Talking about the Metaverse today comes with loads of guessing and speculation about how the giants seek to find a position in its creation and development. But that doesn’t really provide any short-term context for companies to take specific actions.
All those unknowns may, however, find some answers in the prototypical virtual-reality worlds that already exist, and help us sketch what e-commerce in the Metaverse will look like.
Increasing data privacy concerns and the slow death of third-party cookies are making online businesses find new strategies to keep their audiences engaged by pampering their communities with care and close contact. But at the same time, something is slowly changing: centralization and the way that data is used and processed.
Decentralization is often related to cryptocurrencies and Blockchain technology. And this is precisely the fertile ground e-commerce stands on, waiting to sprout.
And if Instagram recently announced the test of NFTs in the app, Content2Sell keeps exploring how the giant steps towards the Metaverse are guiding the future of e-commerce.
E-commerce in the Metaverse
We chose Decentraland because it has risen as an open ecosystem with huge opportunities for the future’s free market. So, we will explain what it is about, how it works, and what opportunities and challenges it faces.
It’s a matter of time for these platforms to include physical products. However, the change is subject to the arrival of faster internet connections to transmit 3D renders in real-time, as well as the democratization of the necessary technology to make it sustainable.
Today, Decentraland’s streets are mostly empty, and it is far from reaching its commercial potential (for the moment it’s mostly casinos and NFT’s), it is definitely worth understanding it.
What is Decentraland?
Born in February 2020, Decentraland is a decentralized Virtual-Reality platform hosting a game-like world to buy spaces and provide environments for commercial and entertainment purposes. As they explain in their own words, Decentraland seeks to host “allow the development of games, applications, and dynamic 3D spaces”. This is the first step to becoming a potential e-commerce platform – it already is, if you consider objects, avatars, names, sounds, and the myriad of elements that already exist there.
Accessing Decentraland requires no software installation and no central server access, which, at least theoretically, succeeds in giving users more control over their data.
It is a finite space, limited and divided into 90.000 parcels, each one being a unique NFT in Ethereum. That makes properties traceable, with the property’s ID and characteristics, and provides ownership confirmation.
Each Land has a unique location in the map. Parcels can’t share coordinates, and their appearance and functions are fully customizable for specific purposes.
Something that may not surprise people familiar with games like SimCity or Age of Empires.
How does Decentraland work?
This is a step forward in the hybridization of the world. On the one hand, Decentraland’s internal protocol (more on this below) stores and distributes all content. On the other one, it reproduces many of the aspects that define the real world as we know it: property, commerce, currency, the public/private dichotomy, and even politics.
All tokens and NFT transactions happen on Ethereum and Polygon’s platforms, which back them and secure them.
Now, let’s dig a little deeper.
3 types of land.
Decentraland has 3 types of land.
- Parcels. Parcels are the smallest available land units and are available for both purchase and sale. Several parcels can merge into DISTRICTS to gather communities around specific themes: business, casinos, sports,.. You name it. Some parcels are available, and some are not. In fact, Decentraland’ map has colors to define their status. However, million-dollar investments have come, and not necessarily for immediate use.
- Squares. Squares are strategically located in the map. They are a public “commuting space” that belongs to the DAO (Decentralized Autonomous Organization). Thus, they are not purchasable. Hence the notion of Authority to keep a stable environment where users can create, and develop their private properties for specific purposes.
- Streets. Streets are like squares and belong to the DAO too. However, some of them connect Districts, or Lands that make Districts. When this happens, owners can garnish streets with different elements – even billboard ads for users to wander around and discover.
When it comes to pricing, location determines the cost. This means that center locations are likely to be more expensive than “the outskirts”. And this is where things get interesting, as supply and demand can make Decentraland very similar to real-life housing bubbles.
But not only properties are for sale in Decentraland: also, wearables like virtual clothing, accessories, and even names can be valuable goods to create, develop and protect brands.
This works similarly to Minecraft, where a million-dollar economic unit based on user creations is increasingly profitable for those who first took the plunge.
Currency
Unlike parcels, purchasable goods (such as avatar clothing and accessories) are not on Ethereum but on a different cryptocurrency: Polygon.
The reason is simple: Ethereum may be popular and seem more stable than smaller cryptos. That means more people, but higher transaction costs too. Polygon, in turn, has fewer users and is thus faster and cheap enough to support the numerous transactions happening – likely to increase over time – in Decentraland.
