New to the metaverse? Even for digital natives, this blend of digital and physical worlds may seem like an odd concept, but it has impacted nearly every industry and profession – including the world of investing. 

In this article, we’ll provide an introduction to virtual economies so you can make informed choices about your investment strategies in the metaverse. 

But first, what exactly is the metaverse? The metaverse is a collective, virtual, shared space that blends physical and virtual reality. Within the metaverse, there are different virtual economies where transactions occur between individuals and entities through the exchange of digital assets.

You’ve likely already heard of Bitcoin, one such example of a digital cryptocurrency that’s traded exclusively in the metaverse. But virtual economies go beyond cryptocurrency. People buy, sell, and own digital “goods” that often have real-world economic value. Digital art, in-game products and tools, and even virtual real estate are some examples of these goods. Virtual economies form an integral part of the metaverse, paving the way for new forms of commerce, employment opportunities, and financial systems.

A Primer on Virtual Economies

If you’ve ever bought or sold goods to a character in a classic video game, you’ve essentially already partaken in a virtual economy. The difference in the modern metaverse, however, is that these trades take place between real people – and hold real-world value.

For example, in Decentraland (market cap of $1B), which is currently the largest metaverse project on the market, users conduct deals with the in-game cryptocurrency called MANA. They can buy and sell land to other players, as well as design and sell in-game goods.

Here are a few key definitions before we go deeper into investing.

Key Metaverse Investment Terminology

Though you don’t have to be an expert in blockchain technology to take advantage of trading in the metaverse, it’s wise to have a working knowledge of some of the terminology you’ll come across as you delve into this venture. Here are some key metaverse terms to know.

Cryptocurrency: A broad term for any type of digital currency exchanged on the blockchain in the metaverse.

Blockchain technology: The blockchain is a distributed ledger technology that allows data to be stored globally on thousands of servers. It securely logs and verifies transactions, ensuring data integrity and transparency while reducing the risk of fraud.

NFTs: Non-fungible tokens (NFTs) are a type of digital asset that represent ownership or proof of authenticity of unique items or content, using blockchain technology. Unlike cryptocurrencies, which are fungible and can be exchanged on a like-for-like basis, NFTs have unique properties and cannot be exchanged on a like-for-like basis.

Distributed Ledgers: Distributed ledgers are a form of database spread across multiple sites, regions, or participants. Instead of a central authority like a government or corporation maintaining and verifying transactions or data, it is independently recorded and validated by each node (participant) in the network.

Virtual reality (VR): VR involves the creation of a simulated environment that users can experience and interact with by wearing a VR headset. It replaces the user’s real-world environment with a completely digitized one, providing a fully immersive experience.

Augmented reality (AR): AR superimposes digital elements onto the real world, enhancing the user’s perception of reality. Unlike VR, AR does not create an entirely new environment. Instead, it overlays virtual objects and information onto our physical surroundings, which can be viewed through devices such as smartphones or AR glasses.

Now, let’s take a closer look at the most popular metaverse investment opportunities and the virtual currencies and tokens that accompany them.

Digital Assets

Digital assets often hold value within a specific game or virtual world. Think rare artifacts, weapons, armor, or character skins in World of Warcraft – or digital arts and crafts in Decentraland. These items can have considerable real-world value, especially in digital worlds with large, active user bases. Some users are willing to pay significant sums for rare or desirable items, creating potential for profitable investment.

For example, one investor, Vignesh Sundaresan (who goes by the name Metakovan), made headlines for purchasing a piece of digital artwork for $70 million in 2021.

Virtual Currencies 

Virtual currencies, also known as digital or cryptocurrencies, are a form of unregulated digital money that is solely controlled by its developers and accepted among the members of a specific virtual community. A key example is Bitcoin, the first blockchain-based cryptocurrency – but there are thousands of alternate cryptocurrencies with various functions and specifications. 

Some of these include Ethereum, which provides the underlying technology for most of the new cryptocurrencies and projects; Ripple, notable for its digital payment protocol rather than its cryptocurrency; and LiteCoin, a peer-to-peer cryptocurrency that has gained fairly wide acceptance since its inception in 2011.

Virtual Real Estate

Virtual real estate is exactly what it sounds like digital land and properties within online games and virtual worlds. As mentioned earlier, one example is Decentraland, where users can purchase land through non-fungible, transferable digital assets. It’s very similar to physical real estate: the more popular the online world or the neighborhood, the higher the value of the land. For example, someone paid $450,000 to be Snoop Dogg’s neighbor in the Sandbox in 2021.

Devising Your Investment Strategy

Virtual investing is like traditional investing: it’s all about spreading your investments across different types of online assets. You’ve got long-term strategies like “HODLing” onto assets and short-term strategies like day trading or flipping NFTs for a quick profit. 

But remember, every investment has risks, so do your homework! Look into the asset’s past performance, who’s behind it, and what the market looks like. Approach metaverse investing with caution if you’re new to the space. The lack of regulation, the volatility of virtual markets, and the susceptibility to hacking are all factors that weigh in. 

To mitigate these risks, conduct thorough research and due diligence. Staying informed about the metaverse involves monitoring reputable news sources, participating in online forums, and leveraging analytical tools to track market trends.

Despite these potential pitfalls, virtual economies represent an exciting new frontier for the savvy investor – and based on their popularity over the past several years, they certainly seem to be here to stay!