Non-fungible tokens and the virtual marketplaces that power them

No discussion of the metaverse would be complete without talking about Non-fungible tokens (NFTs). The synergy between the metaverse and NFTs is undeniable, with virtual marketplaces such as Decentralized and The sandpit already offers users a way to buy, sell or trade virtual assets backed by the blockchain.

But how exactly do NFTs fit into the big picture of the metaverse? Aside from the obvious use cases, such as virtual real estate and in-game items, it’s hard to say for sure. But one thing is certain: the potential for NFTs to disrupt traditional markets is huge. Why? Because NFTs address the problem of scarcity.

With traditional assets, there is a finite supply. This means that as demand increases, prices rise. But with NFTs, the supply is not finite. So even as demand for virtual assets skyrockets, prices can remain reasonable and accessible. In other words, NFTs have the potential to democratize access to assets through tokenization and fractional ownership, which could lead to the development of a new class of digital entrepreneurs.

In this article, we’ll talk about how the metaverse’s virtual marketplaces are likely to be powered by NFTs and what implications this has for the real world.

As we’ve seen with Decentraland and The Sandbox, NFTs are already being used to create virtual marketplaces where users can buy, sell or trade assets backed by the blockchain. These assets can be anything from virtual real estate to in-game items.

The use of NFTs allows these marketplaces to operate reliably without the need for a central authority. This not only makes them more resistant to censorship, but also enables the implementation of new features such as reliable escrow and decentralized pricing.

The use of NFTs also has implications for how these marketplaces are taxed. In traditional markets, taxes are generally levied on the sale of goods or services. However, in a market driven by NFTs, taxes may be levied on the transfer of ownership of the NFT itself.

This would result in all transactions being taxed equally, regardless of the value of the goods or services being exchanged. How? The valuation system for NFT transactions and the taxes levied on them could be much simpler than the current system for traditional assets.

That’s because with NFTs, the value of an asset is intrinsically linked to the underlying blockchain. This makes it possible to use automatic valuation algorithms that take into account the total supply of the token, the number of tokens in circulation and the transaction history of the token on the blockchain.

Of course, this is all speculation at this point. It remains to be seen how virtual marketplaces will be taxed in practice. But the use of NFTs does open up the possibility for a more efficient tax system.

This could potentially lead to a more efficient tax system, as it would remove the need for complex valuation systems.

The challenges of NFTs in virtual marketplaces

Of course, using NFTs is not without its challenges, one of the biggest being scalability. At the moment, the Ethereum network can only process a limited number of transactions per second. This means that any market driven by NFTs must find a way to scale to meet demand.

Another challenge is the high transaction costs associated with NFTs. At the moment, it costs about $10 to mint a single NFT on Ethereum. This is probably prohibitively expensive for many users, especially those looking to trade low value items.

Finally, there is the issue of interoperability. At the moment, each virtual marketplace is powered by its own blockchain. This means that users cannot trade assets between different marketplaces. This is likely to be a major hindrance to the metaverse’s growth, as it prevents users from taking advantage of all the features the metaverse has to offer.

Overcoming the challenges of NFTs

Fortunately, there are a number of projects working on solutions to the challenges of NFTs. One of them is Polygon, which focuses on scaling solutions for Ethereum. Polygon has already achieved impressive results, with some suggesting it could increase Ethereum’s transaction capacity by 100x.

Another project working on scalability solutions is Plasma, which is being developed by the team behind OmiseGO. Plasma is a Layer 2 scaling solution that uses side chains. It is designed to be scalable, low cost, and secure, and could potentially be used to power the virtual marketplaces of the future.

Finally, there is the Interplanetary File System (IPFS), a decentralized storage system that can be used to store the NFTs of the future. Designed to be scalable and efficient, IPFS could potentially be used to power a decentralized marketplace for NFTs.

The Future of NFTs in Virtual Marketplaces

It is clear that NFTs will play a major role in the virtual marketplaces of the future. The use of NFTs allows these marketplaces to operate reliably without the need for a central authority. This not only makes them more resistant to censorship, but also enables the implementation of new features such as reliable escrow and decentralized pricing.

Inclusiveness and market resilience are enabled by NFTs by design. IPFS decentralized storage guarantees that the NFTs cannot be censored or deleted. In the event that a virtual marketplace shuts down, the NFTs stored on IPFS are still accessible and can be traded on other marketplaces.

Distribution of wealth is also more equitable with NFTs. The use of automatic valuation algorithms ensures that the value of an NFT is not arbitrarily determined by a central authority. This democratizes the virtual marketplace and creates a more level playing field.

The use of NFTs also has implications for how these marketplaces are taxed. In traditional markets, taxes are generally levied on the sale of goods or services. However, in a market driven by NFTs, taxes may be levied on the transfer of ownership of the NFT itself.

In conclusion, NFTs are a big step forward for the virtual marketplace industry. They have the potential to make these marketplaces more resilient, efficient and inclusive. As the technology matures, we can expect more and more marketplaces to be powered by NFTs.

Daniel Saito is CEO and co-founder of StrongNode