Decentraland and the Greater Fool Theory

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Image by Couleur on Pixabay

As I have written about several times before on this blog, I am extremely skeptical about the overheated land market in Decentraland. I believe it’s a financial bubble that is going to hurt a lot of investors when it pops.

Last week I read a CNBC article about Jordan Belfort, the famous “Wolf of Wall Street”, who is warning investors to get out of Bitcoin if they don’t want to lose all their money:

“[Bitcoin] is all based on the Greater Fool Theory,” Belfort says in a recent YouTube video. “I know this better than anyone in the world. I’m not proud of that, but I do.”

Belfort says bitcoin’s price surges are thanks only to a belief by buyers that there will continue to be ‘greater fools’ who they can sell the asset to at a higher price.

“There’s no fundamental value [with Bitcoin], it’s all based on the next guy and the next guy,” he says. “Get out if you don’t want to lose all of your money because … there’s a very good chance it’s going to crack. And when it really cracks, you’re not going to be able to sell on the way down, there will be no liquidity.”

I remembered what Belfort said when I came across a blog this evening called Decentraland Blogger, by a guy called Matty786 who describes himself as follows:

I got interested in the project back in January when I had no idea virtual land ownership was even a thing. I was just searching different blockchain projects and stumbled open Decentraland. A crypto blockchain project inspired by novels such as Ready Player One and Snow Crash.

After a bit of researching I was hooked and decided to jump right in buying my first couple of properties for around $500 USD each.

Now, 6 months later, I’ve bought and sold 100’s of properties and made close to $100,000 USD doing it!

And now Matty wants to share his knowledge with the world! For the low, low price of only 1 Ethereum coin (US$485/CDN$686), this guy will teach you everything he knows about flipping virtual land for profit in Decentraland:

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Witness the Greater Fool Theory in action!

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The Land Price Insanity Continues at Decentraland

Someone recently posted the following offer to sell an 80m-by-60m parcel in the initial Genesis City region in Decentraland (each red square on the map below is one 10m-by-10m piece of virtual real estate, called LAND):

Land Bubble Insanity on Decentraland 4 Apr 2018.png

MANA is the cryptocurrency in use in Decentraland. According to this MANA to US dollar converter website, that asking price works out to:

MANA to USD 4 Apr 2018

That’s right, a million dollars for 4,800 square meters of land. Compare that with Second Life, where a 65,536 m² plot sets you back US$600.00 with a monthly fee of US$295.

The seller justifies his asking price by saying, “but there’s nothing else on the market of this size with this much land next to a road”. Keep in mind that proximity to a road is a moot point when you can usually teleport from place to place in any virtual world (but, of course, you can’t even visit Decentraland yet, let alone teleport anywhere).

The only active, functioning part of Decentraland at the moment is the land market, where people are frantically buying and selling virtual land in anticipation of making a huge profit when Decentraland actually goes live (and nobody can say when that will be, yet). Given how extremely competitive the virtual world market is, and how much further ahead most of the other platforms like Sansar, High Fidelity, and Sinespace are in terms of functionality, this is extremely risky speculation.

I notice that since my last blogpost about the Land Marketplace in Decentraland, the developers have turned off the website’s ability to sort and view the marketplace listings by most expensive first. So you can no longer easily find out what the most expensive land is selling for. Well, actually, it’s still pretty easy to see, you just select the sort by Cheapest option and scroll to the very end of the listings:

Decentraland Most Expensive Land Prices 4 Apr 2018.png

I just keep shaking my head, and I keep watching from the sidelines.

Decentraland Launches Their Land Marketplace

Decentraland has announced the launch of a website for people buying and selling LAND (what they call the 10m-by-10m parcels of virtual real estate in Genesis City, their first city). Here’s a recent Decentraland blogpost going into more detail on how it all works. Be warned, the website can take a while to load.

