CREATING DIGITAL SCARCITY:

THE HARLEM GENESIS APPROACH TO VIRTUAL REAL ESTATE VALUE

(essay part II)

Critics might argue that digital scarcity is artificially created and that the value of virtual real estate is speculative. However, by anchoring digital properties to tangible utilities and community-based value, we can create a vibrant virtual economy. Moreover, the transparent and immutable nature of blockchain technology ensures that ownership and scarcity are verifiable, addressing concerns about the authenticity and security of digital assets.
INTRODUCTION
All the skepticism around the metaverse confirms we are living at the dawn of a massive opportunity and shift in innovation. The same happened with all major technological advancements. The telephone, the airplane and the personal computers are three examples of tech developments that faced skepticism but became widely adopted:

When Alexander Graham Bell invented the telephone in 1876, many people doubted its usefulness and value. Some thought it was a toy, a hoax, or a threat to privacy. The Chief Engineer of the British Post Office famously said: "The Americans have need of the telephone, but we do not. We have plenty of messenger boys". Likewise, the French War Minister said in 1911: "Airplanes are interesting toys but of no military value." Today, airplanes are widely used for transportation, commerce, and defense, and have revolutionized travel and trade. And what about the laptops? The early computers were large, expensive, and complex machines that were mainly used by governments, universities, and corporations. Many people saw no need or benefit for having a computer at home or in the office. In 1977, the founder of Digital Equipment Corporation said: "There is no reason anyone would want a computer in their home."

Today, the main criticism spreading among detractors of the utility of the Metaverse and Virtual Real Estate is the “supposedly” lack of the main foundation of economics: SCARCITY. “How to create scarcity in the Metaverse where space is technically limitless?” This article aims to dismantle this myth and call all visionaries -those who see opportunities before they become obvious- to take action and not miss the train before it is too late.


UNDERSTANDING DIGITAL SCARCITY
First, it's crucial to clarify what digital scarcity means in the context of virtual real estate. Unlike physical assets, digital assets can be easily replicated. However, blockchain technology enables us to create unique, non-replicable tokens (NFTs) that represent ownership or rights over digital assets, introducing the concept of scarcity to the digital realm.

Something unique, its creation certified by its author and its ownership by its wallet holder, and on top of that, traceable in a public ledger, has officially entered the scarcity realm. The real challenge is not the digital realm but capturing new forms of value, expression, art and experiences that we have not yet imagined. In the same way, the French War minister did not see the utility of planes in 1911 because there was not such a thing as air bombs or long-range missiles, today we cannot picture something that has not been created yet but will be highly valued in the years to come.

Regarding virtual real estate, in order to determine the value of a virtual asset, the same principles apply as physical real estate: supply, demand and value. The scarcity in the physical world is determined by the finite space and location for plots and the uniqueness of features for buildings. In the virtual world, however, the location and limitations of space are not there by default, only the uniqueness of premises and experiences being able to occur within them constitute the essence of the appreciation. Social capital, utility, popularity and community are the main factors increasing demand, thus, appreciation of assets. In the same way, a recently opened account on Facebook has no value (anyone can open one in exchange for their data and privacy), the same account can significantly increase its value if it obtains 1M followers and holds tons of valuable content for a specific market niche.

On the other hand, we have to remember that a physical empty plot in the middle of nowhere has also no value, but if you build on it the necessary infrastructure for human activities to be undertaken suddenly increases its appreciation. This is basically what happened with Dubai, so the argument that “limitless virtual space hampers a solid virtual economy and sits on speculative notions” could also be rebutted.

DIGITAL ITEMS APPRECIATION: SUPPLY, DEMAND AND VALUE
The law of supply and demand governs the universe (and also, while creating a Virtual Economy): The number of goods and services that are available for people to buy compared to the number of goods and services that people want to buy determines the price they want to pay. If less of a product than the public wants is produced, the law of supply and demand says that more can be charged for the product.

What makes virtual economics different from its physical counterpart is that it is DESIGN-ORIENTED; thus, investors ought to ask the right questions for them to have a clear picture of the virtual ecosystem they are considering investing in, making sure supply is always under demand level; what we have identified as scarcity.

-       For quantitative supply, simple questions to be asked: (a) How much will be supplied? (b) How much has been supplied so far? And (c) How much does it grow over time?
-       For understanding demand 3 will be the components to look for: (d) Value of the digital item (social capital, popularity and community), (e) Utility, and (f) Incentives and mechanisms established in the ecosystem.

