Confluence of Distributed Ledger Tech (DLT) and Metaverse
Metaverse as a concept has been around for many years. Feel that there is now a renewed interest in it because DLT’s solve some longstanding issues within the Metaverse. In this blog, I try to bring out the synergies between them.
It begins with a basic introduction for DLT followed by features of DLT that find applications within the Metaverse and finally a use case of Metaverse using DLT. It takes a detour to explain basic Web-3 concept. A bit longer than my regular posts.. but hopefully it is as immersive as the Metaverse itself ;)
The promise of DLT — a design canvas
Prior to Bitcoin, if Alice wanted to transfer money to Bob then she had to rely on centralized institutions like banks and a clearing and settlement agency to do so. Bitcoin now makes it possible for Alice to initiate transfer of value to Bob without the use of centralized institutions. She initiates the transfer from her wallet by creating a transaction and broadcasting it to a network of nodes. These networks of nodes will validate the transaction; which amongst other things will validate on whether Alice indeed owns the Bitcoins that she is transferring to Bob. Any individual/entity can become a node and be a participant of the network. Financial incentives within the network will reward honest nodes that act according to the rules of the network and will penalize dishonest nodes. Bitcoin network as exemplified in this case is able to build trust within the network.
The financial incentives within the network are used to build trust within the network. The example above illustrates the use of the DLT to build trust in the transfer of value (Bitcoin) in the network. In a sense DLT is a design canvas and it can be used to build different applications on top of it. Those applications could be Payments, Tokenization, NFT, Fantokens, Identity, Web-3 etc.
Confluence of Metaverse and DLT
Metaverse by definition does not require DLT. For example, the biggest metaverse, Second Life, does not use DLT. However, DLT adds value to Metaverse that cannot be ignored. In the next section, we look into the features that DLT’s bring to Metaverse.
1. Payments
Using cryptos for payments in the Metaverse carry the same benefits as using cryptos for payments. Apart from its regular features such as secure, incorruptible etc.. the two worth mentioning from a Metaverse point of view are as follows –
Programmability is by far the most significant feature that it contributes to Metaverse. It can enable, for example, streaming of payments. A user can agree to pay a cent for every minute spent in an NFT gallery. Very low transaction fees for cryptocurrencies (think L2 solutions like Polygon) make it possible to have such a model. It can enable an immersive ‘metaverse native’ payment method. Moreover, programmability makes payments a Lego block into a wider Metaverse.
Irreversible — Crypto payments do not use any third-party intermediaries and are irreversible in nature. This makes it ideal to use in a trustless environment. For example, an individual can buy an NFT using credit card and then reverse the transaction by calling her bank. This is not possible via crypto payments.
2. NFT’s
NFT’s make digital ownership possible in the Metaverse. An average individual has around 8 hours of screen time in a day. In this virtual world, a user can now own a digital asset that cannot be copied and pasted. A user, for example, can now buy land in the Metaverse and be assured that it is authentic and cannot be duplicated.
The NFT’s are created using a pre-defined open-source contract. The contract restricts the number of NFT’s to be generated by the contract. Thereby lending auditability to the NFT’s generated. In the Metaverse, this makes it ideal to issue unique access passes. These access passes can give unique privileges to its holders. For example, an access pass issued from a Bank’s lounge would give the holder a shorter waiting time to avail services in the Metaverse lounge.
3. Identity
DLT makes it possible to identify oneself in a secure way. New technologies such as the zero-knowledge proof make it possible to securely share identification information without the fear of it being misused. For example, assume a scenario wherein a banking lounge in Metaverse wants to check the age of the individual before they enter the lounge. The individual would be very hesitant to share the passport details in the Metaverse with the fear of it being misused. But with Zero-knowledge proof, it becomes possible to verify the age without actually sharing the information itself (date of birth). Technologies such as self-sovereign identities help individuals to manage their digital identities in a decentralized manner.
4. Web-3
By far, the most critical application of DLT to Metaverse is that of the Web-3 ethos. To understand the Web-3, one must understand the evolution to Web-3.
Web-1–1990 to 2004 — Democratize information.
