The Metaverse: what you need to know
By K.A.F. Röhrig, PhD and Dr S.G. Anjara
Nothing appears more surprising to those, who consider human affairs with a philosophical eye, than the easiness with which the many are governed by the few.
— Hume
The word ‘metaverse’ has become common parlance. Recent news strongly signals a social media giant’s desire to control the pie. What is the metaverse? How could it impact our lives and livelihood?
Throughout history, the Renaissance period stood out for ushering in the age of reason. The Industrial Revolution successfully placed humans on the moon. Like print machines and steam engines, the internet is a tool that brings about significant changes which will culminate in the reorganisation of society, work, and life as we know it. The internet heralds the Metaverse era, and in the not too distant future it is likely to permeate through our way of life. By no means will it be the pinnacle of innovation, nor will it be the end of society. Rather, the metaverse will likely become just a feature of daily life, just like the electricity is today taken (almost) for granted.
The term “metaverse” was first coined by Neal Stephenson in his 1992 science fiction novel, Snow Crash. It is a combination of ‘meta’, which means beyond, and ‘verse’ from universe. In the novel, the metaverse is a successor of the internet owned by a well-resourced private corporation. While a work of fiction, we observe a phenomenon where literature delivers knowledge and understanding. Many walk among us who believe that Snow Crash is an apocalypse; that the metaverse is shaping up to be like the one described in the novel.
The Accelerated Studies Foundation proposes several definitions of the metaverse, including “The convergence of 1) virtually enhanced physical reality and 2) physically persistent virtual space. It is a fusion of both, while allowing users to experience it as either.” This definition arguably influenced Wunderman Thomson’s label “the convergence of virtual and physical realities” — the vagueness of the label renders it open to the readers’ interpretation.
We define the metaverse as a digital space which allows the creation and carrying out of one or multiple virtual identities, enables the ownership and distribution of assets, and simulates a social system. The metaverse is powered by the internet, and individuals within it can interact with other users, businesses, and service providers through various software applications in a three-dimensional virtual space. While some individuals may believe otherwise, the metaverse exists in the same time/space continuum as our physical reality. At least for the foreseeable future.
John David Dionisio and colleagues described five phases of the development of a virtual world, and specified four features of a viable metaverse: realism, ubiquity, interoperability, and scalability. While at the moment work on the four features have been fragmented and piecemeal, we forecast an inflexion point where either one or a consortium of well-funded organizations would successfully integrate all four features, creating the first of potentially many metaverses.
The Double Helix
The development of the metaverse hitherto is akin to a double helix — two strands, separate yet inherently tied together. There are many facets to this dichotomy, but at its heart is the age-old question of who holds power: the many or the few.
The first strand is the development of multimedia technologies, including virtual reality, augmented reality, and mixed reality. KPMG expects the extended reality (XR) market size to increase tenfold between 2021 and 2024. Funded and powered by contemporary ‘web giants’, this strand has become the focus of the public narrative of the metaverse. Was this the result of an uber-successful marketing campaign, or could there be an intention to mislead?
But ignoring the second strand would be remiss, and could plunge one into anticipatory anxiety, if one imagines that the metaverse would perpetuate the flaws of the internet as we know it: cybercrime, unequal access, discrimination, among others, especially if the entire metaverse is managed by a company with poor track record of user protection.
The second strand comprises blockchain technologies which provide the transparency, stability, and sustainability of a base layer, upon which a second and third layers of software applications of the first layer (multimedia technologies, payment systems etc) are hosted.
It is the combination of these two strands that sets the metaverse apart and qualifies it as a truly new system — a revolution far beyond just some new apps or VR experiences added to the internet of today. The latter, of course, could be packaged as ‘the metaverse’ through some marketing campaign, but it dilutes the potential and promise of the metaverse. It’s worth dwelling on this point, since it’s at the core of looking into the future of the metaverse. Might you imagine the metaverse as not ‘a thing’ but a new digital era?
