All about the Metaverse and how it may herald a paradigm shift in the world’s economy.
Edited by Sanaya Narula.
According to the Oxford Languages dictionary, the metaverse is “a virtual-reality space in which users can interact with a computer-generated environment and other uses''. A portmanteau of meta and universe, the metaverse is a concept that – while previously endeavoured – has been a prevalent topic in the past year. While the term was first coined in a novel titled Snow Crash back in 1992, its tangible implications to contemporary and future society transcend far beyond mere fiction. The first time that the concept was explored in a technological context, was in the form of a video game called Second Life, founded by Philip Rosedale. Although its popularity peaked in 2007 owing to its unique feature of socialisation back then, its user base has deteriorated ever since due to its technical shortcomings as well as growing competition from companies such as Facebook. In October 2021, Meta, the multibillion company behind Facebook and WhatsApp, announced its major decision to venture into the metaverse. For the uninitiated, the metaverse is essentially a virtual world, not unlike Massive Multiplayer Online Role-Playing Games (MMORPG) such as the famed World of Warcraft. However, in stark contrast to video games, the metaverse is able to simulate the real world to such a degree that any process or activity that can be carried out in our actual lives can be replicated in the virtual world it offers as well. This article seeks to shed light on the various aspects of the metaverse as well as its projected impact on the world’s economy.
First and foremost, it is pertinent to comprehend the myriad of forms in which the metaverse can manifest. The most prominent and ubiquitous is in the form of Virtual Reality (VR), in which users put on a VR headset such as the Oculus Quest in order to enjoy an immersive experience in first-person view, with its most commonplace example being VRChat where users take the form of avatars and communicate in a virtual world. Another example of the presence of the metaverse is Augmented Reality (AR). For instance, popular video game Pokémon Go is a representation of the metaverse in AR as it utilises the device's camera to display fictional characters with a real background and enables players to interact with one another through various features such as battles. The implementation of AR is not constricted within the boundaries of entertainment, as it has practical uses too, such as the preview of furniture in one’s household prior to purchase. Furthermore, the metaverse can be presented on conventional screens. Other than the aforementioned World of Warcraft, Fortnite is another mainstream application of metaverse on an ordinary screen where many events can be held, as substantiated by popular singer Ariana Grande’s concert on the platform.
Now that the various applications of the metaverse are covered, it is crucial to delve into the working mechanisms and economy of the metaverse. To do so, an understanding of blockchain technology is prerequisite. Blockchain is a novel technology of storing information in a database such that the data contained can be distributed but remain immutable in the process. Blockchain technology achieves this by storing digital information in the form of blocks instead of the conventional tables, and said blocks of information are interconnected and decentralised such that if one record were to be altered with malicious intent, the other blocks would be able to identify the error in the database. As a result, blockchain technology provides a secure possession of properties on the Internet, where digital items such as pictures may be replicated simply via a screenshot. The increasingly widespread implementation of blockchain technology has given rise to related assets such as non-fungible tokens (NFTs) and cryptocurrencies. The unique identification of data made possible via blockchain prevents physical theft of such possessions – barring elaborate hacking – and thus leads to the extremely exorbitant price of certain NFTs and cryptocurrencies. It is exactly this technology of blockchain that acts as the backbone of the economy of a metaverse, which the subsequent paragraphs seek to discuss.
The economy in the metaverse essentially replicates that of the real world, albeit in the form of digital possessions. Similar to the world’s economy, currencies are the main medium of transaction within a metaverse, but in a metaverse cryptocurrencies are used, the type of which varies between platforms. At the time of writing, among the most prominent metaverse platforms include Decentraland, and The Sandbox, which use cryptocurrencies known as MANA, SAND and the renowned Ethereum. On these platforms, users can purchase virtual assets such as land, properties, and even yachts, which alongside conventional images and pictures, are also NFTs via the supported cryptocurrencies. Said properties are often used for various purposes similar to real life such as residential use, hosting events and even flipping digital products– the act of purchasing assets with the goal of selling for a higher price to gain a profit. While the transaction of virtual properties may appear insubstantial at first, its scale is not to be underestimated – in November 2021 an investment firm purchased a virtual “Fashion District” in Decentraland for $2.5M. It is apparent that popularity and the latest trend can have a significant impact on the value, or rather the perceived value, of a virtual property, as another user spent $500K on a property on celebrity Snoop Dog’s metaverse platform “SnoopVerse” in order to be his virtual neighbour.
While it may appear that the economic allure of the metaverse is strictly limited to the materialistic possession of virtual land and buildings, this is far from the truth. Axie Infinity is another metaverse platform with a different target audience – video gamers. Boasting a “play to earn” system, Axie Infinity enables its users to generate an income while playing its game, though unlike professional ESports players. Upon paying a fee in Ethereum to sign up for the platform, users are given virtual characters with unique traits and abilities. As they continue playing on the platform, they may obtain new characters, each of which can potentially be sold for a hefty sum depending on their rarity. To corroborate this, a character in Axie Infinity known as “Axie #2655” was sold for over $800K due to its unique parts and attributes coveted by many users. When users opt to cash out, the in-game credits they have earned are first converted into Ethereum, which they can later sell in exchange for real cash. In fact, Axie Infinity can be so lucrative that Sam Peurifoy, previously a research associate at Goldman Sachs, claimed that the amount of money gained on the platform could potentially exceed his yearly income.
At first glance, the metaverse economic system that is rising in both prominence and validity only affects individuals voluntarily involved in the virtual world. However, current trends and future estimations prove this belief erroneous, as the economy in a metaverse impacts the economy in real life as well. The increasing fame of the metaverse and NFTs has resulted in a drastic increase in the price of Ethereum, which reached a record high of $4470 on the 2nd of November 2021. Other than cryptocurrencies, the effects of the metaverse extend to related companies as well. For example, Facebook has announced its decision to acquire chips for its metaverse project from AMD, one of the largest computer chip manufacturers alongside Intel, which led to an increase in over 10% of the company’s stock prices after the announcement. Meanwhile, other companies such as Google and Microsoft are also capitalising on the various opportunities that arise with the growth of the metaverse. The former company is planning to develop a unique pair of AR glasses in light of the latest trend while the latter seeks to release a new feature known as “Mesh for Microsoft Teams” which facilitates teleconference between colleagues. As for employees, the dependency on a conventional job may see a downtrend in the coming years as the means to earn side income via the metaverse becomes more varied.
In conclusion, while the concept of metaverse is still relatively novel, it is highly likely to see a drastic growth in the coming years as predicted by many sources such as an article titled “2022 will be the biggest year for the metaverse so far” on CNBC. Similar to cryptocurrencies which received overwhelming scrutiny in its infancy and has gradually improved in acknowledgment and practicality such as when Tesla announced its policy to accept Dogecoin as a form of payment in December 2021, the potential of the metaverse is still under observation. Despite its many appealing features and promises, some have voiced their scepticism about the viability of a metaverse, such as University of Massachusetts professor Ethan Zuckerman’s comment about Facebook, “How will a company that can block only 6 percent of Arabic-language hate content deal with dangerous speech when it’s worn on an avatar’s T-shirt or revealed at the end of a virtual fireworks display?” For now, the future of the metaverse remains to be seen.
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