The best way to think of internet in the Web-1 era is to visualize it with a yahoo homepage from the 90’s. The Web-1 was built on open protocols. It gave innovators the confidence to build on the internet without the fear of being de-platformed. The value earned on the internet was accrued by the builders. Platforms like Google, Amazon, Facebook etc were built in the Web-1 era.
Web-2–2004 to 2020 — Democratize publishing.
The Web-2 era was built on centralized platforms. Google, Facebook, Instagram, Amazon are best examples of the Web-2 era. It gave creators/innovators a wider audience but their reach was dependent on algorithms and it was monetized using advertisement. Most of the value accrued on these platforms was taken by the platforms. For example, out of every dollar that a video makes on Youtube, the platform takes 45 Cents from it. Also, the creators are always at risk of being de-platformed by the centralized entities. For example, twitter changed their policy on support of API’s in 2011. This change impacted start-ups whose business models was based on these twitter API’s. More recently, Apple changed their privacy settings that will impact advertisers on platforms such as Meta. These centralized decision-making impacts innovation in the long run.
Web-3–2020 onwards — Democratizing ownership.
The Web-3 builds internet services on decentralized platforms. The ownership of the platform is tokenized and the users’ own tokens of the platform based on their contribution to the platform. For example, Uniswap, a de-centralized exchange, distributed 15% of its total supply of tokens to the past users of the protocol. Moreover, 60% of the tokens will be allocated to the users of the platform in the four years from its genesis (the remaining to the team, investors and advisers). The value accrued by the platform goes to the actual users of the platform. The users stand to benefit from the growth of the platform. Also, the owners of the tokens have a vote in the governance of the platform. This model fundamentally changes the relationship of the user with the platform. It makes them feel a part of a larger social movement and creates a culture where users contribute based on their skills.
Tying this back to Metaverse — the builders across the Metaverse would be much more comfortable in building a decentralized world where they would have a say in the platform and are able to accrue value from its growth. It brings together the best of both worlds — open protocol of Web 1 with the reach of Web 2.
Metaverse Example — Decentraland
What exactly, is it?
Source: Decentraland
The best way to explain Metaverse is with an example. Decentraland is a virtual world split into land blocks (around 90,000 of them). Each land block is an NFT and its ownership is established in the Ethereum DLT. Users can buy a land block and use tools provided by Decentraland to customize it and build content on it. J.P Morgan, for example, bought land in Decentraland and built a lounge in it. Others have built places for gaming, music, NFT galleries, virtual concerts, conferences etc.
Users can create their own digital avatar in the Metaverse and adorn it with wearable digital clothes (which by the way could also be an NFT). Users can traverse the virtual map of Decentraland and visit locations in it. Users can interact with the content in the Metaverse, for example, play games, listen to music or they can interact with others in the Metaverse.
Currency and governance in the Metaverse
MANA is the currency of the Decentraland. Users can buy land with the MANA token. The owners of land and MANA tokens together form the DAO (Decentralized autonomous organization). The DAO would decide on all matters related to Decentraland — ranging from content moderation to determining the allowed length of the buildings to token allocation etc.
Conclusion
Metaverse built with the principles of DLT’s will give entrepreneurs a platform to innovate without fear of being de-platformed. DLT’s would also overall improve the experience of using the Metaverse. In the long run, it will help in building an interoperable Metaverse. However, it is still work in progress.. the DAO’s governing the Metaverse have not been battle tested and their decision-making ability are still not proven. Nevertheless, it certainly has the right ingredients to make it a success.. :)
References
Chris Dixon, Why Web3 Matters [online via https://cdixon.org/, accessed on 31st July 2022]
Chris Dixon, Ryan Sean Adams, David Hoffman, 5 Mental Models for Web3 [online via https://shows.banklesshq.com/, accessed on 31st July 2022]
Andrew Singer, Does the Metaverse need blockchain to ensure widespread adoption? [online via https://cointelegraph.com/, accessed on 31st July 2022]
Coinbureau, Decentraland Review: Best NFT Crypto Play??, [online via www.youtube.com, accessed on 31st July 2022]
Cryptopedia staff, Decentraland (MANA) : A Virtual World Built on Ethereum [online via https://www.gemini.com/, accessed on 31st July 2022]
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