“Metaverse Masterclass” is a series of reports, articles and interviews from experts around different topics in Metaverse. This is an article by Jamie Burke, CEO and Founder Outlier Ventures, originally appeared on Ourlier Ventures Blog.

Science fiction like Ready Player One describes ‘the Metaverse’ both as a destination and dystopic process of capture and control.

In RP One: IOI, a single corporation, wants to own and control the OASIS’ servers and databases, enabling them to: delete people, access any information, change the rules of the world, and print themselves infinite currency

The parallels in the first virtual worlds we experience in gaming today and ‘The Web’ more generally are striking: centralised, closed, proprietary, and extractive, with shareholder supremacy elevated over user centricity. A state where giving away your time and data in return for ‘free’ access to platforms has somehow become normalised.

As we invest more time, data, and wealth into digital platforms ($10bn and 4bn hours per month in virtual worlds and gaming environments since 2020 COVID lockdown) it is critical to interrogate their design principles, business models, and terms of service so we as responsible online citizens can decide if we wish to continue to opt-in or divest into alternatives.

By now you’ve heard the term ‘the Metaverse’ thrown around a lot. I know I’ve been interviewed pretty much back-to-back in the media about it ever since the Facebook Meta rebrand. At my investment firm, we’ve been developing a thesis for the Metaverse over several years, publishing a paper called The Open Metaverse OS back in January 2021, pre-empting the hype-cycle that is now unfolding.

Because 12 months is a long time in an exponential technology class we wanted to share a primer and summary of our paper to update and reflect on what we got right, what we’ve learnt since and what might come next. So here it is…

Background context

Inspired by Bitcoin back in 2014, I founded Outlier Ventures, what was then Europe’s first venture capital firm dedicated to blockchain, something we began to understand as a new web paradigm, colloquially called Web 3. A paradigm based on the sovereignty of the user, their data, and digital wealth. For us, very early on, it was clear blockchain could not be looked at in isolation because it represented more than just a single technology but a new open economic system that would enable, and be convergent with, other technology trends. It would fundamentally change the business model of The Web and bleed into almost every industry, well beyond narrow pure financial use cases. More recently, through the innovation of NFTs (Non-Fungible Tokens), blockchains allow for new types of unique digital assets that go well beyond crypto-currencies extending into gaming, virtual worlds, and the wider Creator Economy, what you might now refer to as the Metaverse.

Today, through our virtual accelerator, we have invested in 100+ startups, a number we will at least double in the next 12 months and have helped them raise over $250million in seed capital in the last seven months alone. And by now, we have helped launch several billion-dollar crypto networks into the world. This activity, by any measure, makes us one of the most active investment firms (by volume) in our industry, and we believe is quickly cementing us as ‘the Y Combinator of the Metaverse’, a reference to the accelerator that came to dominate two decades of the Web 2 era.

The powerful thing about our accelerator and this volume of investments is it gives us access to a growing brain trust of startups at the very bleeding edge of the Metaverse. And by virtue, we have had over 3,500+ pre-seed / seed startups apply to our accelerator in the last year, giving us a unique perspective on the market. Typically with a 6–12 month window of advantage on seeing what’s next before it hits a wider venture, which is usually probably one to two years before there may be listed crypto assets, and ten years for publicly tradable stock… if that’s even a thing anymore. It’s not rocket science; it’s just the straight-up size of the data set we enjoy, basic pattern recognition, and a refined intuition for the narratives that are forming.

That’s how we spotted crypto nearly eight years ago, NFTs twenty months ago, and now the Metaverse some twelve months ago before it’s going mainstream. Based on these kinds of insights, I’m going to break down how to understand the Metaverse as an investment opportunity. What’s bullshit, and where alpha can be found for what I believe will very quickly simultaneously become the greatest global wealth distribution and wealth creation event humanity has ever known. At least 10 x what China has been for global GDP over the last two decades.

Foreword

Now firstly, I know many are sceptical of seemingly new buzzwords, and especially ones as ethereal as the Metaverse. But I want to stress that narratives are powerful at mobilising capital and economic activity, and the Metaverse has shown it can cut through and stand the test of time.

