Part 3: The Metaverse, What It Is

This is Part 3 of Agya’s August series on the Metaverse. In our previous editions, we took a close look at 1) how we got here and 2) what the Metaverse is not, unpacking everything from its entrance to pop culture in 1992 to analyzing why the Metaverse is not synonymous with web3.

To read the series to date, check out:

• Part 1 on how we got here.
• Part 2 on what the Metaverse is not.

Now that we have context, in this edition we dive into what exactly people mean when they say Metaverse, and how to make sense of its nascent yet evolving definition.

Let’s dive in.

The Metaverse is still in its infancy, and we won’t pretend to have a clean and digestible definition ready to share. ‘Metaverse’ isn’t even in the Merriam-Webster dictionary yet. However, there are emerging guardrails and core building blocks that are taking shape, and if organized effectively can provide some clarity around what is meant by “the Metaverse.”

In this section, we look at the Metaverse from two perspectives: conceptually and in-practice. From a conceptual level, we unpack Matthew Ball’s comprehensive yet complex definition to add more clarity around Metaverse buzzwords like “interoperable” and “persistent.” Then we shift our attention to what the Metaverse looks like in practice, breaking down its core building blocks like hardware and applications.

A Conceptual Understanding

Matthew Ball defines the Metaverse as follows:

“The Metaverse is a massively scaled and interoperable network of real-time rendered 3D virtual worlds which can be experienced synchronously and persistently by an effectively unlimited number of users with an individual sense of presence, and with continuity of data, such as identity, history, entitlements, objects, communications, and payments.”

Let’s unpack that.

1. Massively scaled: The Metaverse’s success is dependent on network effects, and requires a massive amount of users to reach its full potential. Many use cases require a high degree of sociality and depend on shared experiences with friends and colleagues, which requires a massive scale to be effective.
2. Interoperable network: A core feature of the Metaverse is that it will be interoperable, which means that users can transfer their unique digital assets across platforms and experiences in a seamless fashion. This will likely be enabled by on-chain web3 technologies like NFTs.
3. Real-time rendered 3D virtual worlds: 3D virtual worlds could take two forms in the Metaverse: either 1) in Virtual Reality, which is fully immersive and navigated with avatars, or 2) in Augmented Reality, where the internet is layered on top of the real world in 3D. By rendering in real time, users’ actions and movements in real life will be reflected online immediately, which is required for the Metaverse to offer seamless collaboration and social interaction in a way that feels similar to the real world.
4. Experience synchronously: To date, most technology has been built for asynchronous experiences; activities like shopping on Amazon, sending a Slack DM or booking a doctor’s appointment online are performed in isolation from the person on the receiving end of the interaction. In the Metaverse, people will act and engage with others in real time all the time. When booking an appointment, you will talk with a virtual receptionist who can answer questions and quickly troubleshoot any problems; when it’s Metaverse movie night, you will feel like you are in the same room as friends around the world. In the Metaverse, the synchronous nature of communication and shared experiences will make physical distance feel irrelevant.
5. Persistently: The Metaverse is persistent, which means that its virtual worlds and collaborative spaces will exist even when you are not there. This part of Ball’s definition is referring primarily to the VR-side of the Metaverse, and emphasizes how it will be a continuous place for people to freely join and leave. It’s not somewhere that pauses when you take off your headset.
6. Unlimited number of users: In the Metaverse, millions of users will be able to synchronously participate in a shared virtual world. We are likely years (if not decades) away from this becoming a reality, however, because of the network and compute power needed to transfer and process that magnitude of data. Today, we are limited to much fewer simultaneous users: Fortnite and Roblox cap their games at 100 players, though are testing low-fidelity worlds that could support up to 1,000 users in the near future.
7. Individual sense of presence: A core promise of the Metaverse is the idea of presence, where users are physically engaging with the people and places around them instead of watching through a screen. People in the Metaverse will carry a unique sense of individuality and identity, made possible through personalized avatars and NFTs.
8. Continuity of data: In order for the Metaverse to be interoperable, data needs to seamlessly flow between virtual environments. User’s identity, history, entitlements, objects, communications, and payments will need to be accessible and consistent whether they are at Fashion Week in Decentraland or a meeting in Horizon Workrooms.

