I found the WORST thing money can buy: Virtual Real Estate for $200,000

What's up, you guys? It's Graham here. So, it's 2018, and I thought we've seen it all—from an elderly lady suing her nephew over their split lottery winnings, two people eating Tide Pods, to the worst of all: the closing of Toys R Us. But no! I opened my computer last night to find out that people are spending upwards of two hundred thousand dollars to buy a piece of 1,100 square foot real estate that’s virtual, digitalized, and doesn’t exist outside of the game, Decentraland.

Now, before we get into how ridiculous this is and whether or not this is actually a good investment, let me explain what Decentraland actually is. This is a virtual reality world where you can purchase land through the Ethereum blockchain, and you have total control over the content of that land that you own. You then have the ability to keep all the revenue that that land generates—money that you get from other users. And I can't even make this up because I am reading this straight from the website: "Your imagination is the limit. Go to a casino, watch live music, attend a workshop, shop with friends, start a business, test drive a car, visit an underwater resort, and much, much more—all within a 360-degree virtual world."

Hey, what's up, man? Hey, just want to see what you're up to this weekend. If you're free, maybe we can hang out, grab some drinks. A test drive a car? Visit an underwater world? What'd you have in mind? It sounds okay. I mean, I'm not really down with that real-life stuff anymore, but how about we just do this all online instead?

But despite common sense, this isn't stopping people from spending a considerable amount of money buying and developing virtual land. And this has actually proved rather profitable for those that got in early. This virtual city is known as Genesis City, and scarcity is the name of the game because only ninety thousand plots of land will be available to be sold. After that, there's no more. It's all gone. The most expensive plot of land so far has sold for $200,000, near its central plaza, which is near the area where users first begin when they first arrive in the game. The previous owner of that land sold it for $200,000, only bought it for $13,000.

And I realize I just said "only" as if that makes it okay! Virtual developers within this game are buying up land, holding on to it, and planning to later develop it or resell it for a profit. And this is not stopping developers from asking exorbitant amounts of money for the land that they've already purchased. Take this plot of land, for instance, that is equivalent to $700,000 U.S. Well, how about this one over here, asking $210,000 U.S.?

Now, this is not the first time that people are paying a lot of money for virtual items. Practically every video game out there now offers the freemium business model, where they give you the game for free. Then, once you start enjoying the experience, you can later pay for upgrades or additional features. This is a very, very smart business move that’s taken over the way gaming and app developers run their businesses.

But how far is too far? Consider this: a former client of mine, John Jacobs, purchased Club Neverdie within the Entropia universe for $100,000 in 2005. Within eight months, he recouped his initial investment of $100,000 by selling off smaller portions of his purchase. Then just five years later, in 2010, John sold off the remainder of his holdings, and Club Neverdie became the most expensive virtual object ever sold in the world, and that sold for $635,000.

Or how about this: party hats in Runescape which are now selling for thousands of dollars for something that doesn’t exist outside of the virtual world. Here’s the problem from the way I see it. On one hand, you have the utility value for what something is actually worth in a game like Decentraland. This could be how many active daily users you have, how much income that land actually produces, that you can use in the real world to buy real things, and also whether or not the user growth of the site is growing or declining.

Then from there, we could come up with a value for what that land is really worth, given the risk of the game and the ROI, and how that land could be monetized. This is the land's intrinsic value. Because just to say something is worthless because it's virtual couldn't be further from the truth. There is some type of value that we have to give to the land given what it can create and given how many people use the site.

But where many people tend to get carried away is simply with the greater fool perspective. This is the perspective that I am willing to pay whatever price needed to get something simply because I believe someone else will be willing to pay more than I did. Then it becomes a game of musical chairs, where eventually someone is left without a chair. And by "chair," I mean money. So, they're left without money.

Speaking of that, we could pretty much describe 99 percent of cryptocurrencies in December—Crypto Kitties, tulips, tech stocks, real estate in 2006, and a million other speculative investments that simply just imploded when they hit a saturation point. The problem that I see with Decentraland is that there's not really a need for the game. It doesn't really solve a problem. Sure, all of this can be seen as entertainment, but let's be real: Netflix could be just as entertaining for $10 a month. Or even subscribing to my channel, which hopefully you already subscribed to! You hit the like button; my channel is just as entertaining for free.

There are also plenty of other games out there where you don’t purchase land for $200,000 plus dollars. But the real question is if people will actually want to play this game on a regular basis, and this became the downfall for many of the cryptocurrencies out there. The reality is that most people never actually used their altcoins. They were totally useless to begin with. They didn't serve a purpose; they didn't solve any problem, and most of them were simply set up to be money grabs. But that didn't stop many people from buying a horrible ICO simply because they thought someone else would pay more than they did. And some people were right and made a ton of money, but arguably more people lost than won.

