Non-fungible tokens and the virtual marketplaces that they enable 

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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 like Decentraland and The Sandbox already offering users a way to buy, sell or trade virtual assets that are powered by the blockchain.

But how exactly will NFTs fit into the bigger picture of the metaverse? Outside of obvious use cases like 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 NFT solves the problem of scarcity.

With traditional assets, there is limited supply. This means that as demand increases, prices rise. But with NFT, the offer is not final. So even if demand for virtual assets skyrockets, prices can remain reasonable and affordable. 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 metaversion virtual marketplaces are likely to be powered by NFTs and what the implications are for the real world.

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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 that are 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 in a trustless manner 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 trusted third-party escrow and decentralized pricing.

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The use of NFTs also has implications for how these marketplaces are taxed. In traditional markets, taxes are usually collected on the sale of goods or services. However, in an NFT-powered market, taxes could be levied on the transfer of ownership of the NFT itself.

This would have the effect of taxing all transactions in the same way, regardless of the value of the goods or services exchanged. How? The system for valuing NFT transactions and the taxes imposed on them could be much simpler than the current system for traditional assets.

This is because with NFTs, the value of the 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. How virtual marketplaces will be taxed in practice remains to be seen. However, the use of NFTs opens 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.

NFT Challenges in Virtual Markets

Of course, the use of NFTs is not without challenges, one of the biggest being scalability. Currently, the Ethereum network can only handle a limited number of transactions per second. This means that any NFT-powered market will have to find a way to expand to meet the demand.

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Another challenge is the high transaction costs associated with NFTs. Currently, it costs around $10 to mint one NFT on Ethereum. This is likely to be prohibitively expensive for many users, especially those looking to trade low value items.

Finally, there is the issue of interoperability. Currently, each virtual marketplace is powered by its own blockchain. This means that users cannot trade assets between different marketplaces. This will likely be a major impediment to the growth of the metaverse, as it will prevent users from taking advantage of the full range of opportunities that the metaverse has to offer.

Overcoming NFT Challenges

Fortunately, there are a number of projects that address the challenges of NFTs. One of them is Polygon, which solves the scaling solution for Ethereum. Polygon has already achieved impressive results, with some suggesting it could increase Ethereum’s transaction capacity by a hundredfold.

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 sidechains. It is designed to be scalable, cheap and secure and could potentially be used to power the virtual marketplaces of the future.

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

The future of NFTs in virtual marketplaces

It is clear that NFTs will play a major role in the virtual markets of the future. The use of NFTs allows these marketplaces to operate in a trustless manner 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 trusted third-party escrow and decentralized pricing.

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Market inclusivity and resilience are enabled by NFTs by design. IPFS decentralized storage guarantees that NFTs cannot be censored or deleted. In the event of the closure of the virtual marketplace, NFTs stored on IPFS would still be accessible and could be traded on other marketplaces.

Wealth distribution is also fairer with NFTs. The use of automatic valuation algorithms ensures that the value of NFTs is not arbitrarily determined by a central authority. This democratizes the virtual market and enables a level playing field.

The use of NFTs also has implications for how these marketplaces are taxed. In traditional markets, taxes are usually collected on the sale of goods or services. However, in an NFT-powered market, taxes could be levied on the transfer of ownership of the NFT itself.

In conclusion, NFTs are a significant 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 to see more and more NFT-powered markets.

Daniel Saito is the CEO and co-founder of StrongNode

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