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A $1 Million Purchase for a Piece of Digital Land —What is Decentraland?

José Oramas 26 July, 2021 | 6 min read

Cryptocurrencies and the decentralised finance world are showing us their true potential as time passes. We know that traditional financial institutions are embracing crypto and enabling Bitcoin trading services. And construction and agricultural companies are using blockchain supply chain solutions to keep a record of structural design and keep track of the number of assets they have in stock.

But what about real estate and virtual reality worlds? Is blockchain technology capable of digitizing physical properties and allow anyone to trade them with real money? The answer is yes, and we have open-end worlds that are using blockchain technology, allowing anyone to trade digital goods and even set their own businesses there.

To give a perspective of how big this industry has grown, a piece of land in the Ethereum-based virtual reality game Decentraland was sold at almost US$1 million, making it the biggest sale in there. Digital real estate firm Republic Real bought it on June 18 for $913,808 worth of MANA, the game’s native token.

What is Decentraland?

Launched in 2017 by developers Ariel Meilich and Esteban Ordano, Decentraland is —as the name suggests— a blockchain-based, decentralised virtual reality world where users can trade tokens, NFTs (Non-Fungible Token), and buy pieces of land with the platform’s native currency, MANA.

Users on Decentraland.jpg

Decentraland, where NFTs Meet

We’re talking about a decentralised autonomous organization where everything is automated through smart contract programmability, eliminating human error and the need for a third party, so pretty much everyone can sell, buy, and trade assets inside the game in a fully decentralised manner.

Not only trading. Decentraland has many use cases. Developers can build applications (dApps), while users can buy real estate, lands, supercars, play with other players and share their artwork, and just like in real life, they decide what to do with it.

Background

Ariel Meilich and Esteban Ordano co-founded Decentraland in 2017. The project debuted through an Initial Coin Offering (ICO) raising over $26,200,000 in 24 hours. Their founders were in charge of the project and its roadmap until they decided to give full control to the community. Now Decentraland runs through a decentralized organization controlled by its users, and only them can vote to decide what aspects of the game can be changed.

MANA, Decentraland’s native token, soared earlier this year as the game blew in popularity. Players could do almost anything, and it became more than a game —it turned into a metaverse where people had a second life, powered by blockchain technology

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A Blockchain-based Metaverse

Decentraland integrates several technological components divided to give users the best experience on the metaverse.

Layer Distribution

Decentraland’s architecture is divided into three components: consensus layer, land layer, and real-time layer

  • The consensus layer integrates a ledger that keeps track of land parcel’s ownerships. Being an ERC-721, every LAND has a unique serial that proves its record ownership, so smart contracts help to keep track of these parcels.
  • The land content layer renders the Decentraland world —it’s the most important layer as it renders the entire metaverse and provides the necessary information that the protocol needs. It works as decentralised storage where users can download assets.
  • The third layer allows users to connect to the metaverse with peer-to-peer connections.

On-Chain Governance

Decentraland's co-founder gave the community full control of the protocol and now they work as consultants. The metaverse is now governed by a DAO that has all of the smart contracts and assets and subsidizes several aspects of it too. The DAO has control of LAND and ESTATE contracts, Wearables, Content Serves, and the marketplace.

What can users do by holding MANA? Vote. By voting, you have a voice on the updates of policies, future changes, builders, marketplace, and whitelisting NFT contracts. Users who want to vote need to go to the DAO’s interface. Here they can vote and propose their ideas on these aspects., but first, they need to convert MANA into wrapped MANA (wMANA) and lock it in the DAO, just like other DeFi protocols do to allow voting.

Voters have a wide range of options to determine, and the protocol has laid out a list of things that voters will decide on, including:

  • Upgrading LAND and ESTATE to add more features to the metaverse and protocol upgrades
  • LAND Auctions characteristics and their future dates
  • Marketplace fees, all burned in MANA.
  • Addition of new wearables to the metaverse, a Builder, and a marketplace.

The DAO also has its own supply of MANA to fund its operations.

Securities Advisory Board

o keep contract security and the DAO safe, Decentraland has a guarantor called SAB —Securities Advisory board, composed of 5 members that provide rapid responses to bug reports. How does it work? If a contract of either LAND or ESTATE is corrupted, the SAB replaces their smart contracts, eliminating the bugged version and implements an upgraded contract.

