3 Ways that Blockchain Gives Digital Assets Value

From collectable trading cards in video games to a limited edition piece of digital art, the idea of online assets has been around for quite some time. Gamers, collectors, and other enthusiasts have enjoyed amassing, trading, and sometimes selling, various forms of digital assets. But the question has always been How much are digital assets or collectables really worth?

Whether or not items, assets, or tools in the digital world is one of the major questions that’s been gnawing away at gamers and collectables for years. So far the best answer has been it depends. Gamers of the massive RPG World of Warcraft, for example, have long been selling various items, spells, and power-ups for real money (albeit via the black market). If it’s a digital asset or item that gamers or collectors value, they’ll find a way to pay for it.

The problem is, there’s been no way to ensure what people are buying are authentic, and no standardised way to exchange digital for real-world value. However, things are evolving with the arrival and application of blockchain technology to the digital asset space. Blockchain is serving to fill in some of the biggest gaps that have prevented digital assets from gaining real-world value, such as providing scarcity, proof of ownership, and a lasting store of value.

While critics of digital assets might have been partially right in the past, blockchain is now strengthening the traits necessary to make digital assets worth something real.

1. Scarcity

One of the biggest determining factors as to whether an asset, digital or otherwise, retains any value is that of scarcity. The rarer something is, the more valuable it usually becomes. The problem with digital assets has been the lack of means to manufacture, control, and maintain scarcity of a digital asset. Hackers might have been able to forge copies and sell them onto the black market, creating an artificial glut of supply and lowering the value of authentic items.

But as the blockchain and decentralised app infrastructure and ecosystem continue to grow, and be applied to digital assets, genuine scarcity is becoming a very real benefit. That’s because the underlying blockchain technology is based on hard math, free from manipulation. EverDreamSoft’s CCG Spells of Genesis, for instance, only allows gamers to place a certain amount of collectable cards in the blockchain per month. In this way, the blockchain helps maintain the scarcity of those digital assets (collectable cards) in a verified and secure fashion. This adds both to the extrinsic market value of the cards (i.e. what they could receive in real monetary value), as well as the intrinsic value of being one of only a few on the blockchain.

2. Ownership

The second key trait that gives digital assets value is that of verified ownership. One of the biggest criticism of digital assets has been the threat of theft, fakes, frauds, and illegally distributed copies. If a collector or gamer can’t prove that their asset is both authentic and verified to be in their possession, there’s simply no way to exchange or trade it for any real-world value. The black market for Counter Strike skins, for instance, takes place mostly off the books where buyers must pay agents large sums of money to verify the items they’re buying are authentic and actually in possession of the seller. And verifying ownership to the next buyer should they choose to sell presents yet another issue of trust and verification.

That is exactly why much of the digital asset space is moving towards the blockchain; to provide indisputable proof of digital asset ownership for both buyers and sellers. Any digital asset, whether it be a piece of art or an in-game power-up, has a unique signature that’s tied to the blockchain’s unalterable public ledger. Buyers can trace the history of the item to verify past owners and overall authenticity of the item. This gives buyers the security that, should they pay real-world cash or cryptocurrency for an item, they’ll receive 100% ownership of a unique, authentic digital asset.

3. Value Store

Bitcoin and other cryptocurrencies were hailed early on as the new digital gold, providing a hedge against inflation and manipulation of paper, government, and other forms of fiat currency. At the end of the day, paper money has no inherent value in and of itself. It’s merely a promise that it will be useful in the future, completely dependent on the global financial system. Even saving U.S. dollars as a form of value store has declined in recent years, as savings rates have fallen well below the rate of inflation.

Bringing blockchain technology to bear in the digital asset space, on the other hand, holds the promise to create entirely new platforms for value storage and exchange that traditional systems have failed to identify. Take the blockchain-based virtual reality commerce platform of High Fidelity’s new Avatar Island game. Much like their previous Second Life game, players move through a VR world in their virtual form, where their appearance, clothing, and decor in their apartment can be customised. But on Avatar Island, people can buy a limited edition hat with scarcity ensured by the blockchain, store it in their virtual apartment or showroom, and sell it at a later date for cryptocurrency that can then be converted into cash. They might even receive a unique coupon to purchase a similar hat at a real-world retailer.

What Avatar Island gets right is that it creates an ecosystem for users to easily take paper money, convert it into cryptocurrency, and purchase in-game items that they know will not only retain value but likely appreciate over time. High Fidelity CEO Philip Rosedale is also working to make assets portable to other, similar blockchain-based games run by other companies. Tired of playing Avatar Island but don’t want to abandon your investments? Simply take them over to the next game and see if there are any potential buyers there.

Critics have long tried to point out that the value of digital asset simply doesn’t exceed the in-game or online value that’s assigned to it. A pair of shoes purchased for 100 in-game units on Avatar Island isn’t worth any more than the real world cash the user paid for those units (and maybe even less). However, this critique misses the point in terms of the similarities that digital assets have with similar real-world assets like art, fine wines, and classic cars.

A vintage Shelby Cobra, for instance, is now worth much more than the original sticker price in the 1960s. That’s because they’ve become scarce over time, and buyers are willing to pay a premium because they can verify ownership of the vehicle. In many ways, digital assets based on the blockchain offer an even better store of value than a fine wine or classic car. There’s no risk to the physical item being damaged, and with blockchain’s unique identification capabilities, there’s actually less threat of frauds or fakes hitting the market.

From Warcraft spells to avant-garde digital photography, blockchain is providing the scarcity, proof of ownership, and value store necessary to ensure collectors that their digital assets do indeed have real-world value.