As I have written before, I am shocked at just how much money some people are asking for their LAND. I used the new Decentraland Marketplace website to find a piece of LAND for sale near the central square in Genesis City, for sale for 13,140,000 MANA (their cryptocurrency):

Decentraland Expensive Land 20 Mar 2018

According to this cryptocurrency converter, that works out to:

Decentraland Expensive Land 2 20 Mar 2018

And that’s not even the most expensive land for sale, according to a sorted listing of the most expensive LAND:

Decentraland Expensive Land 3 20 Mar 2018

Clearly, these people are not serious, and are probably only testing the boundary values of the system. This reminds me of the joker who placed this item up for sale in the Sansar Store:

Gold Box 20 Mar 2018.png

Still, it’s fascinating to watch the LAND auctions in Decentraland. Remember, Decentraland is a virtual world where the economy has been built first, before the actual world itself. This is pure speculation, with not a little greed thrown in for good measure.

You may wonder what the cheapest LAND parcel is selling for. It’s 8,500 MANA for one 10m-by-10m parcel of LAND, which works out to about US$740. This makes Second Life (a virtual world you can actually visit) seem like a bargain! It makes any other virtual world seem like a bargain.

Decentraland Land Sales: Is This a Financial Bubble in the Making?

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Image: Are We Seeing Another Dutch Tulip Bubble? (Photo by Alisa Anton on Unsplash)

Much of the activity in the various channels on the Decentraland chat server revolves around the buying and selling of LAND, which is the name they actually use for the 10m-by-10m parcels of virtual real estate that were first auctioned off in December 2017 and January 2018. It’s not yet known when the next auction of LAND will take place, so currently the only way to obtain LAND is to buy it from an existing owner.

Here’s one example of some LAND parcels currently for sale, along with their asking prices (this is a screen capture of part of an image shared by a seller on the chat server) :

Decentraland Land Sales Examples 27 Feb 2018

The red circle to the left, near Vegas City (the proposed gambling district), is three parcels of LAND together in a reversed L shape. Asking price is 80,000 MANA, which, according to today’s value using this MANA-to-USD converter tool,  works out to about US$8,749. According to Decentraland believers, this land is considered more valuable because it is located next to what is anticipated to be the lucrative and busy gambling district.

Now, mind you, you can’t even VISIT this land yet, and there is as yet NOTHING in Vegas City. The Vegas City investors are still wrestling with what they want to do with this large expanse of pooled property, how best to organize themselves, and how to split their anticipated future profits. There’s been quite a bit of discussion and even open conflict amongst the members of this group. The three main organizers were initially going to do an Initial Coin Offering of their own blockchain-based Vegas City token, until Decentraland (the company) poured cold water on that idea. (Decentraland is turning out not to be as “decentralized” in authority as some early idealists might have hoped. I think this sort of disillusionment happens in all virtual worlds. Eventually, the parent company has to step in and set corporate policies which the users might not like, want, or appreciate. Ask Second Life users who tried to set up banks and casinos.)

The red circle in the upper right corner of this map is a slightly smaller area (2 adjacent parcels of LAND), in a possibly less desirable location, for which the seller hopes to get his asking price of 25,000 MANA, equivalent to US$2,734. Again, all LAND prices are based on speculation, on anticipated future value. And obviously, some people jumped into Decentraland hoping to make some sort of profit by flipping LAND parcels.

In my opinion, these are astronomical prices, far outstripping what people have spent for virtual land in established virtual worlds like Second Life (where a full sim, 256m-by-256m, is US$600, with an additional US$295 per month maintenance fee). And Second Life land is widely considered to be expensive! Quite aside from the significantly higher up-front costs for much smaller pieces of land, it’s not immediately clear whether there will be any other fees (either monthly or one-time) associated with Decentraland real estate.

What’s worrying me is the fact (as I have said before) that the technical aspects of the Decentraland project are lagging far behind the financial ones. People have spent thousands of dollars on this virtual real estate (with prices actually reaching US$120,000 for one 10m-by-10m parcel of LAND) without a really good sense of what they are actually going to be able to build there, how they are going to build it, who’s going to visit it, or how to monetize it.

