THE POWER OF THE METAVERSE
Ernest Clines’ Ready Player One showcased the power a three dimensional virtual reality space will have not only on video games, but to society as a whole. From the expansive economic opportunities to recreating reality as we know/perceive it.
The Metaverse is essentially virtual reality within a physically persistent virtual space. In the book/movie ‘Ready Player One’, we see a monopolised metaverse. In which one entity ‘Gregarious Simulation Systems’ (GSS) controls and runs a metaverse used by all society — The OASIS. Replacing the internet, the OASIS is used for everything, from watching TV/Movies, to Education (virtual schooling), and of course merging all video games in existence onto its single-virtual-reality platform.
Imagine all the 2d pages of the internet converted into a 3D space in which you can interact with — that is the metaverse.
Tim Sweeney’s quote regarding the monopolisation of the metaverse sums up its importance perfectly:
The Metaverse is going to be far more pervasive and powerful than anything else. If one central company gains control of this, they will become more powerful than any government and be a god on Earth.
Tim Sweeney — CEO of Epic Games (Creators of Fortnite, Rocket League, and Unreal Engine
By controlling the metaverse, you essentially control a second reality. That is what we see occur in Ready Player One, with villain’s of the series ‘IOI’ willing to go as far as murder to gain control of it.
SMART CONTRACTS
Of course, we could spend a whole article discussing the possibility/likelihood of something like the OASIS being created. But in reality we are still decades away from any semblance of the OASIS.
However what the current boom/’super-cycle’ in cryptocurrency has allowed for, is the emergence of various technologies to come to the forefront of public attention. Technologies which will build the backbone of future metaverses.
One such technology being — ‘smart contracts’.
A smart contract is a computer program or a transaction protocol that automatically executes by itself on the blockchain, depending on whether or not the terms in the contract are performed. Due to this automation, smart contracts will reduce the need for ‘middle-men’. Such as lawyers, accountants, banks, etc. And as cryptographic technology ensures the contracts cannot be tampered (decentralised), there are no security concerns — further removing the need for middle-men.
Our focus today however, will be on how smart contracts can be utilised to both monetise and differentiate between digital items/assets — via the concept of ‘Non-Fungible Tokens’ (NFTs).
Blockchain 1.0 for digital currency, Blockchain 2.0 for digital finance, and Blockchain 3.0 for digital society
Zhao, Fan, & Yan, 2016
WHAT ARE NON-FUNGIBLE TOKENS?
NFTs from a macro-perspective is pretty self-explanatory. It is tokens/items which are not fungible. With ‘fungibility’ referring to items that are the same/interchangeable. I.e. the US Dollar. One USD is interchangeable with another USD as they represent/are the same thing.
NFTs on the other hand, have ‘distinct’ value. There are no two tokens/items that are exactly the same. A good example of a non-fungible asset is a house or a car.
A non-fungible token allows us to create a digital certificate that represents a unique asset. We can attach these tokens to pretty much anything, including digital files — say, a photo, a video, an audio recording, or even this article.
This allows us to create proofs of authenticity for digital content that can be owned, bought, sold and traded. Because these tokens are stored on an open and distributed blockchains (such as Ethereum), their embedded metadata and transaction history are completely verifiable by anyone in the world with an internet connection. That means we can all know what digital wallets own what tokens at any given point in time.
And while NFTs have exploded recently due to the emergence of ‘digital art‘, the true benefit of NFTs will arise from documentations, important files, and tracing transactions (verifying digital assets).
‘PAY TO WIN’ VS. ‘PLAY TO EARN’
Typically, gamers spend their time working to grow their power, advancing through challenges of increasing difficulty while working to right some wrong in the universe.
With the cost of buying video games, alongside microtransactions to even be ‘competitive’ in many multiplayer games today. The term ‘Pay To Win’ has become synonymous with video games. No longer is playing video games just ‘unproductive’ and a time-sink. But it also can now become a hobby which leaves a serious hole in your wallet.
Take World of Warcraft for example.
While some claim that the true “end game” is fashion (and there are some merits to that argument), WoW has built its success on providing ever-expanding content designed to keep players growing their power for years.
The majority of a player’s quest for power revolves around obtaining rare equipment. In traditional games, rare gear is gathered in one of three ways:
- Long, difficult quest chains
- Getting lucky from random drops
- Purchasing from other players
Purchasing gear brings up an interesting point: sure, most MMOs/multiplayer games have an active in-game marketplace where players trade goods for in-game currency.
But there is also a thriving grey-market for digital goods. Known as RMT (real-money transactions), these types of marketplaces exist outside the game and are run by a third party. Since there’s no real way to participate in markets like these in a trust-less manner, they are plagued by scams and predatory practices such as item duplication, account hacking/stealing, and more.
Thankfully, blockchain has stepped in as a solution to these grey-market issues; trust-less in nature, immune to duplication, with a provable supply and verifiable ownership, this new technology has actually made it possible for a new era of gaming.
With blockchain technology/NFTs, gaming could finally become a ‘productive’ endeavour. Turning the landscape from ‘Pay To Win’ to ‘Play To Earn’. And with automation/AI taking over more and more jobs, a metaverse economy like the one seen in Ready Player One could actually provide occupational opportunities to people all around the world.