The Metaverse Building Blocks

Matthew Ball’s definition takes us through the Metaverse on a conceptual level; this perspective is important for understanding the ethos and motivations behind the Metaverse, as these principles will be key drivers behind innovation in the space for years to come. However, the Metaverse is more than just a concept. It’s something that is actively being built, with existing use cases that hint at how disruptive it could become. This section walks through its core building blocks, providing a snapshot of the rapidly evolving Metaverse tech stack. In this report, we provide the high-level details of how the Metaverse is forming; in a later publication, we will dive into the building blocks in much more depth.

We view the Metaverse as having four enabling layers that collectively make up what the average consumer will come to know as ‘Metaverse’: Infrastructure, Hardware, Monetization and Experiences.

Infrastructure

Behind the consumer facing applications and hardware, the Metaverse requires substantial digital infrastructure to function in a way that consumers find compelling. In order to make the characteristics in Matthew Ball’s definition possible — 3D that is real-time rendered, unlimited users, synchronous experiences — digital infrastructure will have to take leaps forward to handle the amount of data needed to power the Metaverse. There are three core parts of digital infrastructure that will play a key role in realizing the Metaverse: networks, compute and storage.

1. Networks: Network infrastructure is what allows data to travel between different endpoints. In the Metaverse, there could be thousands of people each persistently performing unique actions, which will be rendered, often in 3D, in each users’ virtual world. This requires a massive amount of data to be transmitted between thousands of end points instantly, and will depend on advanced network infrastructure being in place across the globe.
2. Compute: Compute refers to the processing power or “brains” behind internet applications that takes raw data and turns it into something usable. Matthew Ball has said that the Metaverse will have “the greatest ongoing computational requirements in human history,” and for good reason: if the Metaverse is to support a UI/UX that consumers find compelling, there must be compute infrastructure in place, either on the cloud or on consumer devices, to simultaneously process data from millions of users around the world and turn it into a live-streamed, high resolution experience. For the Metaverse to go from one million to one billion participants, it must provide a UI/UX that surpasses what internet users expect today. To achieve this, compute power will need to take leaps forward though technologies like:
   
   2a) Edge Computing: where smaller, locally-placed data centers bring cloud computing resources closer to the end user. This reduces the distance data needs to travel which in turns lowers latency, making it possible for virtual worlds and experiences to render synchronously across Metaverse participants. Players to keep an eye on include incumbents like Microsoft Azure’s edge stack and startups like Zededa and Vapor.
   
   2b) High performance processors: where hardware improvements enhance the computational efficiency and performance of computing devices. Notably, compute giant Intel has been active in this space. In a press release laying out their Metaverse strategy, they pointed to the potential of their new Xe compute infrastructure for Metaverse applications, which will power products like Arc™ Alchemist GPU for gaming and creation and Ponte Vecchio to accelerate high-performance computing and visualization.
   
   2c) Storage: The final core pillar to Metaverse digital infrastructure is storage. With all of the data continually generated in the Metaverse — by 3D movements, commerce, conversations, etc. — there needs to be a way to store it with infrastructure that is cost effective and sustainable. This will likely include a network of large cloud data centers and many small edge data centers, together which are required to ensure the reliability and speed of data transmission that Metaverse users will demand.