My fear is that this virtual land market is becoming a financial bubble, with people already making outrageous claims as to what you can do in Decentraland. It’s like the Wild, Wild West all over again. It is beginning to remind me of some famous financial bubbles of the past, like the Dutch tulip bubble. Everybody is piling on, expecting to become rich.

I’ve already gotten some flak from certain quarters in Decentraland for being a negative Nancy, for not being a true believer in the value of the blockchain, for being one of the relatively few people to say, “hey, wait a minute…” in the midst of all this fevered speculation. I’ve argued with people who assert that the scarcity of land in Decentraland is real scarcity, not artificially-induced scarcity, and that land scarcity is a good thing.

But (and I do apologize for mangling a line from the movie Field of Dreams) there’s absolutely no guarantee that if they build it, they will come.*  The social VR/virtual world marketplace is getting increasingly crowded, and many competing products are more fully featured, and based on models of virtual land abundance, as opposed to scarcity. Sansar experiences can be 4 km by 4 km, and I know that Sinespace regions can be much larger than that (I’m not sure that they have a maximum size limit, although I seem to remember Adam Frisby telling me they could be as big as 32 km by 32 km. I know you could drive a dune buggy for half an hour in one direction in Sinespace’s single Grand Canyon region, before reaching the edge. It was seriously impressive!)

I’ve already written about virtual worlds that foundered due to misplaced priorities and bungled promotion. Having watched various platforms come and go over the past decade (Cloud Party, Blue Mars, Twinity, etc.), I have learned that building a successful virtual world is a much bigger and tricker endeavour than most people realize. In many cases, it’s like trying to fix all the parts of an airplane, one by one, while it’s flying in mid-air. Only in the case of Decentraland, people are frantically bidding up seat prices on a plane that hasn’t even been shown to be able to take off yet.

*Yes, I know that there is no guarantee that Sansar, High Fidelity, Sinespace, etc. are going to succeed either. But unlike Decentraland, they are already actual working platforms which you can visit, test, and evaluate directly. Each has already attracted a small but committed group of avid tinkerers and experimenters. So far, the only truly successful virtual world is Second Life, still going strong after fourteen years and still profitable for Linden Lab, and many new social VR platforms are now fighting to inherit that mantle. Not all of them will succeed. I still do believe that at least one of the Big Five tech firms (Amazon, Apple, Facebook/Oculus, Google, and Microsoft) will release a social VR/virtual world product that we haven’t seen yet, funded from their deep pockets, and roil the marketplace even further. It’s an exciting but perilous time for any new virtual world. We may well end up with a Facebook-like situation, where one company dominates the market. We’ll see.

UPDATE March 5th: I was able to confirm that the maximum size of Sinespace regions is 32 km by 32 km, which is amazing!

Philip Rosedale Schools a Decentraland Promoter

The level of hype over blockchain-based virtual worlds in general, and Decentraland in particular, never fails to amaze and amuse me. Sansar user Theanine alerted me to this gem of a tweet by Barry Silbert, who appears to be a cryptocurrency cheerleader, and the absolutely perfect response from High Fidelity’s Philip Rosedale:

Decentraland Hype vs Reality 23 Feb 2018

Damn! Barry got told. And Philip is right; High Fidelity is well ahead of Decentraland.

It would appear that Barry is quoting directly from this rather strange article from WT VOX, titled Fashion For Digital Self – VR Environments For Self Identity Congruence. Here’s the quote in full:

Decentraland comes closest to the ‘Ready Player One’ virtual reality. Its advanced VR platform is powered by Ethereum’s blockchain and lets users create raw materials, construct buildings, objects, enjoy experiences, exchange goods and communicate. Even more, in Decentraland’s virtual reality world users can monetize content, such as goods, experiences, services and more complex applications.

What? WHAT?!?? Right now investors in Decentraland can’t do ANY of those things! You can’t even set foot in Decentraland right now!

Decentraland: Why I Remain a Skeptic

Decentraland 14 Feb 2018

When I first heard about Decentraland, I didn’t know quite what to think of it. A decentralized-authority, open source virtual world using the blockchain for transactions? At first, it sounded like an even more libertarian version of High Fidelity. I was curious.