Indeed, it is fair to question why the metaverse has not come earlier. Or why the early early parts of the metaverse that already exist today are mostly found in entertainment or gaming.
To understand this better, consider the historical parallels to the development of the early internet. It is hard to imagine now, but there was a long time where the internet was not taken seriously, or at least considered irrelevant for business. Rather than dismissing those now-obsolete opinions as short-sighted, it helps to ask, why did serious business people and academics think that way? The core flaw of the internet at the time was the absence of a way to facilitate payments. No payments = no commerce. No commerce = no investments, users, attention or large-scale adoption.
The resolution of the payments problem through the use of credit cards, insurance, accommodative legislation, and digitally native business models marked the transition of the internet from a geek-playground to a place to start a business. While we are at it, let’s not forget that the creation of the internet was supported by the US Defense Advanced Research Projects Agency (DARPA), like many ‘web giants’ that dominate the internet of today.
Fast forward a few decades, and the internet supports the world’s most valuable companies and defines much of our lives. So what, if anything, do we need the metaverse for?
Before Currency, there was Barter
Let’s begin with an observation: Some of the most dominant platforms on the internet today offer their services for free, or rather, in exchange for the users’ data. It’s interesting to note that while this clearly is an exchange of value (data for service) it’s different from essentially any other exchange of value we find in the modern world, because it happens in the form of barter — one good for another good — rather than being mediated through money.
Adam Smith considered barter the prehistoric mode of exchange used before the invention of money. Leaving the validity of this claim aside, it’s undeniable that barter is an inferior exchange mechanism compared to money.
Hidden in plain sight is the fact that, despite the high tech that goes into the platforms and applications, the internet of today is in economic terms still stuck in ‘prehistory’.
The underlying reason is that it is fundamentally impossible to transfer economic value through the internet. There’s a rich history of studying this problem both in economics and computer science, but for now, we will highlight the three main points: Anything digital:
- can be copied infinitely many times at zero cost,
- must be stored and kept alive on a physical server, owned by someone,
- does not exist independently of its use.
The first point is obvious. The second point means that ownership of data can be hard to separate from ownership of the physical infrastructure of the internet. The third point is more subtle, and can be understood via a contrast to physical objects: Consider a Schnitzel. I don’t have to know how it was made, or how to decompose it into its parts, or even what other people do with it in order to eat and enjoy it. On the other hand, a digital object is a priori nothing more than a string of 0s and 1s. It needs a protocol to interpret those numbers and bring them to life into our reality.
Another way to phrase this is that on the internet of today, you cannot own things. Any ownership of digital assets must be instantiated in the ownership of the physical infrastructure or protocols underpinning it.
Seen through this lens, the barter-based business model of the modern internet giants is not a coincidence. Indeed it is the only viable digitally native business model.
Currency replacing barter
The obstacles to having digital value were long considered insurmountable… until Satoshi Nakamoto presented the blockchain, a solution using cryptography + decentralization in the Bitcoin whitepaper of 2008, pulling together threads that had evolved in the computed science community over many decades.
Since then there’s been an explosion of new economic activity enabled by having digitally native value. This started in the illicit corner of the web and has now grown to the point that Societe Generale brought a 100 million euro Bond onto Ethereum in 2019.
What started out as an idea for a digitally native currency is promising to become the new economic paradigm of the internet.
Property rights enable the modern economy
It is becoming widely understood that the core innovation of blockchain technology is removing centralized private power over the digital realm and enabling true individual ownership of one’s digital assets.
The digitally native, bearer asset, currency bitcoin was the first use case for that — it’s only the start.
For a while it was speculated that this technology might enable digital collectibles and non-fungible items. This prediction has come true in a spectacular fashion with the NFT craze over the past months. (It’s interesting that on closer inspection, many of the NFTs in the art sector in this bubble don’t live up to the standard of true digital ownership. The thesis of this article would lead to the prediction that after the dust settles those NFTs will inevitably crash down as far as they have risen.) But quietly in the background, NFT technology is being deployed for anything from domain names (ENS) to trading international carbon emission rights (BITMO).
