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.