Before we get into technical analysis of what the Metaverse is, I think it’s important to say it is first and foremost a contact language for Tech, Finance & Culture to converge and collaborate around a shared vision for the future. Both the future we do and don’t want.

Like the film Ready Player One, science fiction has described ‘the Metaverse’ both as a destination and a dystopic process of capture and control. In Ready Player One, IOI, a single corporation, wanted to own and control the OASIS’ servers and databases, where they could: delete people, access any information, change the rules of the world, and print themselves infinite currency.

The parallels in the first virtual worlds we experience in gaming today and The Web more generally are striking: centralised, closed, proprietary and extractive, with shareholder supremacy (that is structurally prioritised and rewarded) over user-centricity. A place where giving away your time and data in return for ‘free’ access to platforms has become normalised.

This post summarizes the key themes we laid out in a more technical Open Metaverse OS paper, which can be downloaded (for free) from our website, and serves as both an antidote, framework, and thesis for how we can achieve a more open alternative. But it is also a reflection on its success at predicting the world we now find emerging, at an exponential rate, just several months on.

Defining the Metaverse

Technically, the original vision and definition of the Metaverse was a point in time when a user interface made up of both hardware and software blurs the distinction between the physical and digital. This has typically been thought of in the context of advances in AR (Augmented Reality) and VR (Virtual Reality), together known as Mixed Reality, becoming ubiquitous.

However, we believe it’s important we think of it not as a destination, but as a journey or process. This is because it’s important to acknowledge the beginnings of the Metaverse are already here; we are just experiencing it largely in 2D. This is also critical to understand because if we think of the Metaverse as a far off destination, we will almost definitely sleepwalk into not addressing some fundamental design choices about the principles of how we want it to operate, and potentially replicate or deepen what is broken about the Web today.

When you think that with wonderfully immersive devices like the Oculus VR headset Facebook can now track your retinal response to visual stimuli (literally going inside your body to capture biometric data, emotions and feelings you aren’t even aware of) or is actively mapping the floorplan of your home, and the objects in it, given their track record with a pervasive and proven abusive form of what has been called Surveillance Capitalism one can’t help but be sceptical and concerned we are potentially extending a dystopia real-time. This makes it all the more imperative we properly interrogate any Metaverse propositions privacy paradigm, especially Big Tech like Facebook’s, something I wrote about recently.

As I will outline, the process of the Metaverse is multi-dimensional and has already begun through the creation of new virtual worlds, both in the context of gaming with MMORPG (Massively Multiplayer Online Role-Playing Games), and other social venues and experiences. Each exists on a spectrum with often several conflicting characteristics; where the production of content is both by studios and independent creators, value transfer is bi-directional (from digital to physical and physical to digital), and where it is both transformed entirely or just represented to be passively and/or actively consumed. Much of this process is bottom-up and driven by market forces and the general direction of technical innovation. However, we also believe it will increasingly begin to interplay and be informed by top-down government policy around data rights, privacy, antitrust and, most importantly, financial legislation, all of which of course vary wildly around the globe.

Furthermore, people today still make a distinction between the physical and digital economy, even though in reality a company like Amazon is a hybrid of the two. On the one hand, direct-to-consumer has dematerialized much of the retail supply chain, but it’s still both a virtual mall and network of physical fulfilment centres moving around physical goods, as well as a business with a growing number of virtual goods and services like ebooks, music, and video streaming, all of which are consumed entirely on its proprietary devices and platform. So is a company like Amazon or Facebook part of the Metaverse? Let’s take a look..

Furthermore, people today still make a distinction between the physical and digital economy, even though in reality a company like Amazon is a hybrid of the two. On the one hand, direct-to-consumer has dematerialized much of the retail supply chain, but it’s still both a virtual mall and network of physical fulfilment centres moving around physical goods, as well as a business with a growing number of virtual goods and services like ebooks, music, and video streaming, all of which are consumed entirely on its proprietary devices and platform. So is a company like Amazon or Facebook part of the Metaverse? Let’s take a look..

