Investment in crypto land reminds me of China's ghost towns.

Day 7: 30 Days of Crypto-modeling

This is part of 30 consecutive series of posts related to understanding and modeling cryptocurrency-related economic activity. We are sifting through hype and speculation to find quantitative insight.

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I'm a Neal Stephenson fan. That's probably not a big surprise, given my demographic and career choices.

I imagine he's popular with crypto enthusiasts his well. They would resonate with the anarcho-capitalist themes of The Diamond Age, an anarchy-capitalist story that centers on an NFT in the form of an AI-powered children's book.

There's Cryptonomicon, a story about Bitcoin before Bitcoin was even a thing.

And of course, there is Snow Crash, a book about a virtual world called the "Metaverse." Snow Crash introduced the idea that a virtual world could be just as economically and socially important as the real world. This book, along with William Gibson's Neuromancer, kicked off the cyberpunk genre.

A crop of cryptocurrency-based virtual worlds (literally called "metaverses") are trying to realize Stephenson's vision. These are virtual worlds with a scarcity economy built around virtual artifacts represented as NFTs.

Some of the most popular metaverses, by the number of asset owners and trade volume, include MegaCryptoPolis (explainer)Decentraland (explainer), The Sandbox, Somnium Space VR, and Cryptovoxels. I'm learning more about these metaverses and will post as I go.

The games I've tried so far feel like a mixture of social games like Second Life, sandbox games like Minecraft, and farm games like Stardew Valley. These are popular games, and it makes sense that the elements that make them successful might work in metaverses.

When you log in, they are pretty empty. The question is whether the platform can attract new users away from traditional games.

Games like Roblox that sell in-game currency don't require newbies to buy anything to get started. They ease them into buying currency by first giving them plenty of free things to do. As they do specific tasks, the player earns in-game currency. The player then discovers that the virtual cash unlocks more enjoyable experiences in the game. Soon, they find themselves desiring virtual money and the virtual assets that the money can purchase. That creates virtual demand.

But even then, the games don't start by asking these players to pay $50 for a sword. They give you small things to buy. They make the transition to a virtual consumer as low friction as possible.

But the price of assets in these virtual worlds is high—the cheapest parcels of land in those metaverses. The prices of frequently traded items are in the thousands of dollars. If one can’t experience the game without paying a bunch of cash, it’s hard to see how they will attract new players.

I used to live in China. At the time, property developers were building new developments at a furious rate. They would try to outdo each other in terms of the size and impressiveness of their developments.

But then nobody moved in. There were entire ghost towns of modern yet empty buildings.

These metaverses feel a bit like that.