Virtual 3D Stores

As reported by The Block, Republic Realm, a digital real estate investor, has set up shop in Decentraland through a $900,000 parcel acquisition. The virtual shopping district is called Metajuku, and has over 16,000 square feet and two main tenants.

This adds an interesting tone to what people can do in this digital universe. People won’t receive any physical clothes —they’re all digital, but it seems people are fine with that. Wearables, according to Janine Yorio, director at Republic Real, do not necessarily have to be made in physical forms.

“We saw the ways that people in the metaverse were interacting with other things like casino gambling and digital events. We knew the next step was figuring out a way for people to do product discovery in the metaverse. The same way that every consumer products company has a website today, they will all have virtual stores in 3D immersive environments in the future, and those stores will be in the metaverse.” She stated.

We have seen the boom of NFTs in social media, and virtual reality worlds have given a space to users who want to create a second life, but also share their creations with other people and buy from marketplaces and stores online. Republic Realm is just the first virtual reality shop where users can buy with real money.

Yorio argues that as time passes, e-commerce will become more attractive to people, especially young players who want to experience 3D worlds.

What can you do in Decentraland?

Nearly everything you do in real life can be done here —buy clothes, dress your character, buy assets (Non-Fungible Tokens), share your artwork, interact with other players, and even buy pieces of land. How? Through smart contracts. Smart contracts allow peer-to-peer negotiations under a computer-generated agreement. Both parties can trade items or buy clothes, for example, directly. However, Decentraland is not limited to these things:

Builder: This is a visual editor tool that allows users to create and promote their scenes on the metaverse. Developers can reach out to token holders to show them your work, it’s also a good starting point for practice.

Marketplace: here users can trade their on-chain assets, like LAND, wearables, and artworks. You can set your own price in MANA and the expiration date for the auctioning. You can also give other players permission to edit the parcels you own.

Content Curation: Decentraland user base has grown exponentially over the years, so much that there are neighbourhoods established in various locations in the metaverse. Organic communities are present almost anywhere, and these communities gather information about the game to know what their experience is or what they think should be upgraded or changed.

MANA, LAND, and ESTATE

Decentraland has three utility tokens —MANA, LAND, and STATE.

LAND tokens come as packages that contain virtual land plots, services and goods, and users can buy these with MANA, which works more as a transaction token and for paying fees. Estate, on the other hand, are NFTs (Non-Fungible Token) that can be bought with MANA as well. What are their specifications?

  • LAND: this is an ERC-721 token. The ERC-721 is a standard that represents NFTs, so think about LAND as a digital version of a parcel that you can buy within the game.
  • MANA: This token uses the ERC-20 standard —used by most DeFi protocols nowadays.
  • ESTATE: Also uses the ERC-721 standard.

ERC-721 are standard interfaces specifically made for NFTs. They allow applications to work with any of these digital assets on the Ethereum blockchain. These NFTs are represented in the game as collectibles —clothes, items, and LAND. Users can store their tokens on their crypto-wallets to later trade them on the Decentraland Marketplace.

How to get MANA?

You can buy MANA on almost every exchange, or you could sell items within the game. Being an ERC-20 token, MANA is compatible with other tokens on the Ethereum blockchain, making it easy to swap from one token to another. You can also keep track of LAND parcel’s prices and buy services in the marketplace.

Competitors

There are several open-ended virtual reality worlds out there with sandbox gaming styles, and we could name some of the most popular ones like SimCity, Minecraft, or AltSpace VR.

Sandbox is one of Decentraland’s main competitors —an Ethereum-based virtual reality game heavily focused on NFT artwork promotion for artists and creators. Here, anyone can use the SAND platform to create digital goods and sell them at the marketplace.

There are some differences between the two we can point out. For instance, Sandbox allows you to create your own 3D games for free using a human-readable visual scripting tool. In Decentraland, users are more focused on holding pieces of LAND and speculate on the price, besides trading other digital goods.

Conclusion

Decentraland has become one of the leading blockchain-based open worlds in the industry, and the fact that real-world institutions are considering establishing a marketplace highlights the potential use cases of decentralised technologies and blockchain, especially in times where most things are driven digitally.

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Author's avatar
José Oramas
Fintech and finance writer, with keen interest in blockchain and crypto.

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