Digital real estate and the digital housing crisis
gamedeveloper.com
gamedeveloper.com
Because some people seem confused what the point is -- the point is that right now there are a lot of blockchain/NFT/"metaverse" games that are making ridiculous bank by doing big presales of virtual plots of "land" on the basis that they are going to turn into big UGC-based platforms to rival Steam, Roblox, etc.
I conduct an analysis that looks back over the 30+ year history of MMO's and find that anytime we see true "land-like" assets in multiplayer online games, we also tend to see digital "housing crises" that have a lot of eerie parallels to the ones we see in the real world, and they play out in ways that closely match the predictions of Adam Smith, David Ricardo, and Henry George.
This is interesting for several reasons:
- It suggests that these big blockchain/NFT/"metaverse" games are headed for trouble long term as their user growth stagnates
- It gives us a place to learn lessons about policy interventions that might have something to say about the real world (Henry George's Land Value Tax was independently re-derived from first principles for use in EVE, and it ended the recession that plagued their early launch days)
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TL;DR -- virtual land presales are a great way to make a quick buck and leave your investors holding the bag, but they're not a great way to build a sustainable creator-driven UGC platform.
The more we think we changed, the more similar things stay. Sigh.
The key words being "presales" and "they are going to turn into". That's an investment.
Back in 2018, the SEC started bringing the hammer down on "initial coin offerings" to US persons. They apply the "Howey test" [1] to determine whether something is an investment. First the SEC went after the total scammers. Then they sent letters to every ICO advertising in the US, asking them why they hadn't registered with the SEC for an initial public offering. Where's that prospectus and S1 filing? Many ICO promoters frantically returned the money. The SEC continues to go after the ones that didn't, as you can see on the SEC enforcement page.[2] About one ICO per month gets heavily penalized. Some promoters go to jail. Glenn Arcaro, who was behind BitConnect, has his sentencing hearing on Friday.[3] We don't hear much about ICOs any more.
NFTs were invented mostly as an attempt to create "collectables" which were not regulated investments. Now, that's OK if you're buying something that already exists, like a Bored Ape Yacht Club NFT. But if you're buying a ticket for something that doesn't exist yet, like virtual land in a virtual world that isn't actually running yet, that's an investment.
So far, the SEC hasn't hammered any NFT operators. The SEC is complaint-driven. They wait until the complaints "I lost my life savings buying land in ..." start coming in.
Probably the first promoters who get in serious trouble will be the ones who overpromised what their nonexistent virtual world would do, and delivered nothing.
[1] https://www.howeycoins.com/
[2] https://www.sec.gov/spotlight/cybersecurity-enforcement-acti...
[3] https://www.justice.gov/opa/pr/56-million-seized-cryptocurre...
Out of curiosity, does this include concerts and events?
California Business and Professions Code 22507: "the ticket price of any event which is canceled, postponed, or rescheduled shall be fully refunded to the purchaser by the ticket seller upon request."[1] The seller thus has the financial risk if the event is cancelled. This is coming up a lot during the epidemic.
[1] https://www.nbcbayarea.com/investigations/consumer/little-kn...
These come in several types. The most useful ones are land developers. They buy new, empty regions from Linden Lab, which costs $375 plus $175/month, for a square 256x256 meters. There's no limit on growing the world this way. The landowner then subdivides, build some amenities, and resell. These areas are generally quite nice. It's a competitive market. The first person to own a million dollars worth of land in Second Life was Anishe Chung, who has a whole metaverse land empire.[1]
The less useful developers buy up vacant "mainland" land, on the continents created by Linden Lab, and try to rent it out or resell it at ever-higher prices. That crowd is a problem. You can see their FOR RENT signs all over. They seem to be able to make more money by not selling land than by selling it. This results in declining neighborhoods with vacant lots.
This works despite the substantial cost of merely holding land. There is a land tax, called "tier". That's what pays for the servers. Each 256x256 square of land needs about 1 CPU of a server. Beyond one such square, there is supposedly no quantity discount, although there are some "grandfathered" landowners with better rates. So it's not clear that a substantial land tax fixes this problem. If you can push up the price enough, you can still profit even with a big portfolio of unsold land.
