Money Rehab with Nicole Lapin - Is Digital Real Estate… Real?

Episode Date: January 5, 2022

Recently, a piece of digital real estate sold for 2.5 million dollars. Yep, we’re talking *digital* real estate here. Not literal ground you can touch or squish a picket fence into. This is land that only lives on the internet. How does this make any sense? Today, Nicole goes on an adventure into the metaverse. Learn more about your ad-choices at https://www.iheartpodcastnetwork.comSee omnystudio.com/listener for privacy information.

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Well, it doesn't. Charge for wasting our time. I will take a check. Like an old school check. You recognize her from anchoring on CNN, CNBC, and Bloomberg. The only financial expert you don't need a dictionary to understand. Nicole Lappin. Money Rehab launched in April of last year,

which I'm sure you know because you have listened to every single episode, right? One of my first episodes, episode seven to be exact, was about NFTs, which at the time was a brand new hot topic in the finance world. By now, we've all heard about and maybe even are sick of hearing about NFTs and how buying an NFT basically means you're buying ownership of a digital asset. Some people are all in on NFTs. They say NFTs are not only here to stay, but NFTs are the future of art collecting. However, there are some people that think NFTs are totally ridiculous. Those people throw their hands up in utter exasperation and say, why on earth would I

spend a gazillion dollars on an asset that doesn't even exist, IRL? Well, if you're one of those people that rolled your eyes at NFTs, you are going to flip over the topic of today's episode, digital real estate. Today's episode was inspired from a question from listener Justin. Here he is. Hey, Nicole, this is Justin and I live in San Francisco. I've been reading the headlines about some pretty big digital real estate sales. Should I invest? Okay, Justin, before we dive into the ROI on digital real estate, I'm going to take a step back and give a little overview of digital real estate. As we know from the headlines, and when I say headlines, I mean memes,

Facebook has rebranded to Meta and doubled down on all things digital reality. The new name Meta is a nod to the term metaverse, which is what tech folks are calling this new genre of digital environments. There are really infinite possibilities for where the metaverse can go, but in its current form, you can explore the metaverse not too dissimilarly from how you might explore this universe. You can buy a house in the metaverse. You can shop. You can see a Justin Bieber concert live in the metaverse. The metaverse is really not unlike a video game. In fact, you know what? I'll just say what everyone is thinking. The metaverse is essentially Sims. Do you remember Sims? The video game where you could design a house, put in a hot tub,

and make your Sims walk around mumbling to each other? Come on, guys, I know this isn't just me. Sorry, meta, but this digital landscape has been around since 2000. So let's cool it with calling yourself groundbreaking, shall we? I think the real difference between the metaverse and a video game, though, is that the metaverse wants to lean into the reality part of virtual reality. Some of these worlds are just digital copies of good old-fashioned planet Earth, which in case any of these metaverse stans forgot, yes, we still live on planet Earth. But this new world at the intersection of the internet and reality presents a whole slew of questions that, frankly, make my head spin. If you have a relationship with someone

in the metaverse, is that cheating? Didn't we see a Black Mirror episode about this? Humankind has a lot of questions to answer right now about how to make our world, the real world, a better place. I don't know if we're quite ready to tackle the existential questions within a whole different universe. It's that whole question of whether or not you should start a new project when you haven't finished the first one yet. Should we start a whole new universe when we haven't quite figured out how to be good to this one? Anyways, Facebook didn't invent the metaverse. And they aren't the only player in the space.

But they have raised the profile of conversations around digital reality. As people have taken the metaverse more seriously, they've wondered how to get in on the action, so to speak. And the current craze is digital real estate. Here's how it works. There are virtual worlds popping up. The most well-known right now is probably Decentraland. Within these worlds, there are a certain number of pieces of property that exist. In principle, the value acts just like real real estate.

