You could say that 2021 was the year of the NFT and the metaverse. Several projects became the center of attention in conversations online, such as the Bored Apes collection, or Crypto Punks. On top of that, if you’ve been following the news, you probably hear the term “metaverse” being used a lot over the past year.
Today I wanted to share a bit about my first NFT and metaverse “investment”, as well as some useful definitions. I will make the assumption that the reader has a basic notion of what a blockchain is.
Disclaimers
As always, remember that everything I share here is not financial advice, since I’m not a financial advisor. I’m just sharing my experience.
But First, What Are NFTs?
The term NFT stands for Non-Fungible Token, and it is a fancy way of saying that a token is unique and non-exchangeable for another. On the other hand, currencies like the US dollar, or cryptos such as Bitcoin, behave like fungible tokens.
In this case, being fungible means that you can exchange one coin for another and the underlying value does not change. If you exchange a $10 for a different $10 bill, or even for 10 $1 bills, you still have $10. That is what it means to be fungible. The value is not on the objects themselves (in this case the bill) but on what they represent.
Non-fungible tokens, on the other hand, cannot be compared so easily. It’s akin to how art pieces are valued. You couldn’t just exchange the Mona Lisa painting for some other artist’s work and expect to end up with the same value. Each one is unique.
Besides that, NFTs live on blockchains and can be sold and transacted for other coins in their respective blockchains.
What Can NFTs Represent?
Anything that is unique in the real world, by the standards I described above, is a good candidate for NFTification. For instance, each ticket for a game is unique since it specifies a particular seat number. That means that no two tickets will be the same.
Another example is real estate. Each house has a unique geographical location, among other attributes. You could envision that ownership of a house (the title) could be tokenized as an NFT.
I will write a more technical post about NFTs in the future, but for now, you can just think of them as digital art, objects, etc, whose ownership is tracked on a blockchain.
The Metaverse
I don’t think there is currently a standard definition for what the term “metaverse” means. For many people, including myself, the term brings to mind a world like the one described in “Ready Player One” or “The Matrix”.
There are many metaverse projects being developed and announced all the time. The most developed and oldest ones live on the Ethereum blockchain: “Decentraland“, and “The Sandbox“. These are sort of games where you can own a plot of virtual land and host evens on your property. You can even charge others to rent your plot for events.
These plots of land are unique in features and coordinates and are represented as NFTs. If you own virtual land, you could easily sell it through decentralized exchanges or on platforms such as OpenSea, CNFT.io, Rarible, etc, provided you find a buyer willing to pay for it.
The unfortunate part of all the metaverse projects I have seen is that they look like games from the early 2000s, with the difference that everything will cost you money and you can’t do much. To be honest, the game “Second Life” or even “Eve Online” is much closer to a true metaverse experience, in the way I think about it.
Why Did I Decide to Invest in the Metaverse
I skipped all the FOMO from 2021 regarding NFTs. When I look back, I could have made a good amount of money by buying into any project. However, at the time, everything seemed like a bubble, and for the most part, still does. For example, at some point, the cheapest plot of virtual land on Decentraland was selling for around $11,000.
It would be impossible for me to throw that kind of money into such a speculative investment. It did not help that Ethereum gas fees were sometimes over $100 for a single transaction. As a result, I started looking into other blockchains, particularly Cardano, which has transaction fees of around 0.17 ADA (a little over $0.17 at the time).
I decided to invest in at least one NFT/metaverse project because of a few reasons: I believed, and still do, that there was a lot of room for hype-fueled growth, I wanted to have some skin in the game, and the price of ADA (Cardano’s coin) had just tanked.
Cardano was an easy choice for me because of the low fees and because I already had some ADA stored since a while ago. That meant I did not need to inject more cash into this endeavor. Moreover, with the price drop in the crypto markets, I could use my ADA to buy virtual land while reducing capital gain taxes.
Narrowing Down Metaverse Projects
I found several interesting Cardano-based NFT/metaverse projects but ended up narrowing it down to the following:
From those three, UnboundedEarth and Pavia are metaverse projects that can be compared to “Decentraland” or “The Sandbox”. I decided to skip SpaceBudz since it was not a metaverse project.
Pavia was my first choice since it is the oldest metaverse project on the Cardano blockchain (it launched in September 2021). However, by the time I learned about it, in January of 2022, all available plots so far had been sold.
As a result, I ended up going for UnboundedEarth. Luckily, they had a sale open at the time so I purchased one plot of virtual land for 37 ADA (around $40 at the time). This was an amount I was willing to risk on an unproven project with absolutely no product to show for it.
To be fair, Pavia does not have any product or world to explore either. However, I’m giving these projects the benefit of the doubt since they are so young (Pavia has existed since September 2021, and the Cardano blockchain just got NFTs a few months before that). For reference, Decentraland was announced in 2017 and became open to the public in February 2020.
How to Get Started With The Metaverse
Before getting started with metaverse investments, you should remember that there isn’t a single metaverse. Each project such as Decentraland, Sandbox, Pavia, UnboundedEarth, etc, is its own universe.
On top of that, each project lives on a specific blockchain only (there are talks about interoperability between blockchains but it is not a reality yet). Projects on Ethereum have much more volume and there is more money in the ecosystem. On the other hand, transaction fees can sometimes put off smaller investors.
If you are looking for alternative blockchains with better fees and/or speed, you can learn more about Polygon, Cardano, and Solana, to name a few.
I usually buy coins and tokens through Coinbase or Coinbase Pro. You can use the link to get $10 of free Bitcoin when you sign up and transact $100 or more. If you want to look at other exchanges and platforms, here is a list of my top 5 sign-up crypto bonuses.
Some Tax Considerations
This will only apply to US residents. I’m also not a tax or financial advisor, and this is not advice. When you buy an NFT (or another crypto) with crypto, it will be a taxable event because you are technically selling your crypto to buy something else.
You are supposed to calculate your capital gains from the sale. Then you also need to keep track of the cost basis of the NFT itself.
Final Thoughts
This post was just to share my first foray into NFTs and metaverses. At the same time, I wanted to leave useful information for people who may be thinking about doing the same.
I’m excited to see where all these projects lead and wish them well. That does not mean, however, that I plan to throw a lot of money into this. My small piece of digital land cost me $40, which I find reasonable for speculative investments.
For now, the NFT market may well be in a big bubble that could burst at any time. But, like other bubbles, it could lead to greater adoption and evolution once things settle.
Leave a comment if you have any questions or suggestions. Also, if you want to stay up to date with what I post, you can join the newsletter email below. I’ll see you next week.