In virtual economies, among all these 6 key factors, only factor d (Value of the digital item) is left to external factors to determine; all the other 5 should be carefully thought out, designed, programmed (codified), and constantly reviewed and updated for scarcity to be maintained. But, what makes these digital items valuable?


Social Capital: This is like your reputation or influence in the online world. The more well-known and respected you are, the more people want what you have, just like in real life.
Popularity: If everyone wants a particular digital item because it's trendy or for example, created by a famous artist, it's like having a hot fashion item during a shopping season.
Community: This is about the group of people you're connected with within the online world. If you're part of a large and active community, the things you own are like badges that show you belong to an exclusive club.

When these factors come together, they make people want these digital items more, which increases their demand and value, just like a rare piece of art becomes more valuable as more people desire to own it. Virtual Platforms and projects revolving around these 3 components of factor d (Digital Items Value) -while ensuring that the other 5 factors are in place- have effectively incorporated scarcity in their foundation and will ultimately succeed and grow.


BLOCKCHAIN TECHNOLOGY: CREATING A VIBRANT VIRTUAL ECONOMY
In today's rapidly evolving digital landscape, technological innovation is reshaping traditional concepts of value and scarcity, particularly within the realm of virtual economies. The ways in which we create, distribute, and establish ownership over digital assets are undergoing a profound transformation. At the heart of this revolution lies blockchain technology, a term that is increasingly becoming integral to our digital age.

Blockchain serves as the backbone of the virtual economy, enabling the existence and exchange of digital assets with unparalleled security and transparency. Virtual assets, usually in the form of Non-Fungible Tokens (NFTs) but not only, represent ownership or a stake in something purely digital. Unlike traditional assets, their value and ownership are not recognized by physical possession but through digital records. This is where blockchain technology becomes indispensable.

Blockchain principles are grounded in straightforward concepts of security and trust. It ensures the uniqueness and ownership of virtual assets through several key mechanisms: (i) a unique digital fingerprint, created through cryptographic hashes, assigned to each digital asset as DNA is to humans, (ii) a decentralized network of computers, each holding a copy of the ledger (publicly accessible and immutable) that records all transactions; and (iii) smart contracts that automate and enforce the transfer of virtual assets according to predefined rules, eliminating the need for intermediaries and ensuring a seamless, trustworthy exchange.

For individuals accustomed to the tangible aspects of traditional economies, the virtual world opens doors to business models that not only mirror the real world’s complexity but also transcend its limitations. At the heart of these opportunities are the principles of secure and transparent transactions, platforms for innovation, and the emergence of new marketplaces, facilitated by blockchain technology.

The foundation of the virtual economy is the trust prompted by blockchain technology. This trust enables a myriad of innovative business models, from Virtual Experience Curators hosting zero-gravity concerts to Digital Fashion Houses launching exclusive avatar wearables. These ventures rely on the immutable recording of transactions and ownership provided by blockchain, ensuring that creators are duly compensated, and participants' investments are secure.

The digital economy is witnessing the rise of specialized marketplaces catering to the unique needs of the virtual world. For instance, Virtual Asset Investment Funds offer a way for individuals to diversify their portfolios with digital assets, while Metaverse Marketing Agencies open new avenues for brand engagement. On the other side, innovation is bursting and disrupting every industry. For example, Virtual Real Estate Developers are crafting immersive environments for both personal and commercial use. These digital spaces, ranging from virtual offices to luxury homes, are made possible through the adaptable nature of blockchain's smart contracts, which guarantee the terms of use and exchange. Similarly, Decentralized Autonomous Organizations (DAOs) revolutionize collaboration and profit-sharing, showcasing blockchain's ability to support complex organizational structures without a centralized authority.

These examples only scratch the surface of what's possible in a vibrant virtual economy. The transition from traditional to virtual investments is not just about adapting to new technologies but embracing a future where economic activities are boundless. The virtual economy, powered by blockchain, promises a world where innovation thrives, marketplaces are inclusive, and transactions are secure and transparent, making it an exciting time to explore the untapped potential of digital realms.

MARCH, 27 / 2024
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Text author: Jimmy Jean
(AI support has been used for the elaboration of this text)
Photography: Midjourney AI ©JJBK studio 2024

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