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As nonfungible tokens (NFTs) become mainstream, they are approaching a ‘coming of age’. In this next phase, investors are quickly discovering new use cases for NFTs beyond the initial frenzy of digital artwork and collectibles. A prime example is the seamless connection of NFTs to the metaverse industry, a rapid development that will inevitably shape the NFT application and exponentially grow its adoption in the long run.
Significantly, metaverses hold great promise for a more open and fair economy – one that is decentralized and backed by the blockchain. But essentially, NFTs will serve as the gateway to a metaverse, as they reinforce the identity, community, and socialization on which the metaverse economy is built.
Although the first NFT was struck in 2015, it is 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 plethora of speculative opportunities arise for businesses, investors and entrepreneurs. Specifically, the metaverse relies on NFTs to perform the following five transformative functions.
Opening the next frontier of gaming
The gaming industry already surpasses every other form of entertainment expenditure, including amusement parks, movie theaters, concerts and live spectator sports. Therefore, it shouldn’t come as much of a surprise that when Mark Zuckerberg announced Facebook’s name change, he cited gaming as one of the main drivers for the rebrand.
Gaming has long been associated with virtual reality (VR), so consumers are already familiar with 3D avatars and world-building. VR gaming today is largely performed through standalone applications on a desktop, 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 and interoperable VR space, players can interact and play games through human-computer interaction (HCI).
The single interoperable environment opens up the next frontier of gaming enhanced by social gaming, play-to-earn (P2E) and portable gaming assets. NFTs in particular 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 earn. In addition, the P2E game itself is largely impartial and more democratized than traditional platforms. Thanks to the ownership options offered by NFTs, players fully own their assets, rather than have the revenue managed by a centralized gaming operator.
Promoting the creative economy
NFTs are intended to represent virtually innovative or unique assets. While 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 creative economy.
The creative economy is technically as old as humanity itself, built by artists, writers and other creators through physical media. But the term “creator economy” was not officially introduced 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 tied to the decentralized blockchain, each asset contains codes and features that cannot be replicated. In addition, the asset cannot be stolen and its value is exclusive to the owner. The code may include additional rights and obligations, such as resale fees that provide the creator with a percentage of any subsequent transactions of the digital asset. The key mechanisms of ‘smart contracts’ and ‘copyright tracking’ improve IP rights and ownership, solving major problems faced by creators in the cyber age.
The metaverse industry is a major step forward for the creative economy, providing a virtual world where content can gain value and creators can gain equity for their work. These defining features are only possible because the product is linked to secure, transparent and decentralized NFTs.
Unlock new social experiences
NFTs will play a leading role in enabling the communities, personal identity mechanisms and social experiences that will shape the metaverse. For example, users can explore a specific hobby or show their support for a project by purchasing NFT resources. As a result, like-minded NFT owners can come together to form communities, share their experiences and collaborate to create relevant content.
NFT avatars are also a crucial concept in a metaverse’s socialization system, representing not only a player’s actual self, but also an identity they envision. Users can use NFT resources to build out this identity and access new experiences in a metaverse.
In a metaverse, NFTs can be seen as the extension of our real identities, each giving us complete ownership, control, and flexibility for creating our virtual persona.
Bridging physical and digital worlds
It is necessary to note that the social experiences of the metaverse model can also be translated offline, with NFTs effectively bridging the gap between physical and digital worlds. For example, the Bored Ape Yacht Club (BAYC), a conglomerate of primate avatars created by four pseudonymous founders, is making a breakthrough in connecting VR and physical reality. BAYC NFT owners get access to exclusive clubs and community features such as first access to new NFT collections, NFT enhancements, and even private events in real-life. 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 bringing real estate into a new realm, with some “plots” of virtual property spaces being assessed at a cost of millions of dollars. For example, in the browser-based metaverse Decentraland, an asset of virtual land recently sold for $2.4 million by crypto investor Tokens.com. In addition, in December 2021, a user spent $450,000 to become a neighbor to Snoopverse, an interactive world he is developing in the Ether-based platform Sandbox.
In effect, NFTs represent the virtual plot of land and allow trades to be executed. To maintain the value of a meteverse’s digital real estate market, space is inherently limited. For example, Decentraland is made up of 90,000 lots 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 found that the average parcel of virtual land across the four major metaverses doubled over the six-month period from June to December 2021, from $6,000 to $12,000. Virtual land is growing in value just as fast as physical land, but there are no interest rate hikes to slow down or slow down the price acceleration.
The metaverse industry is still in its infancy and continuously shaped by cryptocurrency trends and then reshaped evolving digital behavior. NFTs are on a similar track.
While it’s fairly straightforward how NFTs enable ownership and virtual identity, the metaverse model creates an interoperable environment with seemingly endless opportunities for consumers to collect, socialize, play, earn, and transact. Therefore, looking ahead, companies need to move the needle on their NFT investments from exploration to activation, as NFTs are the hub for creating value and engaging users in the metaverse economy.
Jonathan Teplitsky is the CEO of PipeFlare, a platform that helps game developers monetize their work.
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This post Gateway to the Metaverse Economy: 5 Transformative Functions of NFTs
was original published at “https://venturebeat.com/2022/04/09/gateway-to-the-metaverse-economy-5-transformative-functions-of-nfts/”