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What is Decentraland & How Does it Work? - MANA for Beginners

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Author: Saad Ullah Updated: January 25, 2022

Much like the popular games Minecraft and Second Life, Decentraland is a virtual reality (VR) environment where people can own land and build on it. Initially, Decentraland was just a pixel grid that allowed people to buy plots by the pixel—today the platform is a 3D metaverse, where people can buy land and build anything on top of it, creating an environment for people to meet, play games, and have other virtual experiences.

Decentraland has become a major player in the crypto space, with big firms such as Sotheby’s having a complete digital copy of their headquarters showcasing digitised art within the metaverse.

This article runs you through the basics of Decentraland and its native token, MANA.

Why Was Decentraland Invented?

From folk tales of mysterious lands to fictional settings in stories, humanity has always created fantasies with different realities and the advent of computing has helped to form digital virtual realities. While computer-generated virtual worlds have existed for decades, Decentraland took this to another level by using blockchain, specifically the Ethereum ecosystem, to build one that is transparent and virtually open to all.

Within the Decentraland world, a whole economy exists where people can buy and sell land and non-fungible tokens (NFTs), build avatars and exchange goods and services. Decentraland’s economy needed a monetary system to run and powering this economy is the MANA token.

Apart from being used as a medium of exchange, the MANA token also has governance properties. Decentraland is a decentralised autonomous organisation (DAO) and the users shape the platform and its rules. As such, MANA holders are given the right to propose and vote on any changes to services and offers within the platform.

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How Does Decentraland Work and What Technology is Behind It?

Built using peer-to-peer (P2P) blockchain technology, Decetraland leverages the Ethereum network and all virtual space is represented by tokens called LAND. LAND is held within a smart contract and portions of it (called parcels) can be bought and sold with MANA.

Since MANA and the Decentraland ecosystem are decentralised, there are no intermediaries and all transactions take place through the aforementioned smart contracts, which are bits of code that execute the exchange of digital assets (parcels, collectable items and other goods) by acting as digital escrows. Requiring no fee (apart from the one paid to miners), transactions are fast and secure.

Is Decentraland Real Money?

Created to serve the virtual economy of Decentraland, the MANA tokens’ primary function is to act as a medium of exchange, allowing people to conduct business and transactions in the metaverse.

It can be said that MANA is money within Decentraland. Whether MANA is money outside of the game is debatable. Traditionally money has certain criteria: acting as an exchange medium, preserving wealth and being issued by an authority. While MANA does fulfil certain aspects, it lacks the authority issuance aspect.

On the other hand, MANA does have an appeal to the public and can be bought and sold for fiat, thus giving it value. If people are willing to use MANA instead of fiat to buy and sell goods or services (especially considering that as crypto, it offers a cheaper, faster and more secure method than regular money), there is no practical difference between MANA and any fiat.

Another aspect of MANA is its supply. Initially, the token was deflationary due to MANA being burned during the LAND auctions and in fee burns. Although the community voted to reallocate those fees to the community treasury, the MANA supply is still scarce, which sets it apart from fiat currencies but also potentially makes it a better option for preserving wealth.

Fees and Expenses of Decentraland

Since Decentraland uses the Ethereum network to run the virtual world and its ERC-20 MANA and ERC-721 LAND tokens, all transactions (direct sending to wallets or smart contracts) have a miner fee associated with them.

Currently, Ethereum is a Proof of Work network and all transactions are recorded in blocks, which are digitally mined by solving complex cryptographic calculations. The miners are compensated for the energy their computers use to solve the equations.

At time of writing, a standard ERC-20 token transaction costs an average of $14, but the fee can rise and fall, depending on the congestion on Ethereum. With limited transaction capability per second and thousands of different tokens that are changing hands, there is competition for transactions to be recorded first. In times of higher activity, people start paying higher fees to get the transaction executed. To counter the excessive fee, Decentraland has also started using the Polygon network, a layer 2 solution that offers the ability to transact with a near-zero fee. This has made Decentraland a far more accessible game.

If you intend to buy or sell Decentraland tokens on secondary markets such as crypto exchanges and brokerages, you will also be charged by the platforms. Each platform has its own policy on charges and we advise you to look up the fee structure to know what you will be spending.

What Are the Benefits of Decentraland?

As a medium of exchange, Decentraland’s MANA tokens are the only way to buy or sell virtual real estate and other items on the platform, which is an opportunity in itself for an income source. Being a scarce token, MANA has been designed to preserve its value over time. A simple and classic case of supply and demand, the limited supply and an increasing appeal only serve to push the token price up, potentially making it an excellent hedge instrument to fight against the rising inflation of fiats.

At the same time, MANA’s governance properties offer the benefit of giving control of the platform to the users. As a DAO, Decentraland is run by MANA token holders, who can put up different proposals, while democratic voting allows the people to decide whether to adopt them or not.

Can Decentraland Be Used Anonymously?

The pendulum swings both ways to this question. Since Decentraland is a completely decentralised platform (it’s in the name after all), users can interact in the metaverse by connecting their crypto wallets with the associated smart contracts. 

All transactions done this way (including any direct private wallet to wallet ones) are recorded on the blockchain with only basic information such as the wallets used to send and receive, and the amount of MANA sent. The wallets involved are identified with only their public keys which are just alphanumeric in nature, making it difficult to link the wallets to a specific user in real life. Thus anonymity can be preserved with Decentraland.

