I was recently introduced to a business that surprised me – An NFT marketplace for virtual real estate in the Metaverse. Yes, you read that right. Try reading it again and don’t feel bad if that makes no sense to you. It didn’t to me either, and I’m not here to critique whether that business is a good or bad thing. But, what’s interesting to me is that these businesses exist, and will grow, at least, in the near future, which points to a bigger, more concerning problem than buying virtual real estate – whether we’re losing touch with what’s real.
A quick, non-scientific history of markets and abstraction
As humans, I know we’ve always traded between one another. Your sharp stone for my bit of reed. I’ll give you my fish if you give me your coconut. You can take shelter in my cave if you let me use your spear tomorrow.
In small, connected communities, we depended on one another to survive in this way for a very long time. The butcher, baker, candlestick maker all provide specialised goods and services to one another that the other can’t provide for themselves. You raise goats, I’ll grow spinach. I’ll give you some of mine and you can give me some of yours.
Living in this way, a single person didn’t have to do everything. But, over time, factors like scarcity and abundance come into play that change the value of the things that people make. If I’ve got too much spinach, or you’ve got only 1 goat left, things aren’t equal anymore. Now, my one bunch of spinach isn’t as valuable as your last remaining goat – we need something to even things out.
One of humanity’s greatest achievements is the ability to abstract things and so, to help us handle scarcity and abundance, we invented money. Money not only addresses the scarcity and abundance problem, but also the trading problem. Not everyone needs my spinach. So instead of trying to offload my spinach to a butcher so I can get meat, or a baker so I can get bread, I can give all of my spinach to someone who needs it, then use the money I get from that to buy the things I need (and vice versa).
Creating infinity
And so, for many years, we used money to help trade real things – food, water, energy, land. It worked pretty well. The ‘problem’ with these things is that they are, by their very nature, finite. We’ve done an excellent job in converting energy from one form to another over the years, and trading them with one another, enabled by money.
But, now, there are a lot of us. Many of us don’t have enough. And there are those who have enough but want more. But with real stuff – food, energy, water, land – there’s only so much to go around and there seems to be a growing feeling that we’re reaching limits (i.e peak oil). But, we can, however, make an infinite amount (within limits imposed by global economic agreements) of our cornerstone abstraction – money. But, can we create infinite value?
What’s valuable… now?
The interesting thing about trading anything is that it has always relied on agreements. For something to be worth anything, all we need to do is agree, at scale, on its worth. Are goats more valuable than spinach? Is my vintage car more valuable than your new electric vehicle? Is a lawyer’s time more valuable than a nurse’s? That agreement works on an individual level, but also at a macro level.
Digital takes what’s real – land, water, energy – and converts it into abstractions of value that, for some reason, we seem to value more than the finite resources that are used to make it.
For example, if I’m thirsty, I’ll pay more for a bottle of water than if I’m not thirsty. But, at a macro level, how important is water to a country with plenty of it versus one that has little of it? The scale of trading influences the overall value of something and these numbers can (and are often) influenced by ‘market forces’, aka what we agree is valuable at any given moment driven by scarcity and abundance.
It feels intuitively easier to value things that are genuinely finite – the food, water, energy, land thing. It feels much less intuitive to value things who’s scarcity can be manufactured at the push of a button.
For example, let’s take land. There is only so much land. Our world is finite. In fact, with climate change, some say our land mass is shrinking. And so, with only so many parcels to divvy out in various sizes and locations, the fluctuations in the value of those things are fairly stable. It’s a similar story with the other finite resources – food, energy, water – and they come with another unique property in that they sustain life (and, like with any trade, we all agree that it’s true).
The virtual world, however, is different. New ‘land’ in the virtual world is an abstraction of real land – an idea. It tries to use our mental model of the scarcity of the real world to manufacture scarcity in the digital one. In digital, whole new worlds can spin up and exist in an instant. And so because digital land can’t be scarce (unless we all agree to limit it which is unlikely), the value of it isn’t driven by anything but the agreement – if we agree it’s worth this, then it is, for now. But later, others may disagree with that value, in which case, it’s no longer worth what it used to be worth. And, meanwhile, new ‘digital land’ is released daily. If someone can control scarcity (or lack of) they can also control value. And, it’s not the poor who have the ability to spin up whole new data centres of virtual land.
But why are we trying to manufacture other domains of value outside of the finite? It seems to me that it could be for two reasons:
- People stand to win during moments of mutual agreement. (And people will also lose).
- We’re losing our ability to trade real stuff – finite stuff – because, it’s, well, finite, and we’re running out of it.
It turns out that real scarcity, in many ways, is the ultimate arbiter of the ability of the value of something to fluctuate over time. Without real scarcity, we’re betting on agreements – an abstraction that goes, potentially, beyond money.
Scarcity and reality
The reason an NFT marketplace to trade virtual real estate feels weird is because it is without scarcity. True scarcity. The world can go on without virtual real estate. But, we can’t survive without water, energy, food, land. And, in our excitement of extracting ever more abstract value from our market, we are, at the same time, using up those finite resources to support it. But when the water, energy, food and land in the real world is gone, literally gone, there will also be no NFT marketplace for virtual real estate. Once everything real is gone, the virtual is too, no matter how much we want to convince ourselves that the digital world is real.
Remembering what’s truly valuable
In Ministry for the Future by Kim Stanley Robinson, residents in the near future have a saying – what’s good is good for the land. And, if I have the choice to invest my finite time and energy in creating new abstractions of value so that humans can inch slightly ahead of one another, or invest it in trying to make the best use of our truly scarce resources, I’ll choose the second, every time. Because what’s good is good for the land. There’s only so much of it and the only thing that’ll ensure it survives so that it can support our species and the remaining biodiversity we need to continue existing is that we all agree on its value.
The process of abstraction, seems to me, a distraction. A story we’re telling ourselves to keep the money flowing, to keep the ‘economy’ running. We’re really good at it. The risk, of course, is that we end up believing it, and drive those truly scarce resources to such low levels that nothing survives. Literally. So, perhaps what we should be working on is understanding how those truly finite resources support our continuing abstraction of value and, I don’t know, maybe don’t do that anymore? I suspect that sounds easier than it will be to do. But, what’s good is for the land, so maybe it’s worth starting there.