It's this intrinsic value that separates Decentraland real estate from actual physical real estate. If Decentraland has a strong enough user base, if their users are growing, and if that land actually produces some sort of in-game currency, then it’s fair to say that that land is valuable, and that we can assign a worth to that land given the risk that someone’s willing to take. But valuing something simply because there's 90 that's available is meaningless. Typically, this is just a marketing tactic to get the buyers in a scarcity mindset, where they have the potential to lose out if they don’t act quick.

This also gives the buyer a false perceived value that because something is scarce, it must be worth more, which is very untrue. This is something I've never understood about so many limited edition items, including cryptocurrency. Who cares if there are only 10,000 of something if nobody wants it in the first place? I'd argue this same concept applies to virtual land as well. There’s nothing proprietary about this, and there’s nothing stopping me from going and creating Dreamland with only 10,000 spots available.

But let's be real here: scarcity and saying something is limited works very, very well. As much as we don't want to admit it, psychology sells, and it’s often our emotions that drive what we decide to buy. For instance, if I told you that you only have two hours to buy this wallet and then the price doubles, you would be more likely to buy it. If I couple that offer with "there are only ten of these available and after that, they're never making this again," you would be slightly more likely to buy it. And then if I took it a step further and I said that there’s only one wallet left, and then after this it’s sold and it’s gone forever, as long as I could demonstrate a perceived value for this wallet, I think I could sell it to you.

I think it’s also fair to assume that it’s this perceived value that largely drives luxury market pricing. So anyway, going back on topic here, from both a business standpoint and investment standpoint, with some common sense practicality thrown in for good measure, there’s nothing inherently wrong about buying something within a game. We've all done that. If buying an item gives you an edge over someone else in terms of gameplay, then it simply becomes an advantage that increases your level of enjoyment throughout the game.

At that point, you're really just spending money on entertainment, much like you would spend money on a movie or a night out on the town. And that purchase then has a measurable intrinsic value to it. But where it gets interesting is the meaning behind what we give certain items online. Like spending $3,000 on a Runescape party hat that has no inherent edge over the game might be worth it for a Runescape aficionado who has the type of finances to drop that kind of money. Or spending $10,000 on a virtual plot of land might be someone's idea of enjoyment, much like someone else would spend $10,000 buying a Mazda Miata and modding it. There’s nothing wrong with either choice, so from that perspective, it's all good.

But what about foreign investment? And this is where we begin going down the rabbit hole. We've seen this time and time again with cryptocurrency or Crypto Kitties, that if there is no intrinsic value, it will eventually fail. In order for something to be a viable long-term investment, it must have some type of utility value. And if it doesn't, at best, it’s simply a speculative gamble. And this carries over—it’s just about any investment out there, whether it’s stocks, real estate, cryptocurrency, businesses—anything. Its intrinsic value is what matters most. If it doesn’t have any value, don’t buy it. Very simple stuff.

So, what’s my opinion on Decentraland? Personally, I feel like it’s a very generic concept, with nothing stopping other companies from just simply copying the same thing over and over and over again within different games. I don’t really see anything proprietary about this or anything overly unique about this that would prevent other games from simply implementing this in their own way and then trying to capitalize on it. If Decentraland actually gets so big as to compete with, like, Runescape or Minecraft, then definitely this land can actually become worth quite a bit of money. But that again ties back into the fact of having intrinsic value where you have a growing user base and it’s actually providing something within the game that then makes the land worth real money.

That’s in direct opposition to what's currently going on, which seems like investors are just buying up this land because they believe it's going to be quick, easy money. The sad reality is that I feel like investors are really the ones driving this type of market instead of the actual users, which make the market valuable to begin with. And if this is the case, buying land like this proves to be incredibly risky, and eventually, just like a game of musical chairs, someone will be left without a chair.

So, with that said, you guys, thank you so much for watching. I really appreciate it! If you guys enjoy videos like this, make sure just to smash that like button—super easy to do, everyone can do it—but only like 10% of you do. So, if more than 10% of you guys could do that, I would be greatly appreciated! Also, if you haven't already subscribed, make sure to smash that subscribe button. I post three videos a week, all completely free for you guys to watch.

So, if you guys enjoy it, make sure to subscribe. It's easier to subscribe to me than buy a $200,000 plot of virtual real estate. So, make sure to subscribe! Also, feel free to add me on Snapchat and Instagram. I post there pretty much daily, so if you want to be a part of it there, feel free to add me there. Thank you again for watching, and until next time!