NFTs Explained

The Diamond Standard: Understanding What Makes Virtual Items Valuable

Spending real money on intangibles may seem absurd, but it makes sense to those who grew up playing video games with artificial scarcity. Allow me to clarify…

July 15, 2022

As virtual items are becoming more and more popular, many people are looking to invest in them. But many individuals are now wondering what makes these items so special and valuable that they can be exchanged as currency. This question has been explored by economists and cultural theorists throughout history with varying levels of success. Thus we may say that the value of a virtual product is determined by the demand for it.

The Diamond Standard

The players in online multiplayer Minecraft servers often used diamonds as a store of value. They would treat them like treasure and hoard them in hidden chests. Occasionally, diamonds were used as a medium of exchange when players traded them for other scarce in-game items. This period in Minecraft’s history is referred to as the “age of the diamond standard.”

As minecraft diamonds had great in-game utility, they had value. A player who had 24 diamonds could use them to craft a full set of diamond armor, which was considered to be one of the most coveted in-game possessions during the age of the diamond standard. This diamond armor was not only the most durable type of armor, but it also offered players the greatest degree of protection from hostile entities.

Wearing diamond armor and wielding diamond weapons statistically increased your chances of survival. If you managed to survive, you would be able to retain your in-game wealth. By using diamond tools, you could even increase your productivity in-game. Much like investing in the real world, putting your (diamond) savings to work was a surefire way to compound your wealth in Minecraft.

What Makes Virtual Items Valuable?

1. Scarcity

Scarcity is unquestionably an important factor in determining the value of virtual things. For instance, when Diamonds had been among the least widespread uncooked supplies within the online game Minecraft, they had been additionally among the most precious.

In Minecraft, you may mine diamonds on the left and wear diamond armor on the right.

Minecraft diamonds were also difficult to obtain in the days of the diamond standard. Another reason they were so valuable to players was because of this. Before you could start mining diamonds, you had to spend hours gathering the resources you’d need to make diamond-mining instruments.

You couldn’t start a diamond-mining expedition until you obtained the necessary equipment, and even then, you’d have to spend hours mining enough raw diamonds to make a complete suit of diamond armor.

Diamond Mining (Left) and Diamond Armor (Proper) in Minecraft

2. Utility

Minecraft diamonds also had value because they had great in-game utility. A complete suit of rune armor, like diamond armor in Minecraft, is one of the most wanted in-game goods in Runescape.

Runescape’s and Minecraft’s virtual economies have a lot in common. Because virtual things were algorithmically rare and troublesome to acquire, they effectively acted as value stores. These sorts of value-capture mechanisms are additionally current in trendy metaverse platforms like Decentraland.

Participant Carrying Rune Armor (Left) and Fishing “Swordies” (Proper) in Runescape

3. Capturing Value

Golfcraft is certainly one of a few innovative and promising play-to-earn video games that allow gamers to seize, retailer, and change worth in Decentraland. In Golfcraft, players complete virtual mini golf courses in order to collect gold coins, the game’s currency. Cash are each scarce and troublesome to acquire. In addition they have in-game utility, making them a great retailer of worth.

Cash may be reinvested into the sport for an opportunity to earn tickets by taking part in competitively. Tickets can be utilized to buy Golfcraft wearables. Some Golfcraft wearables improve increase, which helps gamers earn more XP and coins for their time spent playing.

In this sense, wearables in Golfcraft serve a similar purpose to armor in Minecraft and Runescape. They are purchased by players using in-game currency (tickets) and used to compound in-game wealth. Diamonds serve a similar but slightly different function.

Diamonds are randomly awarded to Golfcraft gamers for merely taking part in the sport. Players must spend diamonds to improve the properties of their clubs, which include power, control, and aim. Upgraded clubs have a higher secondary market value since they are more useful to players in-game.

Golfcraft Sport (Left) and Group-designed Golfcraft Wearables (Proper)

4. Extracting Value

The major difference between play-to-earn video games like Golfcraft and legacy video games like Runescape is that they leverage technologies which allow players to easily move value off-platform. As a result of golf craft wearables and golf equipment dwell on-chain as NFTs, they are often simply transferred to third-party marketplaces like OpenSea and bought for MANA, the native foreign money of Decentraland. Players can then exchange MANA for FIAT currencies like the US dollar which have greater utility in the physical world.

This was one of the essential options missing in video games like Minecraft in Runescape. Gamers would spend hundreds of of hours grinding to generate in-game property like diamonds and armor. These items effectively served as stores of value in-game thanks to scarcity and utility, but their value was not easily transferrable into the real world. These items were not good mediums of exchange outside of their respective virtual worlds.

Traditionally, gamers have been restricted by the principles of siloed metaverse platforms that lacked interoperability with one another. Now, because of blockchain applied sciences like NFTs and cryptocurrencies, gamers are lastly capable of extract real-world worth from their digital property.

Third-celebration marketplaces like OpenSea already enable gamers to purchase and self Golfcraft golf equipment. It is just a matter of time earlier than gamers will have the ability to derive worth and utility from these golf equipment in metaverses apart from Decentraland.

The market of “virtual goods trading” has been growing more and more in the last few years. This happens because it’s easy to transfer virtual items, and they are also easy to trade.