(Most of the things the "metaverse" crowd is doing were done long ago in Second Life. Even overpriced non-copyable objects.)
1) Can new land be created in second life?
2) Is this an argument that a land value tax short of 100% of "ground rent" is insufficient in this case?
2) It seems to be insufficient. Holding large amounts of vacant land for price maintenance works as a strategy, even though it involves high land taxes, what SL calls "tier".
OTOH , in the open source version of SL (opensimulator) people are giving away land for free but can't find buyers.
No, it doesn't work that way. The world is not just a flat grid. It has terrain features. Land near nice waterfronts is expensive. Land far from water, roads, or railroads is very cheap. Prices vary by about 15:1, with some very nice areas up to 100:1.
I doubt there is a lot of speculation going on.
There is. This is much discussed on the Second Life forums.
The fact that the author finds this "strange" tells me that they don't understand that the artificial restrictions are designed to make money. They go on to propose "solutions" for a "problem" that is not a problem to those who are making money. In fact, their "solutions" ARE a "problem" to them making money, because it lowers the artificial value of the digital real estate. If the people making boatloads of money were unhappy with the current situation, it would change.
"Since July 2021, in order to accommodate the significant increase in the number of new players, we have been working towards building a new logical data center and adding new Worlds. However, due to the effects of the COVID-19 pandemic, we have not been able to make any additions due to suspension of semiconductor production at manufacturing factories, decrease in production quantities, as well as a shortage of raw materials. Although we are investing much more money than usual, our attempts to alleviate the ongoing congestion situation are being delayed due to the physical shortage of server equipment."
https://na.finalfantasyxiv.com/lodestone/news/detail/e738898...
Author here! Of course I'm aware.
> it lowers the artificial value of the digital real estate. If the people making boatloads of money were unhappy with the current situation, it would change.
I'm making an argument about long term value versus short term value. Using digital real estate to make a bunch of short term cash? Excellent (if ethically suspect) business model.
Using digital real estate to make a long-lasting UGC platform where you expect players to create value for you? Seems undercooked.
That isn't to say there aren't problems to solve, squatting and speculating may genuinely be bad for moneymaking, because if gameplay suffers, the game dies, and no-one makes money.
Not dissimilar from the real world, it's just that "quiting the game" isn't an option in the real world. Property speculating is ruining "the gameplay" for millions of people worldwide, but money is causing the incentives to be twisted so they don't patch the system.
Every person on Earth, using their country's Unique Identifier credentials (like Social Security Number, National Insurance Number) to identify themselves to Facebook, will be entitled to receive their "forty acres" of Metaverse land, at a going rate of $1000 per acre, a value of $40,000. Just for signing in to claim it! Everyone will rush to create Facebook accounts and claim their land. And/or sell their land to others.
Meanwhile, Facebook has found a way to pretend that the "space" in their MMORPG is valuable, and will just be raking in the money, they'll need to hire extra guys with rakes.
Whatever happened with Facebook "Coin" ?
what about people in countries which don't issue "Unique Identifier credentials"; noting the limitations on the Social Security Number in the US, which was given as the first example?
I live in a country which has a large number of expats. I know multiple people who have 4 or more government issued "unique identifier credentials"
Note: I suspect goobergoo's post has a high level of sarcasm; my reply is a criticism of META not of the post.
Get people to accept a system of Universally Unique identifiers to facilitate population control as a DB query.
Like we don't already have issues enough with people trying to do that.
Libra or whatever was pulled after Facebook was put in the hot seat by Congress and regulators for non-proactive compliance with regulators. Turns out when your the 900 lbs gorilla in the room, the bar is still higher on expected due-diligence when unilaterally upending a regulated space that also happens to play into international policymaking and enforcement.
Just do an Eve Online and let people fight each other for it. Its a game, who cares
Yeah, at least then people might learn the lessons of war that society should already know.
not quite sure what the lesson is there.