Hardware

Consumer hardware will be the primary access point to the Metaverse, and there are several devices we can point to as leading drivers of adoption so far:

1. Gaming Consoles: Gaming will be the first onramp to the Metaverse for many, and for this reason gaming consoles will be a major access point for at least the next several years. As many games require real-time rendering of dozens of live players to operate effectively, these consoles are already built to support core Metaverse features that other consumer devices aren’t technically equipped to handle. For the foreseeable future, consoles like Sony’s PlayStation and Microsoft’s Xbox will render the best Metaverse experiences until other hardware catches up.
2. Virtual Reality: Headsets enabling virtual reality are the hardware most commonly associated with Metaverse, and their adoption has started to materially rise in recent months; In Q1 2022, the global VR headset market grew 241.6% YOY. Meta has dominated the VR hardware market since their acquisition of Oculus in 2014. Their early investment in the space seems to be paying off: Meta has sold over 15 million Meta Quest 2 headsets at $299 to date, and captured 80% of all VR headset sales in 2021. Meta’s Reality Labs division also recently revealed a suite of VR headset prototypes on its roadmap, including a high-end headset codenamed Project Cambria and a near-retina-quality display system called Butterscotch.
3. Augmented Reality: A second category of Metaverse headsets are those which enable Augmented Reality experiences. These headsets cosmetically appear similar to regular glasses, with clear lenses that superimpose a digital layer on top of the real world. Apple has generated the most buzz in this category with their anticipated AR glasses; however, these are at least several years away from their debut and will almost certainly come after their mixed reality headset (expected to launch Q1 2023), given the technological complexity of building AR technology into sleek and slim glasses. Meta also has future plans for AR glasses, which Zuckerberg calls the “holy grail” device that will “redefine our relationship with technology.” On the enterprise side, AR hardware has seen more progress. Magic Leap already has an AR headset on the market, but it’s designed only for enterprise use-cases and lacks an aesthetic appeal that consumers would find compelling. Microsoft’s Hololens offers similar enterprise-level AR use-cases, with a focus on manufacturing, construction, healthcare and education.
4. Mixed Reality: Mixed Reality (MR) headsets are those which enable both AR and VR experiences, and look similar to VR headsets but with AR functionality by way of video pass-through technology. The Quest 2 device is technically a Mixed Reality headset, but Meta has focused on its VR capabilities and it only has limited AR use-cases. Apple is expected to release an MR headset as early as Q1 2023, which has generated excitement in part because of its focus on AR. Apple’s headset is rumored to be equipped with an M2 processor, powered by a new operating system called RealityOS, and could retail for as high as $3,000.
5. Emerging Hardware: The last group of Metaverse-enabling consumer hardware are devices that are either in development or don’t exist yet. This includes technology like Meta’s haptic gloves or Emerge’s Wave-1 product that will help break consumers out of the handheld-device paradigm and towards future consumer hardware that is less disruptive to our existing real-world experiences.

Monetization

One of the defining features of the Metaverse is that it will have its own robust economy and financial system. This will be possible through a combination of TradFi (traditional finance) like fiat currency and centralized banks, and emerging web3 monetization tools like NFTs, digitally-native tokens (cryptocurrencies, stablecoins, potentially central bank digital currencies) and digital wallets. There are two pillars to the Metaverse economy — currency and ownership — that are key for understanding the monetization mechanisms of future virtual worlds; and it’s the combination of these two pillars that unlock a robust Metaverse commerce ecosystem that transcends what is possible with current digital technologies.

1. Currency: Currency in the Metaverse will involve a combination of digitally-native currencies and traditional fiat currency. The exact nature and use-cases of digitally-native tokens is yet to be determined, but the Metaverse will likely include cryptocurrencies, CBDCs (central bank digital currencies), stablecoins, and in-game tokens used on platforms like Roblox and Decentraland. While Metaverse currency may standardize at some point, for the foreseeable future it will likely involve a complex mix of currencies that’s supported by existing and Metaverse-native financial services.
2. Ownership: Ownership in the Metaverse is made possible through NFTs, which are unique non-fungible digital assets whose ownership is recorded on a blockchain. NFTs are central to Metaverse monetization as they allow virtual assets (digital art, designer clothing for avatars, tickets to a sports game) to be individually owned for the first time. This enables digital worlds to embody characteristics like scarcity and property rights for the first time, both of what are essential traits to any functioning economy. NFTs are also interesting in that they provide a potential bridge from the Metaverse to the real world (or vice versa). Given their non-fungible nature, any physical asset can be represented by an NFT and transacted with real-world implications. We are already starting to see use-cases arise, for example, with collectibles, ticketing and luxury retail.
3. Commerce: Together, currency and ownership enable a robust Metaverse commerce ecosystem. As Cathy Hackl describes it, four transaction types will define commerce in the Metaverse:
   
   3a) Physical to Physical (P2P): You go to the grocery store and buy a loaf of bread. This method of commerce has existed for hundreds of years, but may be reinvented through future AR technology providing more immersive real-world shopping experiences.
   