Part of creating a stable environment ruled by equity, safety, and privacy goes through creating a system that guarantees them. And since money rules the world, these platforms need their own cryptocurrency and proper currency exchange.
Decentraland uses $MANA for every transaction within Decentraland. From attending live events to purchasing accessories, betting in a casino, or even voting the virtual world’s statutes: protocol changes, terrain modifications, market rates…
But the parcels market uses $LANDS which, as we mentioned above, works with Ethereum.
Layers
Decentraland operates through three layers:
- Consensus layer. Decentraland uses smart contracts provided by Ethereum, containing information like the Land’s coordinates, the user’s name, and a unique file that acts as the property deeds. This layer grants seamless access to the Ethereum network to get independent updates on their property’s status.
- Content distribution layer: A decentralized system used to distribute the content that makes the virtual world. A Land’s renders and descriptions are stored in a file linked to the Land’s property deed and are retrievable whenever needed. Being decentralized, it allows Decentraland to keep working without users connecting to a central server. Pretty much like P2P works. That makes Decentraland’s operating costs go to who profit from it (mostly users).
- Real-time layer: Real-time allows fast P2P data transmission between users so they can interact both with each other and with the parcel’s content. Through P2P, there is no central server – although property owners can provide servers for users to see content in their Lands. Companies owning servers are more likely to offer valuable content and having the infrastructure to support it.
Decentralized governance
So, if Decentraland has no central servers and no one to control, how does it really work?
The answer is through a DAO. Land owners can meet, propose, and vote for (or against) relevant matters for the community. This includes:
- Policy updates
- Land auctions
- Contracts
- Behavior
- Allowed and disallowed items (!)
The Decentralized DAO owns the “public” spaces, as well as a significant amount of MANA for economic control and to support initiatives and future projects.
Challenges and Opportunities
So yes, Decentraland incorporates many – and very interesting – elements of real-life. And this helps us to understand how e-commerce in the Metaverse is slowly settling in. Computers and technology are designed after the human way of doing things aiming at solving problems and making operations simpler.
“If I had asked people what they wanted, they would have said faster horses”
Henry Ford
First off, competition is fierce. There are many similar projects working with Blockchain technology and other cryptos. And while decentralization helps protecting users’ privacy and money, a decentralized development is much slower than a centralized one. Thus, giants like Meta or Microsoft could rapidly replicate or improve their infrastructure. The way around that risk is, as we said in The battle for the Metaverse, the potential collaboration between competitors.
Probably one of the greatest challenges for Decentraland is speculation. And this is not only referring to the “housing bubble” we mentioned above, but the foreseeable limited access to raising cost Lands, Districts and content.
Indeed, owners can proactively install more servers in their parcels, but servers are expensive and seem to reproduce real-life problems, like uneven investment in infrastructure or access difficulties for some users.
The DAO keeps a large reserve of MANA to avoid inflation. In fact, they used to burn used MANA to keep the available currency real (unlike the real world, where money is printed after creating credit and debt). This stopped in January 2021, which undermines the initial intention.
We can then suspect that a) the DAO and investors believe Decentraland’s and MANA value will keep increasing, or b) New Decentralands will be founded. And it’s probably both – time will tell.
Content in Decentraland
Like in real-life, land is the first step for communities to interact and start developing what defines societies: trade, rules, and institutions. For the moment, only digital products are available. But as mentioned above, it’s a matter of time for pioneer companies to render their products and start selling them with Augmented Reality, just like a few fashion firms (and not only fashion) are doing.
In fact, companies like Grayscale have already made large investments in Decentraland, and MANA, and even Sotheby’s has seen an opportunity in NFT’s.
Preparing for e-commerce in the Metaverse will be increasingly important to remain competitive in the coming years. Because internet connections are getting faster with the spread of 5G, and richer content will have more engaging power.
And this is where Content2Sell can help! Just contact us so we can assess your product’s potential in the coming future.
Yes, we should keep an eye on all this
There’s still a long way ahead until E-commerce in the Metaverse reaches product retailers.
But in a smaller scale, the Metaverse is already out there, despite its limitations and the multiple aspects that are necessary for it to become the hybrid world it is conceived to be. In the coming weeks we’ll go over The Sandbox, another VR platform that’s helping to bring E-commerce in the Metaverse a little closer.