Secondary markets that are centralised in nature are a different story. Using regulated platforms (which we always advise) means that you will have to give information about yourself under the KYC and AML rules. The information includes name, a government-issued ID and other data such as proof of income. Thus, your identity is not kept anonymous if you choose to buy MANA from centralised platforms.

How Safe is Decentraland?

Blockchain, the technology underpinning the decentralisation of Decentraland, is considered one of the most sophisticated in terms of security. Decentraland also piggybacks on the Ethereum network and with its vast network of miners who are responsible for vetting and validating transactions, Decentraland is as secure as Ethereum itself.

Decentraland also has its smart contracts audited by third parties such as OpenZeppelin to ensure there are no vulnerabilities or exploits possible.

What Teams Are Working On Decentraland Development?

Created by Ariel Meilich and Esteban Ordano, Decentraland was initially controlled by the original development team. Both Melich and Ordano have since stepped down from their posts and with the move towards a DAO structure, the Decentraland Foundation is still responsible for the execution of development. However, the changes are proposed by MANA token holders who themselves have to decide on whether to implement them or not.

The world inside Decentraland is open to all people who are free to develop and build virtual real estate, buildings, avatars and other items.

The Decentraland DAO also has a Community Grants programme, where different individuals and groups can apply for three levels of funding for new developments. The proposals are sent to be voted on and the approved grant is funded by a MANA fund dedicated to development purposes.

Which Financial Institutions are Invested in Decentraland?

As a metaverse that allows people to build and create whole worlds, Decentraland is an attractive platform that includes big firms such as Sotheby’s replica of its London headquarters and the recent plan by real estate developer Republic Realm to create a complete virtual shopping district.

As such Decentraland’s potential has been recognised early on and a few major VC firms have invested in it:

  • Digital Currency Group

Active since 2011, Digital Currency Group supports crypto and blockchain projects all over the world and is heavily invested in the industry. Supporting platforms in 30 different countries, DCG owns a few of the largest names in the crypto sphere such as media platform CoinDesk and asset management firm Grayscale.

  • Genesis One

Taking part in the Decentraland initial coin offering (ICO), Genesis One operates out of Hong Kong and consists of different investors that are working towards the promotion of blockchain technology. It also provides advisory services to its clients.

  • Fundamental Labs

Another VC firm that took part in the Decentraland ICO, the firm invests in early state blockchain platforms that show a potential to disrupt the current market.

Decentraland Mining

Like many ERC-20 standard tokens that work as a medium of exchange and governance in DAO platforms, MANA is not minable in the traditional blockchain sense. All of the 2.8 billion tokens were created at the start and 40% of the supply was distributed during its 2017 ICO with a further 20% to partners and community. Another 20% went to the founding team and the remaining 20% were allocated to the Decentraland Foundation.

With all MANA tokens allocated, there is no way to create or mint any new tokens. New MANA are injected into circulation and the market through the different grants that the Decentraland DAO approves.

Decentraland Wallet

Running on the Ethereum ecosystem, Decentraland’s MANA tokens are based on the ERC-20 standard. This means that the tokens can be stored in any Ethereum wallet that supports the standard. Some wallets that can easily store MANA are:

  • MetaMask

A browser-based extension, MetaMask is one of the most popular ERC-20 wallets and is even recommended by Decentraland. Users can access the Decentraland platform through the browser and connect their wallets directly to it.

  • Trezor One

Trezor One is a hardware wallet that allows anyone to store their MANA tokens on it and then disconnect from the computer. A physical gap means that once offline, the wallet is impossible to access by bad actors.

  • Trust Wallet

Available on mobiles, both Android and iOS, Trust Wallet is perfect for beginners as it provides a simple interface and has the convenience of always being available.

  • Atomic Wallet

With availability across a range of devices, both mobile and computer, Atomic Wallet supports around 300 different tokens including MANA. It also has an atomic swap feature which makes it convenient for people looking to immediately buy MANA.

Is Decentraland Worth the Investment?

One of the most successful platforms of its kind in blockchain, Decentraland has attracted people and large firms from all over the world to build different virtual places, shopping districts, games and other things.

As its popularity increased, so did the demand for its MANA tokens. What’s more, the scarcity of MANA tokens means they could potentially represent a better long-term store of value than inflationary assets like fiat currencies.

This and the rising demand could make MANA an excellent instrument for investment. However, we do caution you if you decide to buy MANA. The cryptocurrency arena is still young and susceptible to massive price fluctuations. Do your own research before committing any money towards MANA.

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Frequently Asked Questions

  1. As a decentralised token, MANA can be bought by anyone. Profitability relies on several factors such as market sentiment and current demand. You should carefully review MANA and the market to make your own predictions.
  2. You can use any reputable crypto platform to buy MANA using your existing crypto or even fiat.
  3. As a piece of a virtual map, you have the option to build anything on Decentraland’s LAND, from real estate to games to other player experiences.
  4. Platforms providing trading or buying services usually charge a small fee. It is best to look this up beforehand to know how much you will be charged.
  5. You will need to register your LAND and MANA wallet with the Decentraland DAO. Each MANA gives you 1 vote and LAND offers 2,000 votes. You can head over to the DAO, browse the proposals in process and place your votes.
  6. Of course. Anything that you build on LAND or hold as a virtual item can be sold for MANA.
  7. Decentraland is about creating a virtual world and as such doesn’t have any traditional DeFi income offers through staking. Other platforms however do offer staking and farming of MANA.
  8. All smart contracts have been audited by major third-party specialist firms such as OpenZeppelin and Blockchain Security DB.
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