This point is important enough to bear repeating: blockchain technology at its core is about ownership. It is a digitally native solution to the digitally native problems of defining and enforcing property rights that have kept the internet limited to use cases that will undoubtedly soon seem archaic to us.
A Power Struggle
It is a sign of our times that the understanding and predicting the commercial features of the metaverse is so tightly linked to its political dynamics. The last time politics and commerce were this closely linked was during the cold war, where capitalism and communism faced off in an existential conflict spanning decades. Previously unthinkable wealth was created for those on the right side of this conflict.
Today’s conflict is fought on a very different battlefield, and the rewards for those on the winning side promise to be even greater. The weapons in this conflict are:
- open source, decentralized immutable ledgers, proof of work, DAOs and tokenomics on one side, and
- closed source, monopolistic infrastructure, psychosocial engineering and killer acquisitions on the other side.
While the some largest companies in the world currently stand firmly in the latter camp, others notably Microsoft have pivoted to the former. Its acquisition of the decentralized code repository Github and the metaverse game Minecraft could have ended in their shelving. Microsoft however allowed both to flourish. It is reaping the rewards, becoming again the world’s most valuable company, while its standing as the steward of these decentralized companies has shielded it from the intense regulatory and customer scrutiny its peers are facing.
It is by now no longer a radical claim that the big-tech approach to world dominance has probably run its course. Typically missing from the discussion, however, is what is going to replace it. It is undeniable that big-tech’s business model has created the world’s largest companies, transformed the way we live and devoured entire sectors of the old industry. What force then could be large enough to challenge this world order?
And how can businesses get ahead of this transformation, add value to it, shape it and benefit from its ascent?
Data ownership
The core productive asset in the big tech world is crude data, skillfully refined into the final product: high quality human attention.
Much like the relationship between oil and energy is being transformed by the ESG movement, the relationship between data and attention is being transformed by crypto.
Both transformations come with huge opportunities as well as risks.
Take for example Uniswap, the decentralized exchange on Ethereum. Through the lens of the old world, this business should not exist: Uniswap doesn’t monetize the data of their users, all the code is on the blockchain, for anyone to see, and there’s no IP protection, so cloning their product takes little more than the click of a button.
Despite all of that, the small team behind Uniswap has created business worth over 9 billion USD, making each team member millionaires, with more transaction volume than the NYSE on some days.
While this is undoubtedly a rare and extreme example that will not be easy to replicate, it points the way for the broader business community. The era of monopolistic data ownership is coming to an end. For almost all businesses this is actually great news: rather than being at the mercy of the handful of monopolistic attention brokers, the new economy will be more dynamic and open.
From “move fast and break things” to “move fast and build things”.
Technology is not neutral. Building businesses on the blockchain enables and enforces a different business model than what has worked for the ‘web giants’.
It helps to put this into the context of the data/attention economy which we still live in. Not too long ago, it was deemed impossible to build a business on the internet: uncontrollable dissemination of information at infinite speed, spanning countries and jurisdictions; essentially unenforceable copyright laws; easy hacks around paywalls; and a population that’s slow to adopt new technologies. It took the genius insights of the now-incumbents to turn every single one of these obstacles into powerful weapons.
Final Thought
When we observe news on the metaverse today, it is obvious that the incumbents are interested in self-preservation. In the case of one notorious organization, it is imperative that they assert control over the metaverse, either through acquisitions, increasing R&D capability, or marketing campaigns.
But, a centralized metaverse is not a metaverse — it is a curated entertainment. “The authentic metaverse will be a shared, collaborative space, backed by a decentralized structure,” said Sam Hamilton of the Decentraland Foundation. Creators and residents of the metaverse are, as you are reading this article, shaping its future while retaining ownership and their right to govern.
It is a bumpy road ahead, and if history could help us illuminate the future, taking back power from ‘the few’ requires some sort of a revolution and in a French iteration, the guillotine.
Ask yourself, who benefits if modern society is only half-illuminated about their metaverse future?
Further reading:
