The Reality of Virtual Real Estate (w/ Jathan Sadowski)

The Reality of Virtual Real Estate (w/ Jathan Sadowski)

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(intro music) Welcome back to GRIFTONOMICS. We're living in a time where a large portion of the population can only dream of owning their own house or land due to increasing prices and stagnant wages. But alas, something called virtual real estate is a hot new market, raking in billions of dollars in sales in the last year alone.

But why would anyone want to own virtual real estate? And who are the driving forces behind its sudden popularity? To help us explore this topic, we're joined by Jathan Sadowski, Senior Fellow at the Emerging Technology Lab of Monash University and host of the This Machine Kills Podcast. Thanks for coming on, Jathan. Thank you so much, Jackson.

My, my favorite topic to talk about. I think it's funny. I'll get to that in a minute. But I yeah, there was a recent tweet which actually spurred me reaching out.

So I'm excited to to chat to you on this. But before we get into the meat of it, would you just mind taking a second to talk about your background and your exposure to this space? Yeah, of course. So I'm an academic first and foremost. And so my research really focuses on understanding the political economy of emerging digital technologies. And so what that basically means is I spend a lot of time reading the the tech news, the financial news following the kind of latest and greatest developments coming out of Silicon Valley and Wall Street in these areas. And really then trying to understand the kind of political economy of that.

In other words, like, you know, whose kind of interest are driving the development of these technologies, what larger imperatives are kind of pushing them forward or are they fitting into? And then, of course, like, what are their implications for the rest of us? And so coming to a topic like Virtual Real estate or the metaverse, I mean, has largely come out of me just paying a lot more attention over the last couple of years to the whole suite or ecosystem of stuff around Web3. And so really like trying to parse out what each of these things mean, not conflating them like, you know, we'll get into it, but like, you know, virtual real estate, crypto and nfts, they're all obviously like tightly intertwined with each other, but they also exist as kind of their own own things in certain ways. So really just trying to get a better understanding of like the mechanics of things that I think are quite intentionally demystified and muddled. Awesome.

So that's a great segway into how would you define virtual real estate? Like what is it? We've talked we did an episode last season on the Metaverse and you know everything about that kind of grift going on. But is it purely isolated that industry or does it exist separately as well to to the metaverse? Yeah. I mean, I think it's it's a kind of like the metaverse is you know, I guess if we can draw some analogies and then start picking them apart like the metaverse is the universe, right? And the virtual real estate is the, the, the, the property within that universe.

So for me, I don't really I don't think you can have you can't have virtual real estate without something like a metaverse or but but you can have a metaverse without things like virtual real estate. So that that's the kind of relationship there. And I think for a lot of people getting into this space and promoting it and advocating for it and selling these plots of land and a lot of people are creating metaverse is specifically for the purpose of selling virtual real estate. So I think for a lot of people, this is the this is the grift, right? This is the moneymaking opportunity from the metaverse. If you're not a company like Facebook cum meta, right.

Where you actually own the the ecosystem, where you own the thing, and therefore you can collect a lot of data and use that for advertising and use that for other monetary processes for I think a lot of people the way that they see the ability to make money from the metaverse is through selling, quote unquote, real estate or property through it. That makes total sense. And that's actually a good way to think about, I think, the metaverse and the relation to this. But when we say virtual real estate, like what is it that people are actually buying when they buy and sell virtual reality? Yeah. I mean the really I mean, this is one of my bugbears about all this is the way that all what it really has done is, is based on ingenious branding, right? Calling it virtual real estate is actually quite a savvy move on their part because it creates all these assumptions and associations in our mind where we're like, well, we know what real estate is, we know what property is, and you know, you know, and especially if you live in a place like America or Australia, you know, where you currently live in the US, I live in Australia, you know, and so on. And these are like really core parts of the American dream or the Australian dream.

This idea of like you own your, you own a house, you own a piece of land, and then you and then that is your kind of anchor for the future, right? Like that's what, you know, whatever storms come in your life financially, personally, you've got this piece of land and you've got this house and you've got your family, you've got your fortress, right? It's that kind of idea, me against the world. And so we that's the kind of things we associate with real estate. And we also associate it with a market that grows infinitely forever, largely because we have governments and financial institutions that work really hard to ensure the real estate market continues to grow every single year.

Because so much of the economy and so much of people's wealth is based in that market. So when you get something like virtual real estate, whether explicitly or implicitly, these are all the things that we think about. We're like, Well, virtual real estate. I know what real estate is.

Here's my opportunity to get into the next kind of bleeding edge, you know, market or future of real estate. So, yeah, I'll go ahead and do it now, of course. And you know, as as well as we'll find out, right? Like there is absolutely nothing in common between virtual real estate and actual real estate other than the name. Right, right. So you're essentially kind of buying, I guess, an entry in a database somewhere.

