Decentraland was the first metaverse to be built on the blockchain architecture and the Ethereum-based economy and is the fastest-growing crypto-based virtual world. created in 2016 by a group of developers in Argentina, it is largely based upon a Second Life and Minecraft, two of the most popular multiplayer games in the world.  What distinguishes Decentraland from predecessor virtual worlds is that all of the spaces (called LAND in the game) are easily transferable within the infrastructure of the blockchain.   This is important as the blockchain makes a secondary market for LAND sales very credible.   This credibility makes the digital real estate quite valuable.  Within this LAND, the owner can create 3D products for avatars (e.g., t-shirts or hats) or any other kind of virtual art or games.

Decentraland began as a proof of concept. The experiment was entitled Decentraland’s Stone Age and in this incarnation, as people acquired LAND it was color-coded to denote owner.  In 2016, the team started developing the Bronze Age, a 3D virtual world.   This introduced different textures and made the LAND pieces truly unique.  The next incarnation of Decentraland, the Iron Age, will create a social experience with an economy driven by the existing layers of land ownership and content distribution.    In this new version, peer-to-peer communications will become a vital component, leading to faster transactions.

Decentraland

A key portion of this title is the LAND.   Decentraland is a metaverse meaning it is set up to be a self-contained virtual environment of its own, where LAND is limited and must be travelled through.  People can set up avatars for themselves and interact with this environment in a myriad of ways.   People might gather at a virtual outdoor café and have a chat among a small group, or, they could go to a larger venue and congregate in groups of hundreds or even thousands.   The thing to remember  is that people are, for various reasons, traversing this virtual world, and as they go from place to place, they will pass other destinations.  If these destinations are created attractively enough, players could be persuaded to loiter there.

For instance, somebody might create an art gallery where various digital artists will be able to exhibit their designs.  If this art gallery can obtain digital art that is exciting enough, the foot traffic to that venue will increase.   This allows them to charge artists more, and perhaps offer other advertising opportunities to others.    Because this foot traffic can then be monetized, based upon the uniqueness of that piece of LAND, some of these plots can become very valuable.   It is becoming even more valuable now because congregating in the real world in large groups, can be very dangerous; In the metaverse, social distancing is not required.

This would appear to be a new kind of store of value, and is very interesting because it seems uncorrelated to other investments.     Even though stocks and bonds are completely different types of securities, as a general rule, the markets often rise and fall in tandem.  Investments in digital real estate seem to be uncorrelated with the performance of these other types of securities, and this is important.  If the stock and bond markets are both going down, it could be a very good time to purchase digital real estate.   They could do this by purchasing cryptocurrencies.

What is the relationship between ETH and MANA?

Decentraland is an Ethereum-based system, and the coin of the realm is MANA.    An investor would set up a virtual wallet where they would store Ethereum and other cryptocurrency.   They would then go to the bank within the metaverse and trade the Ethereum for MANA.  With this MANA, the person can buy items for their avatar, and most importantly, purchase a piece of virtual real estate.   Once purchased, the real estate can be developed to be whatever type of setting the investor would like to set up.  Generally speaking, the objective is to build a venue that is very interesting and will both burnish the neighborhood by adding another destination, and attract local foot traffic.   The higher the foot traffic, the more that the developer can then sell the venue for, in the secondary market.

The important thing to understand here is how exciting the investment opportunities are here.   As a general matter, Ethereum has been increasing in value against the USD.  MANA have been increasing in value compared to Ethereum.   This makes an investment in MANA a prospectively very good deal for an investor.  It is important to know, however, exactly what each investment represents.   Ethereum is much like an investment in USD.   Each unit is exactly like every other unit; MANA is different.   MANA is a non-fungible token (NFT) and it is known as an NFT because each usage of MANA is for a specific purpose, and once used for that purpose, it is gone.   Each usage of MANA is tracked within the blockchain architecture, which is open for all to see, and each usage is distinct.   For instance, a set of MANA could be used to purchase a piece of land.   Once done, the MANA used for that transaction don’t exist anymore.

As a result of this feature of one-time use, the NFT market has exploded.  The one-time use makes these NFTs safer than other types of cryptocurrency, and the safety represented by the blockchain, has encouraged many people to invest in NFTs.  Now, these digital goods are gaining in value quickly.

This one-time use feature does not mean that exchange is impossible; To the contrary, already, secondary exchanges have sprung up to exchange pieces of land for MANA.  These transactions, once again, are all stored within the blockchain, so the chances of a fraudulent transfer are virtually nil.    NFT transactions are made even more enticing because of low interest rates in real-world investment options.  Meanwhile, the developing secondary market would seem to suggest increasing liquidity.

Even more enticing than the increasing liquidity, the number of people encountered during a visit is relatively low.   This suggests that is still early days for this metaverse, and there is significant room left for development and appreciation of your investment.

Is this market really a big deal?

Yes, the use of NFTs links back very directly to USD.   In fact, over a recent 30-day period alone, there were over $12.7 million worth of NFTs being traded.   That is real money, and can easily lead to even more real money.  When speaking only of Decentraland, over the same period, there was over $636,000 of MANA related transactions completed.    In addition to pieces of LAND, these MANA can be traded for all kinds of digital art ranging from digital wearables to games that can be used at your location.

In the first week of 2021, alone, MANA increased in value 68%.  MANA seems poised for even more explosive growth as the user base increases, and this potential is highlighted by the $368 million of MANA denominated trades in only a 30-day period.  Interestingly, this MANA infrastructure allows holders to vote on governance issues, very directly tying government and finance.

As Decentraland continues to evolve, it will add different functionalities that will attract more and more users.   Recently they added a functionality to allow for peer-to-peer communication. Because of these improvements, the user base will be increasing, and the value of MANA should increase in a like manner.

Conclusion

This whole discussion focuses on decentralized finance, often abbreviated DeFi.   DeFi is any attempt to use a combination of cryptocurrency and a blockchain infrastructure to disrupt the monopoly of standard financial intermediaries. Each intermediary added adds a layer of fees and a delay in processing the transaction, but it also adds a level of security, so it seems to me, the question is how much security are we willing to give up to achieve greater efficiency? This is partially why I view cryptocurrency as a financial laboratory experiment. Without such experiments, we would not have microwaves: Neither would we have atomic weapons. Choose wisely.

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