It seems one of the defining characteristics of a metaverse in sci-fi was that somehow it was an economic system independent of, and enjoyed supremacy to, old fiat-based economies controlled by nation-states. This is not true for a platform like Amazon, primarily a US-based company, that uses the local fiat currencies for customers and staff and is increasingly entwined with the US state and its various agencies, but still ultimately at the mercy of central banks and various government policies. And if we look at Facebook’s efforts to launch its own digital currency with Libra (which presumably just like its Universal Login would have extended into its VR platform, Oculus), but because it is a highly centralised and fiat-based company, it has been aggressively constrained and in effect neutered as a genuine disruptive and sovereign cryptocurrency.

Now it could be considered partially true that some games platforms like Roblox or Fortnite are so big they are closed micro-economies, with their own currencies which they control centrally and value systems, like experience points systems, in-game items (skins) and marketplaces, where significant amounts of the wealth are held and traded. This is even more substantial when you think of that as a proportion of a person’s wealth, especially when seen in younger generations. But the reality is only a few games even let you transact in and out of their closed platform using fiat in order to interact with the ‘real’ world because of limitations imposed by governments around fears of money laundering. But even more importantly, wealth is not directly transferable between these microeconomics into a virtual meta economy, or metaverse, with its own sovereign currencies. And you can’t generally borrow against virtual wealth, what you might call MetaFi, to buy physical assets, putting a growing class of digital natives at an economic disadvantage, where 63% of gamers said they would actually spend more on skins if they had ‘real world value’.

Earlier in the year, it was reported users spend 5 times more money in blockchain games than traditional ones, but the sample size was reported as too small and not comparable to the wider gaming industry. However, the recent breakout success of a blockchain-based game Axie Infinity has now proven beyond reasonable doubt what many suspected; that players will spend more money in-game when that value is freely transferable off-platform and value earnt or bought is easily convertible into cryptocurrencies like Bitcoin or Ethereum. A process their co-founder Jiho describes as; ‘what happens when you give users digital property rights’.

It’s what’s helped Axies achieve a record $1.2 billion USD in sales, growing exponentially from just over 108,000 daily active users in June to more than a million daily active users today — now reporting sales of nearly $780 million in the last 30 days alone and more than 1.4 million individual transactions. To give you context, this outperforms every game in every category from AAA to free-to-play globally. And in the process, popularises a new category of gaming, ‘play to earn’.

As you will learn throughout this article this is why I propose perhaps the defining characteristic of a true Metaverse is that it is in fact, rather than necessarily a particular kind of virtual experience, a meta-economy with currencies native to it; where value can be earnt, spent, lent, borrowed, or invested interchangeably in both a physical or virtual sense permissionlessly, importantly without the need for a government or platform.

Competing Multiverses

Now of course it is also true there are competing visions for the Metaverse, a tension which seemed to be present even in Mark Zuckerberg’s own recent musings on what Facebook as a Metaverse company looks like. And it is not yet clear if they can and will co-exist or must be in competition. But to put it simply, there are at least two versions of the Metaverse we observe emerging: one dominated by closed platforms and Big Tech like Facebook / Oculus and the other built on open protocols leveraging blockchains, such as the decentralised virtual land Decentraland and Sandbox.

The distinction of open and closed isn’t just limited to technology choices and the extent to which platforms embrace open source principles with their code and data, but importantly whether they have a closed economy, within or across their own proprietary games, or whether they allow transferability of value outside their ecosystem, how that interacts with fiat-based systems, and to what extent they do or don’t control the monetary and fiscal policy of the underlying economy itself.

It is interesting to see Tim Sweeny himself, CEO of Epic Games and the Unreal gaming engine, which currently enjoys a market duopoly, has chosen to raise a billion dollars to both support the Open Metaverse alternative through grants and investments into startups, including several startups that have been through our accelerator, but also to transition his company and properties into its direction. However, since Steem said they would block NFT enabled games Epic have come out and given more nuance to their approach saying they would explore a more permissioned / curated version of NFTs, presumably akin to an App Store, something echoed by Zuckerberg in his Meta interviews.