You know, whether that's a centralized or decentralized, you're you're just buying kind of a little thing that says, I own this. Yeah, you're buying in it. Most virtual real estate is tied to an NFT, which is meant to be the kind of analogous like deed of property ownership. But in reality, you don't own virtual real estate in the way that we think about it as this like as the kind of like digital visual interactive asset in a metaverse, well, you own is a NFT, which is just a unique, you know, chain of of data, you know, and stored on a blockchain somewhere. Right.

But the metaverse property or the virtual real estate property that you actually own is largely dependent upon whatever metaverse company, decentraland or whatever it is that where you've bought your virtual real estate, recognizing the that deed of ownership through that NFT, they own the actual assets for the land or the house or whatever it is, and those things are subject to terms of service agreements and stuff. Right? And so suddenly when you actually get down into the mechanics, it doesn't work the way you think it works. You can still own your NFT that says you have a deed of property title to this virtual real estate land and decentraland or whatever.

Metaverse doesn't have to recognize that they don't have to necessarily like they could, you know, repossess your house, for example, if they feel like you've violated the terms of service for for being in that metaverse and things like that. And so suddenly this idea of ownership really starts breaking down when, again, we assume that I buy virtual real estate, I own this NFT. The person told me it's the same thing as like a deed or a property title, but in reality it's not governed by property law at all. It's governed by contract law, i.e.

terms of service agreements. And so like all of these associations and assumptions that we are meant to have in our head, really start breaking down when we actually think about how this works. Exactly. Yeah. No, that's a really good point. And I think a lot of people don't realize that they are still beholden to to, you know, a company. At the end of the day, it's just there's this facade of, well, is this from decentralization, this NFT stuff around it? The the reason I ask that around kind of centralized versus decentralized is that now virtual real estate isn't like new, right? I remember hearing about it and actually seeing a segment about it in the early 2000, I think it was about Second Life and Linden Labs and selling real estate there.

And it was all the whole segment was like, these people are making a revenue through being digital landlords. They're selling buying real estate, you know, and that kind of came and went very quickly. It never really didn't seem like there was a there there. But you know, what are your thoughts on that? Like why it maybe it didn't work back then and you know is is the only difference now that, you know, you have decentraland instead of Linden Labs kind of doing it. Yeah. And bringing up Second Life is really good because it's another analogy that people in virtual real estate and advocates and boosters of it really like to draw is they like to say, especially to critics, well, you're just you're just being cynical.

And, you know, you were probably you know, if it were 30 years ago at the beginning of the Internet, you probably also would have been a cynic saying this is all just a flash in the pan. It's going to crash. It doesn't you know, it's a bubble. It doesn't mean anything.

Like they like to draw this direct analogy between Web three generally, but specifically these kind of, you know, parts of the ecosystem as being the same thing as the early days of the Internet, you know, as a way to not really address but dismiss criticism being like you, you would have been a naysayer back then and look how wrong you would have been. Ergo, look how wrong you will be in the near future. I've even heard people say that like, you know, web3 is equivalent to electrification, right? Like like it's that kind of like social revolutionary paradigm, but it's not. I mean, that's extremely silly because if we're going to actually draw good analogies here, you're exactly right, Jackson. Where it's Second Life, right? That's the analogy between the metaverse and virtual real estate.

It's things like Second Life or it's things like Eve online. It's these like really early kind of virtual economies that existed 20 years ago. And these things just happen in cycles, right? Like and we look and see where if we want to understand, I think, what the metaverse is, what virtual real estate is and where it's going. We are better, at least grounded if we look at things like Second Life or Eve online and be like, what happened to them? Where did they go? And largely what happened was there was again, a lot of hype around it right there. Yeah, I mean, I think there was like a cover article for Time magazine back when Time magazine was like, you know, an important magazine that people read and talking about like Second Life and talking about like, you know, there's people are having weddings on Second Life, people are going to university on Second Life. You know, they're buying houses.

You know, they're creating generational wealth on Second Life, like same kind of idea of know a interesting puff piece for the media to run while also promoting, perhaps unwittingly, a big old scam and grift and bubble. Right. Because what happened to Second Life is it was largely this niche thing that a lot of nerds got into. You know, I'm a nerd.

I but it was a lot of nerds that got into this are yeah. Promoted it got a lot of other people to spend the money because they thought this is the future. This is this is going to be another one of these kind of stable anchor investments for a life. And then and then all of that stuff, once the hype kind of dies down and people come to their senses, you know, they have the hangover the next morning and that whole economy just crashes, collapses and evaporates, right? Yeah. And I mean, people spent on evaporates.

Yeah. No, I think even if online is a really good example as well of, you know, it was big for a minute there and I think he was getting a lot of media attention as well. The one thing that is interesting as it is doing research into this is that, you know, I don't think Second Life or even like as you said, there were niche communities and, you know, good on the people that were really into those things like, you know, I'm not going to critique them, but it was niche. Something that's interesting about the this latest kind of run of digital real estate or virtual real estate as it exists in the metaverse and web3 space, is that it's doing big numbers. It's you know, I think in the last 12 months, I saw a number something like $2 billion worth of sales.