   3b) Virtual to Virtual (V2V): Your avatar goes to a Metaverse store to buy a pair of virtual NFT-verified sneakers. In the future, Direct-to-Avatar (D2A) transactions will also fall under this commerce model.
   
   3c) Physical to Virtual (P2V): You buy a real-world luxury sweatshirt from Supreme, which has an embedded geo-tagged NFT that after purchase unlocks a virtual apparel item for your avatar to wear.
   
   3d) Virtual to Physical (V2P): Your avatar buys luxury virtual sneakers from Nike-owned RTFKT, where the NFT backing the sneakers provides membership to a clubhouse in SoHo that can only be accessed by RTFKT virtual apparel owners.

Experiences

The final building block enabling the Metaverse is the experience layer. Metaverse experiences are consumer or enterprise-facing applications enabled by the infrastructure, hardware and monetization layers, and are either built on a platform (ex. on Roblox, Decentraland, The Sandbox) or stand as independent applications (Animal Crossing, Horizon Workrooms). The Metaverse will have experiences that disrupt nearly every industry. To provide a few example:

1. Future of Work: On Horizon Workrooms, Meta’s VR-based collaborative work solution, colleagues from around the world can participate in meetings that exist in one virtual room. Users can sit around a conference table and talk to each other face-to-face, draw up ideas on a virtual whiteboard, and ‘share their screen’ on a monitor at the head of the virtual table for everyone to see.
2. Healthcare: With applications like Osso VR, surgeons can train for different procedures in a fully immersive environment with a headset on. Tripp, meanwhile, is aiming to build a mindfulness Metaverse with VR-based meditation and other immersive mental wellness experiences.
3. Sports: The Metaverse will revolutionize athletics training, with AR and VR enabling athletes to simulate game-like experiences with their team. Win Reality is doing exactly that for baseball and softball, with various VR-based practice drills and pitching simulations for batters that produce granular insights on performance and areas for improvement.
4. Construction: Nvidia’s Metaverse efforts have focused on their enterprise Omniverse platform, which is a 3D design collaboration and world simulation platform. For construction, Omniverse enables powerful digital twin technology that is made collaborative through shared AR or VR tools; with these tools, engineers from around the world can work together on evaluating a building proposal by means of a synchronously rendered 3D digital twin, capable of supporting hyper-realistic simulations and proposal changes in real time. On the hardware side, XYZ Reality is building an AR hardhat designed specifically for on-site construction use-cases. When activated, holograms and high-fidelity 3D models are projected onto the jobsite to improve inspection, safety, precision and other parts of the construction process.
5. Retail: The retail industry has been one of the most active Metaverse adopters to date, with many brands launching NFT clothing lines, creating virtual experiences and partnering with major Metaverse platforms like Decentraland and The Sandbox. One company working to provide brands with an onramp to the Metaverse is Obsess, who has designed virtual storefronts for companies like Ralph Lauren, Dior and Lululemon.

It’s in the experiences that the Metaverse magic happens, and once consumers experience the full force of its potential, they won’t want to go back.

The Metaverse is still an evolving concept, and how we define it should be consistently reevaluated as it continues to evolve over the coming months and years. What’s likely to remain unchanged, however, is that the Metaverse is only possible when a number of developing technologies come together to provide a compelling user experience. Without experiences, there is no demand for hardware; but without the hardware, there won’t be any access points into the experiences; and without the digital infrastructure, we can’t build adequate hardware in the first place. The Metaverse is the culmination of a wide variety of technologies, all of which are required to unlock the next iteration of the internet.