Furthermore, there is also another technical and philosophical distinction between visions and emergent actualities of the Metaverse which could be described as “low-fi to hi-fi.” There are platforms that deliberately push the technical boundaries of the experience through both software and the expensive hardware requirements like Oculus and those that design for the lowest possible device and bandwidth requirements for universal accessibility like blockchain-based Cryptovoxels, which is more akin to blockchain based Minecraft. This is critical when you think about these as an economic system and their requirement to not just be immersive but inclusive. However, it must be said, to our knowledge, all of these virtual worlds still require at least a smartphone, which currently excludes 60% of the global population.

As you can see above you can take these as a form of axes that allow for a crude classification of metaverse platforms and virtual worlds that emerge. We believe these two axes are the most important to consider because, when combined, they represent the cost to enter the economic system and the ability to offset that cost by earning value for as broad a range of demographics as possible.

It could be said there is a third classification about whether the platform allows for user-generated content or not, but we think this difference will fade away with time. Most platforms, to varying degrees, will allow for UGC like Roblox or Minecraft and will fall under the degree to which the virtual world is generally ‘open.’ Hence, UGC is not important as a separate dimension when looking to project into the future of the Metaverse. However, the degree of 3rd party developer freedom (whether a professional or user), especially the ability to integrate into crypto and NFTs, will become an important distinction as well as how the economics are split and the degree of data that can be collected from apps to be monetised for the purpose of advertising. As we have seen with Apple’s recent App Tracking Transparency (ATT) features it has become a battle line between platforms and developers costing Facebook’s mobile app business billions in lost advertising revenue making them more intent on controlling the stack down to the hardware level.

It is our belief, and thesis, that with time an open metaverse built on shared open-source protocols, open infrastructure, and a single unifying yet open financial system will erode, or ‘eat,’ and potentially replace closed platforms due to powerful network effects. Today, for many, it’s almost impossible to see how a ragtag of decentralised protocols that make up the Open Metaverse could ever compete with Facebook. But I circle back to my earlier point; whilst they have shown they can build great VR hardware and addictive digital experience, the failure of Facebook’s Libra has shown no private company, no matter their scale, will ever be allowed to create a meta-economy independent of fiat and nation-states.

Meanwhile, Bitcoin has shown how some simple code and elegant game theory can be seeded onto The Web and mobilise, bottom-up, trillions of dollars of capital and physical distributed infrastructure all around the world to create an unstoppable economic system.This tells us, whilst you may be good at creating immersive experiences, it very likely makes good business sense to bite the bullet, connect your digital platforms and worlds to crypto and subordinate them to the decentralised and open meta-economy. And perhaps, if, like Oculus, Fortnite, or Roblox, you currently don’t, are you even part of the Metaverse at all? The painful reality is no matter what you tell your shareholders through metaverse drenched press releases, you are in reality just an isolated game, platform, or virtual world that users will see decreasing reasons to invest their time and money in.

Web 3, a stack for an Open Metaverse

So why are we so convinced of this eventuality? Well over the last decade, since the inception of Bitcoin, and the maturation of blockchains like Ethereum, we have seen an open and permissionless Web 3 stack emerge where ‘the user is the platform.’

It is a paradigm ultimately based on blockchains and their atomic units of account becoming the global digital settlement layer and means that value is ‘minted’ (created), stored, or transferred across other technologies as a form of wealth. But digital wealth can be programmable and represent an increasingly complex range of assets from in-game items and virtual land to loan agreements or futures contracts. In aggregate, this represents an entirely new financial system of currencies, exchanges, borrowing and lending, often referred to as DeFi (Decentralised Finance).