And they're expecting, I think, in the next 12 months that to be four or 5 billion that I think and you know, I'd need to go and check this but I my gut is telling me that that's probably multiples larger than than we were seeing in some of those niche communities like even online, which is an online game and Second Life. Who do you think is buying virtual real estate right now and and for what purposes? Yeah, I think this is a really, really good point that the if there is a big difference here is the scale of money and the scale of hype around virtual real estate compared to Second Life and even online. I think my my hypothesis is that that's largely because we have a much more developed and much greater capitalized VC market or VC ecosystem, which I think drives a lot of this. The venture capital drives a lot of these insane, ludicrous valuations, which are all largely purely based on speculation. It's based on what's called fictitious capital write, which is essentially saying that, you know, I'm going to say this asset, this this plot of virtual real estate or this cryptocurrency is worth, you know, $1,000,000,000.

But I'm only going to actually put in, you know, 5 million or $10 million of real capital of actual money into this. But I'm going to do so at a valuation of $1,000,000,000. And really, that is just me saying as a V.C., I think or I hope that in 5 to 10 years, which tends to be the cycles that VCs invest in, that in 5 to 10 years this thing will grow to be worth $1,000,000,000. But VCs are not passive investors.

They're very active investors. And part of that investment, part of getting that return on investment is doing things to juice the valuation and of that stuff to get other people to buy in, to get other money, to buy in to these things by creating hype, by going out there. And, you know, I mean, Andreessen Horowitz is, you know, I think head and shoulders above a lot of other VC firms in terms of their ability to lead the the headline cycle to create headlines, too, and, you know, to be a hype machine around this stuff and create these kind of self-fulfilling prophecies which are really good for their bottom line. And so, I mean, I think if if there was as well developed and well capitalized V.C. Market 20 years ago, we might have seen something very similar happen with Second Life or Eve online, where the scale would have been massive and it would have been about getting other people to buy in.

I mean, this is also a really good point. And it's what you know, when I talked to two friends of mine who are also critics, you know, people you've had on this show like Molly White, you know, people like Jake Silverman. Right. My my podcast co-host, Ed on Quest. So Junior. Right. When I talk to these people, what makes us really feel compelled to vocally speak out about Web3 and these kinds of things and talk a lot about it is that it's no longer just content with being a niche community, right? A niche community of nerds who are interested in spending some money on something, being early adopters. That's all well and fine.

I don't think there's anything wrong with that whatsoever. You know, it's like going to Las Vegas, right? You know, you're walking into a casino, you know, you're placing bets and you know that the it's stacked against you. The house always wins.

But part of the thrill and fun is the act of speculating and betting. And maybe you hit the jackpot, but now, now these things are sold as these kind of stable anchor investments. They are sold as these things. A sense of FOMO, right? That you're missing out, that you're ignorant, that you're a fool, that you are, you know, pissing away an opportunity to create generational wealth, blah, blah, blah. Like these are the kinds of ways that, that, that these crypto markets and assets are sold to people. And that to me is really danger as and that is that is the grift ultimately and it's, you know, extremely socially harmful and detrimental.

And so for me, that's why I feel compelled to speak out about it. But also it does draw a big difference between something like Second Life and something like the the metaverse. Yeah, for sure.

Yeah, that that makes sense. I think the other thing, it's kind of part of my theory, I think the the maturity of the B.C establishment is very important, but I think it's also kind of a perfect storm in that even Second Life, you know, were, were to a large degree kind of still facing deregulation, right. So they had to they those economies had to exist in a regulated way.

And they had some safeguards. Right. So that you couldn't people weren't going to use Eve online or Second Life to commit money laundering or to, you know, do anything kind of shady, fun, fun foreign governments and stuff like that. And I think crypto combined with VCs Seas creates this perfect storm of like, here's an unregulated role for you to now operate on. Right? And if you go and you talk to like the Decentraland of the world, they'll say, Well, yeah, yeah, we have times in service, but it's completely decentralized. Like we don't control it at all, right? Like that, i.e. we're not liable.

Right, because it's a smart contract or something. And it's, it's this interesting thing that just didn't exist, I guess, 20 years ago for like a Second Life to to build the top something you said. And it kind of ties into that. Is that, you know, you feel it's important to to talk about this stuff because now the scale is beyond just a niche community. I know, you know, we alluded to it earlier.

There was a tweet that you posted the other day about kind of having trying to bring awareness to this. And I guess we won't name the broadcaster or whoever it was, but kind of being having your your opinions kind of cut down dramatically. What maybe if you could just talk about that a little bit, but also I'd love to hear like the only media kind of coverage I see of this kind of stuff is is positive. I think it's very rare to see a negative article about the metaverse, especially in a large public publication or on a large news channel. So what are your thoughts? And I'd love to hear that story as well. Yeah, yeah, of course.

