What is digital real estate?

For what purpose do we traditionally acquire houses, apartments, buildings or facilities? The first answer is obvious – to make them a place for our residence or our business. Similarly unsurprising is the second answer, where we point to generating additional income (e.g., through rental options) as the main purpose. When it comes to generating extra income, it is no longer possible to buy and sell buildings and facilities in the real world, but also virtual ones – in which case they are so-called digital properties – and with the development of blockchain technology and the metaverse concept, their popularity has grown significantly. Below we explain what exactly these objects are, describe their advantages and disadvantages, and consider how they can be used to generate additional revenue – for yourself or your business.

What is digital real estate?

Digital real estate is an asset that represents the ownership or use of a specific place in the virtual world, built and acquired through the possibilities that characterize VR and AR technology. These can include virtual plots of land, buildings, objects or other items, which are most often bought and sold with cryptocurrencies (such as Bitcoin or Ethereum).

Once purchased on a platform created for this purpose, such as The Sandbox, Decentraland, or Second Life, they are recorded on a non-exchangeable NFT token (digital certificate of ownership). Such virtual objects can have a variety of purposes in many industries, among which the most popular include:

• Business – for creating virtual shopping malls, offices and other business places,
• Education – to house virtual labs and classrooms where students can acquire knowledge in selected areas,
• Entertainment – for virtual worlds where people play and interact with each other.

Advantages and disadvantages of digital real estate

Why is digital real estate growing in popularity today? Firstly, because they are available to everyone worldwide and they are cheaper to buy and sell than in the real world. However, it is not the case that they represent an area that is completely free of disadvantages. The most important negative aspects associated with this area are presented below.

• Cybersecurity – the digital real estate market is unregulated, which can lead to problems such as fraud or unfair business practices. One may also have concerns about hacking attacks or in the area of personal data protection because it is only stored in virtual form.
• Uncertainty about the future – the concept of acquiring virtual objects is relatively new, making it impossible to assume in which direction it will develop. At the same time, this market is characterized by high volatility, so prevailing prices can change rapidly, leading to a possible loss of money. What’s more, there can also be all sorts of technical problems with functioning in the virtual world.
• Addiction and isolation – prolonged exposure to the virtual world can lead to isolation from the real world and human contact, resulting in addiction and associated negative consequences.

How can you make money from digital real estate?

Like traditional objects and buildings, virtual counterparts can generate additional income, which is most often done in the ways described below.

1. Buying and selling at a profit– investors can buy virtual objects when prices are low and then sell them when prices rise.
2. Leasing – users rent the facilities, buildings and plots of land they buy in virtual worlds to others for various purposes, such as entertainment, commerce or the creation of new products and services, which means they earn money on their investment.
3. Designing and selling – you can also create your objects (virtual plots of land, collectibles, other resources) and then decide to sell them, which always involves a profit for the creator.
4. Hosting events – it is also characteristic of digital properties to function as hosting venues for various types of events. So you can host concerts, workshops, presentations or other events in the virtual world that other users will pay to attend.

Digital real estate – summary

Digital real estate is still in its infancy but has the potential to play a significant role in the future, especially as VR and AR technologies (which provide immersive environments) may become more widespread and accessible to a wider audience as they develop.

However, as mentioned, there are both interesting advantages and serious disadvantages associated with it (especially related to cybersecurity), which may have grave consequences if neglected. Therefore, before deciding to invest, it is necessary to carefully consider all factors, especially the potential gains as well as the risks associated.

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