NFTS MAKING DIGITAL ITEMS ‘REAL’
Before blockchain, the digital items players spent countless hours amassing weren’t technically even theirs. The items are available to use, of course, but they aren’t actually owned by the player.
Blockchain tech, and more specifically non-fungible tokens (NFTs), have completely changed the game. Players actually own their digital items, which can be easily verified.
Trading is no longer a grey-market activity — it is completely transparent and trustless, and supported by the developers because they generate returns on every single trade.
This evolution in digital ownership is also responsible for the “metaverse” concept finally beginning to blossom.
HOW TO ENSURE NFTS HAVE VALUE
As a player, the value of an item is primarily determined by its in-game (or cross-game) utility. There are, however, some other important factors to consider:
- Emotional Attachment: If a player completes a difficult quest or grinds for a long time to obtain an item with a low drop rate, they may be less likely to sell, and value it more because of their attachment to it. The difficulty of acquiring the item also affects how many people will even attempt it, thus increasing value even further.
- Aesthetic Appeal: In virtual worlds, the cosmetic design of an item matters greatly. Who doesn’t like to look cool?
- Scarcity / Exclusivity: As with most things, the value of an item is directly influenced by how low the supply is (scarcity). An item’s value can also be impacted by the exclusivity of an item — for example, items that were only available from a limited-time event or quest may fetch a premium.
PROOF OF STAKE
Before developers go all-in, they need to understand the limitations. Gas fees are the fees paid to miners contributing to the proof-of-work algorithm backing the Ethereum blockchain and verifying transactions. They are expensive enough right now to the point where creating an NFT for EVERY in-game item would be impossible and in theory, infinitely expensive. For developers to implement NFTs successfully, the functionality would have to be more targeted unless they planned on creating their own cryptocurrency to support the tech.
A single transaction of bitcoin has the same carbon footprint as 680,000 Visa transactions or 51,210 hours of watching YouTube
The Guardian
Proof of Stake solves this. ‘PoS’ removes the need for physical and power-intensive mining. As miners in the PoS model are able to mine/validate transactions based on the number of coins the miner holds in their wallet.
The consensus is distributed amongst all holders of the cryptocurrency, and everyone earns a flat percentage rate for ‘staking’ or holding coins in their wallet. Just like earning interest in traditional financial systems, the more you have in the bank, the more you will earn. Though people are still earning the same rate of interest all around.
The result is a decentralized network with much less environmental impact.
WHAT ARE THE BENEFITS OF PROOF OF STAKE IN GAMING?
- Minting of premium currency could be distributed to players — Proof of Stake cryptocurrency could be used to support in-game cosmetics (or even entire in-game economies). The proof-of-stake algorithm could be tweaked to give players more staking power or increase the likelihood of staking based on the time they play any games supported by the cryptocurrency. A system like this could be used to support multiple games by the same publisher — or even an entire ecosystem of games in the industry.
- Axing transaction and credit card fees by selling direct — publishers would pay less in credit card transaction fees to generate revenue. The prime stakers (i.e. publisher wallets with massive balances) would actually profit on player-to-player trades and interaction with the cryptocurrency. It would be entirely possible to restrict the prime-staking status to only developer-held wallets, but allowing players or major investors to achieve a similar status would create a compelling and interesting way for large investors to support the publisher and cryptocurrency powering the games all while adding security and versatility to the cryptocurrency network.
DRAWBACKS TO PROOF OF STAKE
The Proof of Stake algorithm is less-tested than Proof of Work. Critics of the PoS model claim there is a “nothing-at-stake” issue that is an inherent flaw of the algorithm. They believe that miners have nothing to lose by voting for different (potentially fraudulent) blockchain histories that could have been created by bad actors in the space. Though these claims are still unfounded, it is a potential risk for the algorithm despite its many strengths.
Taxation is also a concern when an in-game currency has real-world value. In the United States, the IRS treats cryptocurrency mining as a taxable event.
Of course with this ‘mining-by-playing’ system, players would be able to write off the cost of their gaming hardware and electricity dedicated toward playing the game against any realized taxable gains. The whole idea of cryptocurrency-supported gaming is fascinating, and one can only imagine what types of reforms in regulation may arise from the IRS if it were to expand into the mainstream.
CONCLUSION
We have only really scratched the surface of how future cryptocurrencies and blockchain technology will revolutionise not only video games, but the internet as we know it. The Metaverse may seem a far reaching Sci-Fi dream, but the building blocks of its infrastructure are being built right now.
Creating an MMO with a proof of stake cryptocurrency integrated into its ecosystems, alongside Virtual Reality gameplay already resembles what we see in Ready Player One. The technology of course is nowhere near ready for ‘realistic’ VR graphics in which a seemingly infinite possible number of worlds can be created. But the early signs are here.
In a coming article, we will delving deep into some of these projects. With the different types of cryptocurrencies/tokens looking to enter the space (i.e. Enjin), and the various game developers looking to build MMO Blockchain games.
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