In a physical neighborhood, there are only so many plots of land, and the prices of those plots fluctuate due to the forces of supply and demand. It's the same deal with these digital worlds. There are a certain number of pieces of property in these digital worlds, and the price of that property fluctuates with supply and demand. If you do buy a piece of digital real estate, the ownership of that property doubles as an NFT. Here's a headline I'm guessing Justin saw. A piece of digital real estate in Decentraland sold for $2.5 million. Of course, that sale was through cryptocurrency, specifically the Monacoin, which is the currency of choice in Decentraland. Why was it valued at $2.5 million? Well, that plot of digital land has been built as the downtown fashion district in Decentraland, and the hope

is that real-life luxury brands will want to lease space in that district, or at least put up ads. Michael Gord, a co-founder of Metaverse Group, a company in this space, said to the New York Times, quote, imagine if you came to New York when it was farmland and you had the option to get a block of Soho. If someone wants to buy a block of real estate in Soho today, it's priceless. It's not even on the market. That same experience is going to happen in the metaverse. I can't even begin to unpack that psychobabble, but what I will say is that Michael is pretty biased, and comparing Decentraland to Soho is a bold, bold statement, sir. Especially when you see what Decentraland looks like. You might think that comparing Decentraland to Soho means that

Decentraland is Instagrammable and picture perfect. Well, to go back to our Sims comparison, Decentraland has the graphic quality of Sims in that it sucks. But what doesn't suck is $2.5 million. In dollars, in cryptocurrency, in whatever currency. So with that in mind, I think it's time to dive into the question of the ROI on digital real estate. There are really two questions here. The first gets to whether you can actually make money from digital real estate.

From this vantage point, you want to ask yourself, what is the future trajectory of this project? Does it have room to grow? The limitation here is not the tech or innovation. Like any project coming out of Silicon Valley, the tech will only get better. Plus, there seems to be a lot of tech companies focused on developing the best VR glasses. So I can see a world in which VR glasses allow you to have a super cool, realistic experience in the metaverse. So the question really boils down to whether this will grow in popularity. It's a tough question. I certainly don't have a crystal ball in this universe or in any other, but I will say that people sure do like escapism. And hey, who wouldn't like to be able to meet up

in the metaverse in March 2020 and actually get to see your loved ones, right? Large companies are certainly contemplating these same questions about whether there's a profit opportunity in the metaverse. And some companies are answering this question with a resounding yes. Grayscale, which is a digital currency investor, has estimated that the goods and services in the metaverse will soon be worth $1 trillion. Maybe it is worth laying a stake in that digital ground then. But again, this ties back to our ongoing conversation about intangible assets. Don't forget, digital real estate isn't intrinsically valuable or backed by a tangible asset. Not to mention that digital real estate deals are in crypto. And because of

crypto's volatility, this market, by extension, will also likely be a volatile one. Here's another thing that makes me nervous. The whole assumption around the value of digital real estate is the promise that you'll be able to resell your property to someone else at a higher price later on, right? It's not like real estate where you might buy because you want to nest your face off there. Maybe you think the neighborhood is cute. Maybe you want to be a local at the diner. And maybe the county has a great school system for your kiddos. But with digital real estate, the only force that's adding value is really the popularity of the digital world. And right now, there are many developers that are trying to hurl themselves on this fast-moving digital world train. It's hard to say what this arms race is really adding up to. Could this be

like the video game industry and there will be lots of popular digital worlds to choose from? Or is there only room enough for one digital world and all others will fizzle out? If the latter is true, then you'll only get a good ROI if you happen to choose to buy digital real estate in the world that makes it. But here's the second question I promised you. Not from a money-making perspective, but from a human perspective. Do we want life to look like this? Do we want to move our experiences from the real world to a digital one? I mean, does that fill anyone else with existential dread? I personally don't want to live in that world. From where I'm standing here in my pod closet in the actual world, it seems wrong to spend millions creating a whole new world when that money could be really well served helping people that are in need in this world, the real world. For today's tip, you can take straight to the bank.

If you're looking for my sign of approval on a digital real estate investment, here's what I will say. It's the same spiel I will give you if you want to play the lottery. There is a chance you will make a shit ton of money on the lottery, but the chances of that happening hinge on factors beyond our control. Depending on your goals, a tried and true safer investment opportunity has a higher likelihood of working out for you. So while I don't want to rob you from becoming the next digital real estate tycoon, I do want to always urge you to make the decisions that have the highest chances of working out in your favor. Money Rehab is a production of iHeartRadio. I'm your host, Nicole Lappin. Our producers are Morgan

Lavoie and Mike Coscarelli. Executive producers are Nikki Etor and Will Pearson. Our mascots are Penny and Mimsy. Huge thanks to OG Money Rehab team Michelle Lanz for her development work, Catherine Law for her production and writing magic, and Brandon Dickert for his editing, engineering, and sound design. And as always, thanks to you for finally investing in yourself so that you can get it together and get it all.