In late December, I joined the Decentraland chat server, and I lurked there a couple of months, following the discussions of people who had invested significant sums of money in buying Decentraland’s blockchain-based currency, whimsically named MANA, and who had then used that MANA in a bidding frenzy on 10-metre-by-10-metre plots of virtual real estate, called (of course) LAND. And I must admit that I am still somewhat mystified by all the feverish speculation. But then, I’ve been mystified by the whole idea of the blockchain and the market bubble Bitcoin and its fellow cryptocurrencies have created in the past couple of years.

You see, last August Decentraland raised 24 million dollars in an initial coin offering (ICO) for their cryptocurrency MANA, selling out in less than one minute according to published reports. Then on December 15th, they launched their first LAND auction, which concluded a couple of weeks later. Apparently, over 28 million dollars (U.S.) was spent on LAND in total, making it what Decentraland calls “the largest ever virtual land sale”. On January 10th, I made the following comments on the #offtopic Sansar Discord channel about Decentraland:

According to comments on the Decentraland chat server, some 10m by 10m parcels of land actually sold for over US$120,000…

When someone questioned the validity of this assertion, I did some quick calculations, and discovered that this was indeed true:

Well, they do have it all listed someplace…. hold on let me find it…

Here’s the stats on the land auction: https://auction.decentraland.org/stats According to this, the highest bid on a plot of land was 600,000 MANA, which works out to:

Using the value from here: https://coinmarketcap.com/currencies/decentraland/

US$128,581

Whoever it was who paid that much, I’m pretty sure it is a speculator who hopes to flip it for profit. Or someone who actually hopes to earn back that astronomical amount through advertising or sales. Although how somebody expects to make a profit after paying over US$120,000 on a 10 m-by-10 m parcel of virtual land is a mystery to me.

And compare Decentraland’s land model with other virtual worlds like Sansar, which offers you up to three parcels of virtual space, which can be up to 4 km by 4 km in size, FOR FREE. Note this direct quote taken from the Decentraland website:

Why is land scarce?

Without scarcity, most LAND would be left abandoned, which would hurt content discoverability and the user experience overall.

Now, artificial scarcity of a digital resource is not a new concept. I remember people bidding up the price of virtual land to unheard-of prices when Bay City was launched in Second Life, for example. But hurting content discoverability? It’s called SEARCH, people. Every virtual world has a search function. (Although they do have a point about abandoned land, as anyone who wanders through Second Life’s mainland lately can attest.)

The two young Argentinian co-founders of Decentraland, Esteban Ordano and Ari Meilich, give an overview of their virtual world in this recent 40-minute YouTube video from HashedLounge, a crypto meetup in Seoul, Korea:

There’s lots of talk in this video about something called cryptocollectibles. As this article from Salon explains, cryptocollectibles are a new fad: one-of-a-kind digital collectibles like Beanie Babies, each purchase verified by the blockchain (some recent examples: CryptoKitties, CryptoPunks). Frankly, I’m pretty skeptical about the whole idea of cryptocollectibles as a way to make money, but then again, breedables are still a thing in Second Life, so what do I know? Maybe they’re on to something new here.

Here’s a map of Decentraland, called Genesis City. All the black lines are roads. The green areas are land parcels that were bought by individuals (almost all of these were sold in the recent auction). The blue areas are called districts, and those are places where a group of people got together to pool their LAND and build an area based on a particular theme or for a particular purpose. For example, the Aetherian Project in the upper right-hand corner of the map is meant to be a cyberpunk-themed area (here’s their website). Note that they also have plans for a university and a conference centre (located together in a rectangular area near the top of the map).

dcl_map_rev1.01

The lands near the white square right in the middle of Genesis City were the ones that went for the most money. The idea appears to be that avatars will spawn in the centre of this map and actually have to walk to get to wherever they want to go, thus making lands around the central plaza more valuable. Excuse me? Have the people behind Decentraland ever heard of teleporting? I can’t imagine a virtual world without teleporting, which makes the idea of one location being more valuable than another somewhat of a moot point. Have people learned nothing from Second Life?!??