I think you're exactly right. Where the most commonly stories about virtual real estate, which increasingly there's a lot more of them, especially I've just been noticing in the Australian media, where it seems like a lot of, you know, TV shows like very popular shows and you know, I'll get into some details but you know, they want to run the kind of pieces about virtual real estate because it seems like a curio, right? It's like a kind of oddity. It's interesting. But a lot of times more often than not, they are framed in these really positive ways, like or at least in these ways that are like completely anodyne, like, hey, isn't this interesting, right? Or or the show that I that led me to to to kind of go on a little rant that you saw on Twitter was the project, which is an immensely popular show in Australia, and they were running a segment about virtual real estate on on that show and you know, I spoke to a producer there and we had a really great conversation for like 45 minutes and you know, like a pre-interview. And she was like really it just seemed like she was really getting it like really being like, wow, I didn't know anything about this. And now everything you've told me makes me sound, makes me feel like this is all really awful.

It's a big scam. Like, Yeah, we would love to get you on camera to do it. And then.

And then I do that and then, you know, spend about 2 hours of my time doing an on camera interview because they come to my office. So they've got a set up and they and then they and then we talk for about 30 to 40 minutes on camera. But it's a different producer running the interview.

Right. And I, I was getting a little weird vibe, like, you know, like, like I wasn't really saying the things that the producer wanted me to say. But the interview kept running forward stuff. And then I end up seeing the, the segment, you know, it's short, right? It's only a five minute segment as these things are. So I'm like, I know I'm not going to get tons of airtime. That's fine.

I'm not doing it to, you know, promote myself or be famous. I just want to get my message out there and at least provide some kind of critical viewpoint. And but then I see the segment and it was framed immediately as, you know, a lot of Australians are priced out of real estate, but is virtual real estate a nice alternative? So that's how it's framed. Immediately I was like, Oh no. And so I'm watching it. And the the vast majority of the segment is giving airtime to a couple investors, right? There is, yeah.

There's an Australian guy who has bought something like what, like 50 virtual real estate properties and runs a really popular disc, Discord called the crypto den. Right. And then there's another like, you know, like kind of upper middle class looking Australian family that have bought this and they're talking about how, you know, they're buying property that they can pass down to their kids, you know, generational wealth kind of thing. And then like and then cut to me like near the end of this segment being like, but some people think that this is all just a big scam, you know, and out of a 40 minute interview, all they air is me being like, if you really look at the numbers, people have lost millions and millions of dollars in this and it keeps going and keeps growing and growing until one day the bubble burst.

Right. And that's all they air. And then immediately cut to the the guy who runs crypto then and says, no, it won't. Like they just immediately just being like, no, if the bubble won't burst.

People said the same thing about the internet in the early days and then like, that's the end of the segment, right? And so it was really, really quite abhorrent in a lot of ways because it was just really it was badly framed because they fell for every fallacy of being like, you know, drawing a direct analogy between ownership of real estate and ownership of virtual real estate, giving tons of airtime to investors who want people to buy in because they need money. They need other people's money in that market, giving airtime to, you know, upper middle class people who have the money to throw away on something like this. And, you know, but then talking about it as a kind of generation of wealth and then bringing in that kind of tokenistic, you know, cynical critic voice to be like this is going to burst.

You know, this is like highly volatile. And then giving the investor the last the last kind of retort to be like, no, it won't, you know, like they don't have every policy that is just extremely representative of the way that these things tend to be covered in the media. The rarity is actually.

So I did another TV segment on the Metaverse. For whatever reason, people only want to talk to me about the metaverse, even though it's not something I really care all that much about. And now, no offense to you, Jackson, we've already talked about this. I'm very happy to talk to you about all of this.

But but Sunrise, which is another extremely popular morning talk show in Australia, did a segment a couple months ago on virtual real estate and a producer reached out to me and talked to me about it and I was like, This sounds really great. And that segment actually went extremely well in large part I think, because they inverted the airtime where I was the one speaking for the vast majority of this five minute segment and just really laying out like how this works and how this is dangerous and what the what it actually means in terms of the underlying economics and the fundamentals and the social implications. For whatever reason, Sunrise, which I was not expecting, was like, Really? Yeah, I think they're yeah, yeah, yeah. I mean, for people who aren't Australian, right, sunrise is like, you know, if someone is going to run a badly framed puff piece, it's going to be sunrise. But there is a really, really good critical piece since I was pleasantly surprised and then I got burned by the project and I and you know, and then that's when I was like, it's just not worth it. Like, you know, I'm not going to be playing into someone's someone's agenda if I don't know how they're actually going to frame their story.

I think that's really important. It's funny because I actually have appeared on the project twice to talk about crypto and thankfully I think it comes down to which like the producer you end up working with and whether they have kind of I really do think in media there is this and we see it with climate change a lot, this kind of inertia towards only presenting a story of hope and never presenting something that is kind of depressing too, to their viewers. I think that actually ebbs and flows with whatever public opinion is or whatever, you know, the the kind of zeitgeist is. But yeah, if I got lucky, both of mine also, I kind of agree that it was just going to be me speaking.

