Why the Metaverse needs rules

A country’s constitution establishes the rights and responsibilities of citizens. Therefore it makes sense that the Metaverse, which is likely to be somewhat akin to a country, should have something similar. Otherwise, as Stephanie Hurlburt and Rich Geldreich say in an article on the topic, “we fear the metaverse will fail as a public, open system and only recreate social media’s glaring flaws with steroids.”

The two tech entrepreneurs and co-founders of Binomial, point out that the dangers we have already seen: Facebook was found to be shaping election results, and Twitter “was embroiled in scandals around its impact on public safety and censorship.”

If the Metaverse is uncontrolled, it is likely that we may find ourselves exploited by it. Just as we were by Facebook and Cambridge Analytica, perhaps in an even worse way.

Hurlburt and Geldreich say one way to ensure this doesn’t happen is by insisting that the Metaverse’s core building blocks are made of open standards and open source code. Furthermore, all data policies must be both transparent and understandable, and any research conducted in the Metaverse must be made instantly available to the public.

We must also establish what the Metaverse is and what it isn’t. In some ways the series of lockdowns most of us have been through in the last two years have normalised living virtually, so we’re prepared for a highly immersive virtual world where people gather to socialise, play, and work.

Neither should one company own the Metaverse. Most of you will be aware that Facebok has changed its name to Meta, which is a blatant attempt to co-opt and dominate the emergence of a Metaverse. The social media giant has already invested $10 billion in it this year, an eye-watering sum that points to their strategy.

Now we must ensure we learn from the mistakes of the past, i.e. the way in which the social media platforms have insinuated themselves into global politics for one. Hurlburt and Geldreich believe the best way to avoid this is by having some simple rules. These include establishing who can access its key building blocks, and the answer should be everyone. They give the example of the Internet. When Tim Berners-Lee created the Internet, he released key pieces as open source code that was free and accessible for everyone. The Metaverse and Web 3.0 must operate on the same principle.

Data policies are both transparent, and understandable. Facebook, Twitter and Co may have a data waiver policy, but few of us understand it. So we need policies that are clear to the majority, because if the Metaverse is left unchecked, personal data mining and extraction could become the single most powerful surveillance mechanism ever invented.

Governments can create rules and laws for the Metaverse. For example, a company’s earnings must be made public by law, so a company’s research in the Metaverse could easily follow a similar rule. More protection is also needed from algorithms that direct people to extremist sites. Research showed that 64% of people visiting such pages had been directed there by the Facebook algorithm, and there are strong arguments for making this information public, rather than allowing a company like Facebook to cover it up.

Companies also have a role to play. Whilst governments make laws, companies should agree “a set of baseline rules.” They must know by now that the court of public opinion is not often on their side these days, so they need to pay attention. Hulburt and Geldreich say, “If the public displays enough appetite for a Metaverse constitution, Big Tech’s hands will be tied.”

The future of the Metaverse is in your hands, just as much as it is in the hands of the tech companies. Make use of your power before others strip it away.

Money in 2022

This coming year might see many changes in the financial world, especially in money itself. It’s difficult to predict how things might play out, although there have been predictions in the MSM that Bitcoin and crypto generally will crash and burn, but that seems unlikely for those of us that are more immersed in cryptocurrencies than MSM journalists and their readers.

One scenario revolves around central bank digital currencies (CBDCs). Will they be more influential this year as governments look to control digital currencies? Or will the stablecoins, such as Tether, issued by private companies rule the roost? Then there are the decentralised currencies, such as Bitcoin. Will they become the dominant force in finance?

Various factors are driving the debate around money. For example, China is rolling out its Digital Currency Electronic Payments (DCEP) project during the Winter Olympics in February. And the USA is developing regulations targeted at private issuers of stablecoins, whilst adoption of decentralized cryptocurrencies for payments continues to grow around the world.

The Regulations debate

In 2021, the US government debated crypto tax provisions in the infrastructure bill and the approval of a futures-based Bitcoin exchange-traded fund (ETF.) This year it is likely that the U.S. Securities and Exchange Commission will find ways to clarify its position on whether tokens are unregistered securities. At the same time, DeFi tokens may find themselves being included in this debate, which would be unwelcome.

The future of Ethereum

Although Ethereum still dominates DeFi, will its high gas fees for NFTs and other transactions become too expensive? It depends on the success of Ethereum 2.0. There are many big moves to be made before the full 2.0 project can be deemed a success. It has to merge its mainnet with the Beacon chain and that could disrupt token economics for miners and validators. And there are challenging upgrades within Eth 2.0, including sharding. The future of the dominant smart contracts platform depends on these going well.

Crypto and the climate

As climate change continues, crypto needs to shift the conversation away from how bad it is for the environment and towards one about mining-integrated energy systems that create incentives not only for miners to use renewable energy.

Web 3.0

Finally, there will be many discussions about Web 3. Jack Dorsey has been leading at least one discussion about its future, in which people will have greater control over their data and content. So far Web 3 is not really well defined, but there is a need to adjust our systems for managing digital property and for establishing users’ rights in this new era. We can expect this year to bring more clarity on Web 3 might be like and to get a better idea of the projects that will form part of it.

A Real Estate Boom in the Metaverse is Coming

If Irina Karagyaur is correct, 2022 will see the beginning of a gold rush in virtual land, especially as a “more efficient and scalable future for the intersection of blockchain and real estate is being built as we speak – and it’s not solely confined to the Ethereum blockchain.”