“is war as old as gravity?”
“are there animals that like peace, and animals that like war?”
“is making war an instinct we inherited from our hunting, or our farming ancestors?”
“war is the best game and the worst life”
- War & Peace, Ryuichi Sakamoto
The current state of EVE sees "land" (read: turf) apportioned by violence, which actually is a very crude (and violent) approximation of Harberger taxes! You must constantly pay something to defend your territory, and that scales with how valuable it is, because others will make escalating bids -- denominated in violence -- to acquire your land from you. So you want to pay enough to defend it without paying so much its no longer worth holding. I'm working on a policy paper about digital real estate and I'm calling this method "Blood taxes" with EVE as the central example.
i think it's called facebook
Yes maybe it's forced by the backing company for monetary reason (scarcity = higher value), but there are many other companies that can build the same.
if facebook/meta grabs mindshare early, and fast enough, the network effect would mean that another startup cannot compete (without an extraordinary amount of luck or innovation i suppose)
I'd like to see self-hosted digital housing. You have your house on your domain, and you can allow people to visit. Your house can be as large or small as you want, looks how you want (you aren't building from a limited set of parts provided by someone else), and has the rules you want.
We already have URLs to facilitate travel between them. We (just!) need a standard protocol for presentation & clients, like HTTP is to the web.
This is why I don't look to Mars as some Utopia. You will have the same shit there but infinitely more expensive.
When you see these patterns show up in real life, you should immediately begin thinking about how to kill them.
So there is no such thing as "really" owning something, it is only yours if sufficiently other people agree that it is possible to own and that you are that owner.
Part of paying property tax is an acknowledgement that your "ownership" is a social construct, and the tax is your contribution back to that society.
In theory, at least.
> So there is no such thing as "really" owning something, it is only yours if sufficiently other people agree that it is possible to own and that you are that owner.
This argument seems to have some trouble with the concept of theft.
Quite the contrary. If people gang up on you and take your things there may be nothing you can do about it.
Some of your possessions have a “finders keepers” status. You drop a 20 on the floor, too bad.
Some things are worth it socially to protect (house titles and their transfer are elaborate to make them hard, though sadly not impossible, to steal).
Banks get a special level of protection from the authorities but they have to take various steps to reduce risk themselves. It’s worth it because of robbing banks were easy a lot of other things would stop working.
While “society” has decided that fighting bike thefts isn’t generally worth the cost.
(Just used these two as examples)
Theft and ownership are social constructs. A statute of limitations doesn’t mean a crime wasn’t necessarily committed, just that it no longer meets the cost/benefit threshold.
on the other hand, I do feel like I "own" my bike. the government won't try hard to help me if someone steals it, but I don't need to pay some central authority in perpetuity to keep it. I guess you could argue that the trouble I go to to avoid theft is in some sense a "payment", but that becomes a bit abstract for me.
There is no speculation though, that would be ridiculous. Decentraland etc, yeah they are major scams, but they 've already made their money.
So it's not surprising at all that some digital locations will be much more desirable than others.
In the metaverse people will want to live next to celebrities too.
If you can teleport any time to any place instantly for free, then where you are matters a lot less. If transportation has costs and limitations, where you are matters a lot more.
The only reason it would be scarce in the "metaverse" (ugh), would be if the stakeholders of that metaverse/whatever purposefully impose limits that digital computers don't even impose (like DRM).
If it's a problem for that specific game the specific devs can think of mechanisms to fix it in a way that make sense for that context. I also don't see speculation as some evil for some unknown reason.
Moving IRL takes money, time, and effort. There are more physical connections and restrictions, or at least hurdles to moving IRL.
Like the people who were already living in those places, long before you-know-who tried to move there.
> a period of exciting growth suddenly grinds to a halt once scalpers corner precious digital property and keep it out of the hands of those who actually want to play the damn game
It’s a “crisis” in the context of the game, and it mirrors real life market dynamics.