So I kind of controlled the narrative more, but I think the media just do a really poor job generally of talking about all of this stuff, and they're also probably more likely like for every one of us, there's probably 99 promoters, right? If they go out and search in the sea of people that have have tweeted about crypto. Right. So I think it's it's easy for them to be led astray. But yeah, and we have to do a lot more work because we actually care about how, how this works, what the fund, what the fundamentals are and what it's employed, its actual material consequences are met. The advocates and the boosters, they don't care about any of that and it makes their job a lot easier because all they have to do is be really enthusiastic and exuberant and and get and just, you know, tell people, hey, this is the future, this is progress, this is technology.

Buy in now, you know, secure your your your plot of land for the future. Like, you know, they they don't have to actually explain what what is an NFT and how does it like actually work in terms of your like legal regimes of ownership or like what are the actual economic fundamentals, if any, of virtual real estate like, they don't have to do any of that work in order to because they're not interested in analyzing the thing. It's they're only interested in advocating and promoting it. It's it's it's definitely one sided and there's a lot of bias on their side. But yeah, as you said, they don't care.

They want that actually. So going back to the kind of topic, the if we if we, you know, say for a second, imagine this isn't a grift, although we know that it is, there has to be some sort of purported use case that this virtual real estate is fulfilling, that that, you know, there's a reason to buy it beyond the speculation that, you know, you know, I don't know whether it's a virtual storefront or something like that. Can you just talk for a second about like some of the the narratives you've heard there and like what this is all actually going to be used for supposedly? And whether it's currently fulfilling that purpose or it's kind of not there. Yeah, I think there is a really big difference between how these things are marketed, like the use, how the use cases are marketed and sold to people versus how I think they will actually be used or how something like the metaverse will actually be normalized.

If it is so in terms of the marketing of use cases, it largely is framed around stuff like socializing, entertainment, play. I mean, this is actually how like the project segment started was, you know, somebody being, you know, showing off their their house in virtual real estate. In fact, this is one of the people they talked to who was investing in virtual real estate. It was like a couple and they were living in like a really small apartment in Sydney, of course.

Um, the, and yeah. And you know, a lot of people, if you're for people who aren't Australian, right, like the, the real estate market in the capital cities like Sydney, Melbourne in particular is and has been forever out of control, highly exclusionary. It's a landlord's market, right? It's a it's a it's a property developers market.

And so most people are completely shut out of of ever actually being able to own an apartment, let alone something like a house or something like that. And so they play on those kinds of those kinds of fears and anxiety. These by saying that, well, you know, I've got my I've only got a small one bedroom apartment that I share with my partner and our dog. And it's really crowded. And so we instead, you know, I can afford to get a luxury suite in a virtual real estate, you know, in a in a metaverse. I can afford to buy that.

And then that's where I can like, host dinner parties, you know, with friends from around the world where we can all sit together and watch movies and we can, you know, have virtual drinks on our veranda overlooking a beautiful skyline or beach or something like that, like, you know. So a lot of this is market is around that kind of like come, come here to do all your gaming, your socializing, your entertainment, have your date night watch, family movie time, see, you know, friends and family that live on the other side of the world. You know, like do all of that here in virtual in the in the virtual reality um, and escape your shitty life in actual reality. It is exactly ready. Player one Right. Like I was just about to say, sounds an awful lot like a book and movie that I've I've heard.

I've seen that. Yes, that sounds it sounds dystopian. Yeah. I mean, absolutely. But, you know, it's given this very utopian, um, you know, lens flare kind of, uh, framing on it where this is actually, you know, this is the brave new world.

It's fantastic, right? But, but fundamentally it is the exact this is how while I think ready player one is a really like, like naive and simplistic kind of view and action and you know, and obviously because it's like the book that, you know, Zuckerberg famously like gives everybody on Facebook and says like, you have to read this, this is our new Bible, right? Where it's like, you know, even though the metaverse as a concept comes from snow crash, Neil Stephenson's book, which I think is just a very before yeah, a very different opinion and far more accurate in a lot of ways for where we're heading. But so that's how the use cases are marketed, right? They're marketed as a like a positive spin on ready player one, which can only make me think that like this is how the, you know, whatever world we're heading towards ready? PLAYER one Snow crash or something else, it does feel eerily like we're in the like 20 year time period before those novels are set and we're seeing the kind of like marketing and boost steering that made those technologies normalized happening right now. And so the but that's how the use cases are sold, you know, or it's a purely economic use case where it's like this is just a good investment, right? Like there's also that use case now in terms of how I think the metaverse will actually be used if it does become normalized, I think I have long said well since since the beginning of the metaverse being a thing which isn't that long, you know, the two years ago or whatever. But I obviously I was like, if this becomes normal and then everyday technology, it's not going to be because people want it, it's not going to be because like consumer demand is off the charts for it.