As I’ve mentioned in previous articles, the future of NFTs is a multi-chain one. This solves the limitations of the Ethereum blockchain and enhances its usage, and we will see “unimaginable opportunities” in every corner of commerce. Alternative chains, such as Solana, Tezos, Polkadot, Kusama, Cardano and many others make more diverse use cases possible and they answer issues such as scalability, network congestion and the ability to truly fractionalize ownership, so that NFTs become usable and transferable in the Metaverse. It may also mean that NFTs are able to “break out of the confines of traditional digital collectibles,” and be part of the ‘real world’. But while NFTs have been until now primarily focused on collectible memes, art, sports and luxury goods, Karagyaur argues that the potential for real estate to be modernized and made more efficient on the blockchain is powerful, inevitable even.

Buying and selling real estate is a time-consuming business, as well as an expensive one. But with virtual real estate in open metaverses, it will be possible to use peer-to-peer transactions alongside smart contracts that automate and speed up every part of the process. For example, property asset transactions, can be executed in minutes instead of weeks or months.

Furthermore, Karagyaur points out, “virtual real estate can unlock liquidity via decentralized global markets that enable tradable assets and allow for metaverse assets to be used as extractable collateral to fuel innovative methods of lending in decentralized finance (DeFi). Potentially, owners of digital homes may be able to use them as collateral for loans, and it may be possible for owners of a valuable piece of virtual land to exchange it for a property or land in the real world.

Most importantly, Karagyaur claims that Ethereum’s network, whicle it is the dominant smart contract blockchain, will not be enough to host all this activity. This is why the talk about multi-chain development is so important. As she says, “Although Ethereum layer 2 solutions (add-ons that help the network process more transactions) work well, new blockchains have seen exponential growth and promise fertile new ground,” and there is plenty of room for the creative builders that are looking beyond Ethereum.

Some well-known names, such as Snoop Dogg, are already investing millions of dollars in virtual real estate, and Fortune magazine calls it “a multi-trillion dollar opportunity”. For the younger generation it is possible that their first property purchase will be in the Metaverse, an idea that the Boomer generation may struggle to comprehend. Of course, there is a lot of work to be done before we get to that point, and there are some who believe it is a ‘pie in the sky’ notion, some criticising it as ‘novelty’ driven by hype and speculation, whilst others argue that buying and selling real estate requires legal due diligence, and they can’t see how that might be possible in a virtual world. And of course there is the real estate sector itself, which may not be too keen on seeing their old-fashioned but profitable business model turned on its head. Still, as Karagyaur says, “real estate NFTs promise the ability to democratize property ownership, a space that has historically excluded a majority of the world.” It’s just a potential market at the moment, and building it will take time, but it’s not too difficult to imagine the day when it’s a reality.

Luxury NFTs in the Metaverse

The NFT market is a hot one that is predicted to get even hotter, especially if Morgan Stanley is correct. In a note published last Tuesday, it said luxury-branded non-fungible tokens could become a $56 billion market by 2030 and could see “dramatically” increased demand thanks to the Metaverse. Added to this, the general NFT market could grow to a roughly $240 billion market by 2030, with digital collectibles from luxury brands making up 8% of the space by that time.

The analysts at Morgan Stanley said that in 2021, luxury brand NFTs only accounted for around one percent of the market’s transaction value. They said, “We think this is about to change. The metaverse will likely take many years to develop; however, NFTs and social gaming present two nearer-term opportunities for luxury brands.”

Balenciaga and Gucci make an early entrance

Early ventures into this area for the luxury brands include Balenciaga launching Fortnite outfits in September 2021 priced at 1,000 v-bucks, which equates to approximately $8. Earlier, in May 2021, Roblox, a global gaming platform, hosted a virtual Gucci exhibition where players could purchase digital models of real Gucci products for a small amount of in-game currency. Once the exhibition ran out of products, the gamers began to put up the branded NFT items for auction, inflating their cost tenfold. As a result, a digital version of Gucci’s Dionysus bag sold for 350,000 Robux, or roughly $4,100, which is $700 higher than the retail price of the real-life version.

Currently, the best-exposed companies in the run up to the coming of the Metaverse are soft luxury brands, including ready-to-wear, leather goods and shoes, rather than items such as jewellery and watches.

Widening the luxury market

NFTs will also open up brands to the possibility of earning in “perpetuity” thanks to smart contracts, which capture a percentage of each sale for the owner, as opposed to the physical world wherein the profit only comes from the first and initial sale. The analysts said, “The metaverse will more than likely allow brands to appeal to an even broader audience,” adding that the average age of Roblox players is 13, while women generate 70% of sales in the luxury brand market, but that as the Metaverse develops the luxury brands will gain exposure to ever-younger customers, and more importantly, male customers.

The importance of the immersive experience

One reason that luxury brands stand to do so well in the Metaverse is the ‘immersive experience’. As Constantin Kogan writes at Cointelegraph, “The personal avatars that users utilize will wear clothing and use items as manifestations of individualization and personal expression, much like they would in the physical world — this opens up a really exciting opportunity for premium brands.” For example, in the aforementioned Roblox’s gaming and creation system, “one in five players will change their avatar every day, much in the same way a person gets up and gets dressed every morning.” Together with Fortnite, these platforms provide some insight into the emergence of Metaverse malls.

As our physical world still maintains a capital on luxury fashion brands due to their dependence on the physicality of clothing to connect with their customers, the success of Gucci and Balenciaga are only examples of what could be. It seems luxury will always have a home in the Metaverse, but as it is early days, this is not to say that the brands we now know to be in that category won’t be out-performed by the creation of desirable goods and the arts in general. As Kogan says, “As the rules and economic landscape are yet to be full-formed in this exciting new digital frontier, and everyone has a unique opportunity to find success.”