The average price of land in Decentraland currently stands at around $376.04.

Sandbox (A community-driven UGC-voxel platform where users own their land and host their creative magic) had a total of sales of 78166 done, with transactions totaling $6,955,569.16. The average price of land in Sandbox currently stands at around $704.5

Earth2 (A virtual, digital world on a 1:1 scale with the earth where people can buy lands where real-world monuments like the Tajmahal and Statue of Liberty reside), is just 4 months old and doesn't have sale data available yet. But Earth2 environment also has seen larger purchases of up to $41,250 done for small land parcels. Some early buyers of land in the Earth2 platform have made up to 100K dollars in profits in just a few weeks. (Code ‘A9Y07PN9GR’ gives 5% discount on Earth2.io).

Why do people buy Virtual lands:

1. New asset class: Digital real estate has become a legitimate asset class. It is appreciating exponentially in terms of value, making it worthy of investor consideration. It also appears likely to become a viable store of wealth, almost like real-world art and real-world real estate.
2. FOMO (Fear Of Missing Out): One of the powerful motivators for people to buy good reals or virtual, is a bad feeling that they might miss out on something awesome. Many people missed opportunities of buying bitcoin when it was very cheap and this has made them look into alternate products like Virtual lands.
3. Exponential Returns: Virtual lands are capable of delivering outsized returns due to their alignment with the rapidly growing crypto-investment universe. The ease of flipping the land (like how they do real lands) and a constant bull market have helped many earn thousands of dollars in a very short time.
4. Additional possibilities of earning: Virtual lands also bring in additional possibilities of what can be done using the land in the future, like building art studios, doing advertisements, or just renting it out for others to build on it and get some revenues. There are users who build casino’s on their virtual land. Big retailers are also exploring possibilities to open shops in virtual land.
5. Easier than buying real land: Digital real estate also doesn’t have the major pain points related to real-world sales like the huge paper works to be done, maintenance of land, and taxes to be paid. Blockchain implementation also makes land purchases more secure and traceable.
6. Low entry barrier: Land prices around the world are sky-high, but the virtual ones come with similar benefits at less than 1% of costs. So buying real land might be out of reach for many whereas virtual ones can be bought with a lesser impact on the bank balance.
7. Fit in / Portray an image: People want others to perceive them in a certain way like technology enthusiasts or financial gurus. Having a novel product like virtual lands does help some in satisfying this need.

A word of caution about Virtual lands

When it comes to Virtual lands (or even cryptocurrencies or NFT), it doesn’t take long for profits to overshadow its transparency and underlying technology. After the coronavirus crisis emerged, many newcomers to this ecosystem are discovering a new way to make some money and some are just trying to park huge money they made from Bitcoin and other cryptocurrencies, so these factors are definitely contributing to the current bull run for virtual lands.

All kinds of assets are perceived as tradable assets mostly forgetting the usefulness of the asset in question. But this isn't stopping people from making insane profits flipping the assets. The real question we need to ask ourselves is if were are getting to a point where speculation is making people forget the real value of things or are these assets really undervalued (like land in the 18th to 19th century).