It's going to be because people make us use it, right? It's going to be our bosses or employers telling us, this is where your office is now, this is where we hold meetings now, is in virtual real estate, which is exactly what like global consultancies like a censure are throwing a lot of money and weight behind virtual real estate being the future of management and the future of office organization and culture. And so, you know, it's going to be them telling us or it's going to be and or it's going to be schools and universities telling us this is now where classes happen in virtual and virtual reality. Right? Like you have to come to our virtual campus in order to go to class, go to office hours, these kinds of things. So in other words, it's not because we want it to be we want to live here. Yeah, it's because other institutions with a lot of power over telling us how we live decide this is what you must now do.

If you want. If you want, keep your job. If you want to get your education, you've got to do it in virtual reality. Now, why would they choose that? I think it's because there's a lot of there's a lot of value for them, right? Less overhead for campuses and offices. But also there is a kind of branding and reputational value there of being like we're on the cutting edge of the future. Yeah, I think it's interesting, like in a way that people are kind of being whether they they believe in it or not, they're being led towards believing this will be the future.

And, you know, part of me thinks that the pandemic was probably a big part of that. And the isolation that that bread made people or still, you know, is breeding leads people to be a little bit more susceptible to that marketing. But also I wonder, like the the very nature of the Internet is that it is essentially democratizes is probably not the right word, but it essentially frees information. It makes everything infinite. There is no scarcity, in a sense, and virtual reality and virtual real estate, I think specifically kind of starts to enforce the virtual scarcity in a way that will help the power stay in the hands of these corporations or of these people that are at the top.

Right. Like I see. I can't help but look at these metaverse and see a lot of the same power structures and wealth distributions that exist in the real world cascading into this supposedly new world. Right.

What are your thoughts about that? And just the whole notion of scarcity being a thing that that people would embrace in a world that supposedly didn't doesn't need it? Yeah, well, I mean, fundamental like a capitalist economy requires scarcity because it's the foundation of competition. And your creating demand for supply for for people being able to have gatekeeping roles and have ownership over stuff requires scarcity. And, and so there's no surprise that something like Web three, which is in a lot of ways like, you know, to varying degrees, you know, you know, trying to achieve some kind of anarcho capitalist dream or at the very least, like just a hyper financialization of everything, right? Like, you know, quite explicitly, like, you know, I know people who work in some web3 startups who are quite discontent and critical of it and thinking about, you know, what are what are like your radical, your possibilities for your leftist or socialist applications of web3 technologies. And and I also hear them talk about like going to conferences like, you know, East Denver and these kind of like big industry conferences and them saying that like quite explicitly an overwhelming amount of people are like talking about these technologies in terms of financial rising, commodifying, monetizing, turning interactions that were not previously transactions into transactions like this quite explicitly part of the, the, the, the foundations and the dream, the kind of design imaginary of these technologies. And so that then requires creating scarcity in order to do stuff like that. And so it's why we see, you know, virtual real estate or rather metaverse is, you know, people creating metaverse and being like, you know, we're only creating 10,000 plots of virtual real estate in this metaverse, you know, and now it's an auction market.

Or similarly with, you know, a lot of cryptocurrencies will do the same kind of thing where, you know, Bitcoin, right. Is like we there's a cap on Bitcoin once, you know, where there's only going to be so many Bitcoin existing in the world and there'll never be anymore. And sometimes they talk about it in terms of like fighting, you know, fighting against inflation by creating deflationary dynamics into building those into the asset. But, but ultimately, what that whether it actually means, whether they whether they know it or not, is it's just creating scarcity, right? It's creating this sense of a of an asset that is real, that is somehow not just bits of data that can be endlessly replicated or deleted or copied or whatever. And so, you know, what it also means is that the fundamental economics of these things are untethered from reality.

They're not actually based in any kind of what's called, you know, the real economy with, you know, the economy of commodities and production, which at least a lot of financial instruments and assets are to some degree based, even if increasingly tenuously in the real economy. But the crypto economy is completely untethered from the real economy. It is purely fictitious capital, it's purely speculative speculation. And therefore they have to try to replicate some kind of real basis for this by creating things like artificial scarcity and stuff like that.

That makes total sense. Is kind of frightening though. You mentioned this is getting a little bit off topic, but you mentioned that, you know, you've encountered some leftists or left leaning people who who still participate in these spaces. I'm in the same boat and it honestly, somewhat baffles me, although this has always happened, right? You go to, you know, any sort of kind of anarchist space and, you know, some somebody who identifies as an CAPP kind of gets in the door somehow. But like the what are your thoughts just about that? And like, how do you think that leftists participating in this space are not seeing it for what it really is? Yeah, I mean, it is interesting.

I actually have a paper that that should be coming out soon in the journal Big Data and Society that I, I co-wrote with a friend, Caitlin Beagle, who works in Web3 area in the Web3 space. And we're, we're trying to analyze the, you know, give a kind of critical primer on the ideologies and political economy of web3. And one of the things that we really talk about in that paper is that there is a, you know, a kind of core principle or ideology like decentralization doesn't just mean one thing, like it is. It is a site of contestation. It means a lot of different stuff. And it's, you know, decentralization is a term that travels across different spectrums, different political spectrums and ideologies.