Here’s the original proposal for Vegas City, the proposed gambling district. They even took a picture from a Second Life blog to illustrate their proposal!

Picture from Vegas City Proposal 14 Feb 2018

Note that Decentraland is absolutely nowhere near the level of development to have avatars bobbing around in inner tubes in fancy swimming pools! In fact, as far as I can tell, they haven’t really talked much about avatars at all. Yes, that’s right, a virtual world where people have invested millions of dollars, and there’s been next-to-no discussion of what their avatars are going to look like.

That’s the thing that drives me crazy about all this. Look at this slick promotional video they put out. EVERYTHING in this video is an artist-created simulation of what Decentraland is supposed to look like; NONE of it is actual in-world footage, because there’s nothing to see yet!

In the HashedLounge video above, in response to a question from the audience, the founders stated that a Web browser client or a VR client for Decentraland will not be publicly available until much later this year. So people have spent up to US$120,000 on 10 m-by-10 m parcels of land that they can’t visit yet! All they have right now is a recently-announced CLI (command-line interface) for developers.

The company behind Decentraland is still very small—one of the founders said in the video that they had quadrupled in size from 5 to 20 staff in just a couple of months—and I get the impression that they still have a tremendous amount of work to do to build a functional virtual world. I’m still not sure they completely understand the magnitude of the challenge they have taken on.

Oh, and another thing. I posted a comment to the busy Decentraland Reddit channel, reminding them that the FBI investigated gambling in Second Life, which had led to them shutting down online gambling a decade ago, and asking if anyone had stopped to think about whether the U.S. federal government would step in to stop Americans from gambling using cryptocurrency in Decentraland’s Vegas City district. That Reddit post was taken down by the moderators less than an hour after I posted it. I can only assume I was censored because they didn’t want to spook investors in their platform. I’m not impressed.

So, despite all the energy and enthusiasm I see all around me on the Decentraland chat forums, I predict some troubles ahead. I do want them to succeed, but I see lots of people with stars in their eyes who leapt on board this project when they heard the magic word “blockchain”, without doing proper checking beforehand.

Profit and the economy are squarely front and centre in Decentraland, and product development (the actual building of a virtual world) seems to be taking place afterward. That’s putting the cart before the horse. Compare this with Sansar, where Linden Lab invested years of work to build an actual, visitable virtual world before the expectation of earning any profit, both for the company and for its users. The same goes with High Fidelity, Sinespace, and almost every other viable virtual world. Nobody’s tried to sell a virtual world up-front, on speculation, the way that Decentraland has.

But I’d love to be proven wrong. Maybe Decentraland (the virtual world) will take off the way their ICO did. I wish them luck. All in all, it’s going to be fascinating to watch the platform evolve.

The Sansar Newsblog Has Changed Its Name to RyanSchultz.com

The SansarNewsblogis now

I have decided that I’m not going to wait for Linden Lab to issue brand guidelines for Sansar. I am rebranding the Sansar Newsblog under my own name. (I’ve held the domain name for well over a decade, and this is the perfect place to finally use it!)

All of the old blogposts are still searchable and accessible, and almost all the Sansar-related blogposts have been tagged with the tag “Sansar” to make them easier to find. All the old URLs should still work as before.

Along with the new name comes a new focus. I will no longer be focusing near-exclusively on Sansar in this blog. Instead, I will be expanding my coverage to provide “News and Views on Social VR, Virtual Worlds, and the Metaverse”, as my new blog tagline now states. Platforms covered will include, but not be limited to:

Note that I do not plan to write much about Second Life and its many Opensim-based spin-offs; there are already over a thousand avid bloggers who do an excellent job of that! I plan to focus on the newer platforms, especially those that support virtual reality.

I will be closing the Facebook and Google+ groups I created for the Sansar Newsblog, and creating new groups for this rebranded blog.