WASHINGTON, Jan 28 (Reuters Breakingviews) – Mark Zuckerberg loves the metaverse, even to the point of renaming Facebook Meta Platforms (FB.O). Burgeoning virtual worlds like Decentraland have the potential to be the next social media hits. Bettors can also profit from, for example, the purchase of virtual real estate. But is the Metaverse real, and if so, what does it offer users and investors?
WHAT IS METAVERSE?
The idea of the metaverse refers to a shared, 24-hour digital environment, sometimes using augmented and virtual reality to make it more realistic. There are potentially several metaverses. Certain video games, like Epic Games’ “Fortnite” and the Roblox platform (RBLX.N), have arguably created such spaces, allowing users to hang out, chat and wander around.
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The concept has come into fashion as Covid-19 has forced people to interact online rather than in person, while advances in VR headsets and high-performance chips have made its feasibility less fanciful.
More recently, nascent metaverses have expanded beyond gaming to replicate locations where everyday activities take place, such as shopping or attending concerts. For example, Decentraland is a web platform that mimics a metropolitan area, complete with shopping districts, offices, and event spaces. A music festival held there in October brought together around 50,000 virtual fans.
WHY WOULD I WANT TO WAIT?
Because eventually, the Metaverse is supposed to offer the distractions of social media and online shopping, but in a more immersive way. Video games aside, most metaverse platforms have niche audiences for now, in part because content creation is still in its infancy. Most also look like games even though they aren’t, due to the use of user avatars and game-style graphics.
But the potential is there for more. Metaverses can expand the availability of certain activities, since there are no limitations related to accessibility, travel, or public health. Last September, rapper Snoop Dogg teamed up with metaverse platform Sandbox to create Snoopverse, which will include a virtual version of his real-world mansion for throwing parties and hosting concerts. Sandbox’s majority owner, Animoca Brands, raised $359 million on Jan. 18 from investors including the Winklevoss twins and Soros Fund Management.
Many platforms adopt decentralized models. They allow participants to vote on the management of an area and to share the revenue. For example, in Decentraland, the community can propose and have their say on various issues, including land auctions, market fees, and grants for development efforts.
This type of system fits the broader definition of Web 3.0 or Web3 as it is now called. It’s the latest version of the internet in which power is more dispersed, instead of the so-called 2.0 model in which huge tech companies like Meta Platforms or Google’s owner Alphabet (GOOGL.O) control .
OK, SO HOW DO PEOPLE MAKE AND SPEND MONEY?
The ways users can make or lose money are similar to the real world, whether through real estate, advertising, buying and selling, or charging people to attend. at virtual events.
One of the characteristics of digital real estate is that in theory there is an almost unlimited supply, which is not conducive to investment. But platforms like Decentraland limit the amount of virtual space available, and certain areas, like a mall, are in demand as a result. Toronto-listed Tokens.com spent $2.4 million in November on what the company said was the equivalent of about 6,100 square feet in the Decentraland fashion district.
With brands trying to reach consumers in this new world, advertising is another game. Tokens.com plans to be a digital owner, commissioning companies like Nike to market to users or lease virtual stores. Samsung Electronics (005930.KS) opened a temporary store in Decentraland, while auction house Sotheby’s created a virtual gallery there last June to showcase digital art.
Users also participate in the growth and commerce of a metaverse. Roblox users can design mini-games and sell them to other players for Robux, which can then be converted into real money. Many platforms allow users to create art, clothing and more in the form of non-fungible tokens, or NFTs – unique digital assets stored on the blockchain. They can then sell them to other users.
WAIT, NOW WE SLEEP ON CRYPTOCURRENCIES?
Yup – cryptocurrencies are often the only way to transact, and many metaverses have currencies unique to their platform. For example, buying real estate in Decentraland means paying in Mana, the value of which – currently around $2 each – will partly depend on the popularity of Decentraland’s platform.
It can be expensive. A user paid around $450,000 in December to be Snoop Dogg’s digital neighbor. Early Access Passes to the Rapper’s Metaverse cost around $1,600 each at the end of January.
WHAT ARE THE RISKS ?
There’s a lot to consider, that’s for sure. First of all, the value of a platform, its real estate and any dedicated cryptocurrency depends on popularity. The various metaverses are generally not interoperable, so even if the concept takes off, some of them could wither, which would reduce the value of the associated assets. Facebook-like network effects could still play out again as the metaverses battle.
Second Life, a virtual world created almost 20 years ago, is a cautionary tale. It peaked at over a million monthly active users in 2007 before it died out, although it still exists. One challenge was the learning curve for using it; another was that it was struggling to develop a mobile version. There are similar hurdles for newcomers today: it can take a while to master getting around in Decentraland, which is working on a mobile version.
Decentralized governance, a feature of many metaverses, could also turn out to be a bug given the potential for decisions that don’t favor all users. Of course, digital platforms and assets are also vulnerable to hacks, as are individual cryptocurrencies, whether through the wallets used to hold them or otherwise. Security breaches could endanger data, the lifeblood of virtual worlds, as well as users’ money.
It’s perhaps easier to see how companies reading more could sink deeper into some kind of metaverse, given the obvious value of digital gatherings for dispersed employees trying to work as a team. For everyone else, the future may hold anything from occasional metvisits to addiction to virtual reality goggles. What is certain is that when companies chase consumers in virtual reality, the financial ups and downs of the real world will follow them.
(The authors are Reuters Breakingviews columnists. The opinions expressed are their own.)
– Samsung Electronics announced on January 6 that it was launching a temporary virtual store on Decentraland, a metaverse platform. Samsung 837X, as it’s called, is modeled after its physical flagship location in New York.
– Separately, metaverse platform Sandbox said on Dec. 23 that the Hong Kong office of PricewaterhouseCoopers had acquired a virtual site. PwC partner William Gee said the move was part of the advice to clients interested in the Metaverse. Terms were not disclosed.
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By Gina Chon in Washington and Oliver Taslic in London; Editing by Richard Beales, Pranav Kiran and Sharon Lam
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