Geez. And, you know, your leftists want decentralization for different, you know, in different ways, for different reasons. And, you know, right wing people want decentralization for different reasons and different ways. And and so I think what's interesting is the way that, like, in some degree, to some degree, web3 has created this like really big tent where people where, you know, people are want these kinds of decentralization or want to fight against what they see as your actual problems, the world institutions that have way too much centralized hierarchical power.

You know, there's I think there's a reason why so much of the arguments for web3 on all sides of the spectrum, even the kind of dominant side, which is the kind of, you know, ANDRESEN Horowitz C led kind of side, right. They still mimic that rhetoric of or parrot that rhetoric of like, you know, disrupting the platform giants, disrupting, you know, Wall Street institutions, you know, even people like NYI Berkley. Right.

The kind of dictatorial president of El Salvador who's all in on Bitcoin. Right. Like I think very cynically talks about it in terms of like decolonization, right? Coming out from under the thumb of the International Monetary Fund and the World Bank and to be sure, these critiques are based in some in identifying actual problems. Right. Like the IMF and the World Bank are global institutions of hegemonic power for the U.S.

and Europe. You know, and obviously Wall Street financial institutions are massively extractive, corrupt and exploitative. You know, all of these things are correct.

And so, you know, I think even left this who get into the web3 space, you know, they're identifying these problems. And while they recognize that the vast majority of the kind of dominant trends and currents in Web3 are the Andresen Horowitz's are the cynical grifters and bullshit ers and snake oil salesmen and highwaymen. And, you know, these kind of people, they still see some kind of promise in these technologies, right? In other words, I think there's some kind of idea that maybe the technologies are not neutral. You know, they recognize that. Maybe they recognize that that there's inherent politics in the technology, but maybe there is still something there that can be useful for a leftist project. And, you know, I find that really interesting because I think that in some ways those kinds of spaces are at the very least under researched and under acknowledged and underappreciated and, you know, largely dismissed by by critics who I think rightfully so, just take a kind of broad brush stroke and say, all of this is bullshit, all of this is dangerous.

It's all cynical. And I think the vast majority of it is absolutely that. I do also wonder as well, and this is part of what we write in the paper, is that like there are these kind of what we call expansive communities within Web three, as opposed to the extractive communities that largely dominate Web three, that seek to use want to at least experiment with the possibility of, you know, could these technologies be useful for even achieving something like socially beneficial purposes? You know, it's, you know, not not in terms of, you know, your ending the Fed through cryptocurrency or whatever.

That's that's a that's a a pipe dream and ludicrous. But maybe just in terms of like actually providing people with some sense of autonomy or power over sure. These sit over these systems or their data or platforms or whatever. And I think those are interesting. And I think the part of the really hard job for us as critics and is to pay attention to those projects, take them as good faith just as much as we recognize the extractive ones are largely bad faith and really try to understand like what they're doing, how they're doing it and is there anything actually useful here? You know, I think the easy thing is to just, like, dismiss all of it outright and let St Peters sort out the good ones. You know, the hard the hard thing is to actually get down and understand the the like real ideological divides and polar area, these even within web three spaces and sort them out and see like, is there is there any little flecks of gold here that we that we might be missing? And if not least, we've done work of sifting through the muck that that was kind of me about five years ago.

And what I ultimately found was that there was just not a lot of signal, a lot of noise, and it was very hard to to your point. And I think I you know, I think everybody knows I kind of gave up. But, you know, kudos to those that do do the work just before we you know, we're getting getting on here. I will I will say real quick, this is as much as I, in terms of reaching across the aisle for this stuff, is being like, you know, maybe maybe because I personally know some people where I'm like, are there good faith actors? Right. But that's as much as I get in terms of like being conciliatory towards all of this bullshit.

I agree. And I still have friends who work in this space as well. It is an interesting dynamic, but one thing I did want to quickly touch on before we wrap was just the idea of virtual landlords. And I did read an article recently that was saying, you know, somebody who's renting out their space, so they've bought some of this metaverse or virtual real estate, and now they're renting it out to two brands and to, you know, they're running fashion shows or something and they're in there. And then I'm like, What do you think of that phenomenon? And, you know, do you think that it is right to be recreating systems from the physical world in the real in the in the virtual world? And how is that any better? Yeah, well, I mean, I think fundamentally this is like highly predictable and and the Internet as a thing has existed.

Its whole existence is based on recreating dynamics and structures from the quote unquote real world into the virtual world. Right. Like, you know, we were talking about scarcity before and this idea of creating artificial scarcity is absolutely not something unique. Are new to Web three or to crypto. We can see it as fundamental to every stage of the Internet. You know, even though Kevin Kelly said, you know, information wants to be free and blah, blah, blah, but it's like the governance of that information has never wanted it to be free.

You know, whether it's the early of the Internet in terms of creating the early monopolies for the telecom monopolies, for Internet service providers, the long standing battles over net neutrality. So throttling data streams, you know, stuff like that, you know, Web 2.0 is based completely on platforms establishing themselves as monopoly gatekeepers.

I have a paper called the Internet of Landlords, which applies an analysis of rentier capitalism to understanding the business model and operations and digital platforms right. Say these are the new, you know, I call it the, you know, the these platforms as the new the the landlords of the Internet because whole power is based on being gatekeepers, controlling access and using that control of access and their ownership over property platforms, their, their ability to intermedia other social relations and economic transactions and stuff, a function we operate exactly like landlords do, and they use that position to extract rent from other wise, socially productive activities and, and in the world. And so, you know, Web3 is exactly doing the same thing. It's just creating new mechanisms to extract rent, to be intermediaries, despite their rhetoric, to be all about hyper disintermediation and decentralization. Like we know that that's not how these things are actually working at all. There's there's a lot of consolidation already happening between, you know, among cryptocurrency exchanges, you know, NFT like Opensea, right? Like, you know, now the now these virtual landlords, you know, there's there is just a fundamental dynamic within capitalism driving toward this kind of consolidation and concentration, you know, looking for money for nothing.

Right. And I mean, this is the fundamental like grifter nomics here of all of this is being sold as money for nothing. The the the grift is that they're telling us we get money for nothing. But in reality, it's they are the ones creating a structure where they get money for nothing.

Right? Like so it's all about, like, telling someone that they're going to get money for nothing but behind your back, you're crossing your fingers because you know you're the one that's going to get money for nothing. And so, I mean, that's what all of this is based on. And so it's extremely funny to see how like hyper accelerate the, the, the, the times, the timelines of development are for this stuff where it's like we already have like massive landlords of virtual real estate, a market that has only existed for less than two years. Right? Like, right.

It's just like, it's almost it's it's like the the night shalimar movie old, right? Like we live on the. Yeah, that makes you old. And it's like the economics of web three lives on that beach, and they just accelerate right through all of the phases of capitalist development in record time. They're they're speed.

Yeah, they're speed running late stage capitalism. Exactly. Awesome. I think, I think we've agreed upon it being a grift. Then I think just what do you see wrap it up happening in the next 12 months? And I know it's hard to predict things, but like how do you how do you see this playing out and who's going to lose? Yeah, I mean, I think I, I would suspect that over the next 12 months. I mean, it's interesting you see, Art, because we're in the midst of the, you know, another big crypto crash, right. Like the market is collapsing for crypto.

But you see articles talking about investors being like virtual real estate is recession proof, right? Like crypto currencies might be crashing, but virtual real estate will never crash. And that's that's a good sign to me that they are worried that that they know the crash is just around the corner and they need people to buy in in order to prop that market up and create liquidity so they can cash out if they're smart, you know, if they're smart. And so for me, I think over the next 12 months, we will probably see just as we have with cryptocurrencies and NFT is like a complete crash and evaporation of that market. It might rebound a little bit, but I don't think it's going to be a little quick flash and then like reach, you know, higher highs for longer than ever before. I think, you know, the virtual real estate is is inevitably going to crash and evaporate.

It's more a question of when, not if. And but I think what's interesting is you can already see your media pivoting away from the up the crypto economics with with their metaverse, they are instead doubling down on it being a space of socializing and also being a space for like, you know, advertising and subscriptions as a primary monetization stream for them the way know how to make money. Yeah. And I think that that is also a signal as well that they that they see some writing on the wall that the crypto economics of the metaverse is not stable and not something to build a business on. And so for me, I think virtual real estate will go away. And if the metaverse stays, it will be because of the reasons I laid out where it's like, Yo, we are made to live, work, learn and play in that area.

Not because we want to, but because other people tell us to. Sounds it sounds terrible. But anyway. Well, we'll see what happens.

I think you're right. But, you know, companies like Metal have a lot of money to to kind of manufacture us wanting to want to live in that world. So, yeah, they're spending billions of dollars doing it right now. It's yeah, I know. Part of me hopes that it's the end of matter, but I think somebody's going to, you know, probably stop them before they go bankrupt, unfortunately. Thank you so much for coming on today.

This was really, really useful in kind of laying out a lot of the analogies as well about how virtual real estate is nothing really new. It's just, as you were saying, kind of speedrunning capitalism. How can people follow you and what's the best way to to kind of keep up to date with your work? Yeah, sure. So I'm I'm of course, on Twitter. @jathansadowski on there and I host a podcast that's weekly. And we also have a Patreon.

We do the The Old Standard, one free, one paid and it's called This Machine Kills, which is all about the political economy of technology. We talk about stuff exactly like this on there, and I do that with Edward Ongweso Junior and our producer, Jeremy Brown. So, I mean, that's that's the best way to find me. I'm also an academic. And so I write a lot of essays and and articles and stuff all over the place.

But yeah, just follow me on Twitter, listen to the podcast and you'll, you'll, you'll stay up today. I love the podcast. So everybody check it out. Well, thank you so much. And this was a great conversation. Thanks, Jackson.

2022-08-11 02:12

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