Whilst today relatively small, at just over $2 trillion in combined market capitalisation, you can think of this confluence of convergent technologies as both a new financial system and open operating system for a more open metaverse, an Open Metaverse OS, that sits between the hardware, application software, and the user. Due to its open-source characteristics, anything that is born on-chain (on a blockchain) is transferable and its metadata visible. And therefore the DNA of the virtual worlds that get built on top of it, fully or even just partly, is passed on or inherited. In an evolutionary sense, by using the Open Metaverse OS, the virtual world is pregnant with Web 3. And in aggregate everything that flows through this crypto enabled financial system could in aggregate be considered Metaverse GDP (Gross Domestic Product), or at least Open Metaverse GDP.

The Open Metaverse OS

So how ready is The Open Metaverse OS, for prime time? Well, on the one hand, the Web 3 ecosystem is thriving with several nascent technologies that can enable many aspects of an Open Metaverse, and is being deployed in virtual worlds and experiences as we speak, albeit in an incremental fashion. But on the other, it’s still significantly behind on several measures such as performance and cost when compared to Web 2, which has had decades to mature and where the benefits of economies of scale have been achieved by platform monopolies, which allow some like Amazon to be multi-billion dollar ‘loss making’ companies that ruthlessly undercut any and all competition.

Equally, Web 3 technology has instead been optimised primarily for high degrees of decentralisation and transaction security rather than, and sometimes at the expense of, enabling smooth, real-time interactions and its applications for more 2D web based experiences on desktops and mobiles. As a consequence, user experience in Web 3 has to date been relatively poor and required a high degree of technical literacy due to both the radically different security model of self custody and the nascency of the industry. With frictionless user experience of Web 3 technologies within gaming engines even further away. But this is changing as the world of Web 3 and crypto increasingly converges with new environments like gaming and VR, and there is a generational shift away from Web 2 platforms.

Therefore, the Open Metaverse OS is best understood as an evolving collection of highly composable technologies that will increasingly, but pragmatically, be used to make aspects of an Open Metaverse possible as it seeks to serve a greater global population across several use cases and environments. As it stands, The Open Metaverse OS is concentrated on the critical lower layers of the stack, including what should be non-negotiable features such as user-sovereign identity and assets, in world economics and bridges into and out of its economy, and between each themselves leaving the intricacies of gaming engines, 3D modelling toolchains, and rendering stacks to the primarily centralized world. However, over time we expect the Open Metaverse OS to eat further downwards to decentralise those aspects as well.

In summary, the Open Metaverse is emerging, first slowly and then at neck-breaking speeds given their “exponential nature.”

MetaFi and Its Exponential Assets

At the beginning part of the year, when we first wrote our paper, it was fair to say The Open Metaverse, when compared to The Closed Metaverse, was one full of empty worlds. The number of daily active users across all platforms was sub-one hundred thousand and to be frank completely irrelevant when compared to even Fortnite alone, which at the time enjoyed over 350 million monthly users and had generated $5 billion in revenue in 2020, accelerated by a year of COVID. But we rightly believed this to be deceiving. Rather than their models having any kind of long-term superiority, it was simply a decade of a head start and at that time a lack of alternatives. And whose closed nature only served as a temporary form of moat, that frustrates users and creators alike.

As we have already discussed just several months on, due to the exponential nature of the Open Metaverse, Axie Infinity has now likely already overtaken Fortnite in annualised profits. This fact is truly incredible when you think of the time and cost to develop and launch an AAA game is on average between $60–80 million, can take 2–3 years, requiring a team of 150–250 people. This meant in the past, creating content was extremely expensive, and led to a highly concentrated industry difficult for new players to enter and challenge the status quo. And yet somehow Axies, totally outside the gaming system, and in just two years, with just $9 million in funding, overtook them all.

Now Roblox, is often lauded as somehow a more open kind of metaverse and as an example of the power of letting independent creators build games based on a shared but closed technology stack and centralised, permissioned economic layer. Achieving $150 million monthly users and creators and paying out $250 million to developers in 2020. But, importantly through our lens Roblox is barely close to what you could consider a part of the Open Metaverse. For example, you can’t clone and fork the entire platform and it still serves as a closed ecosystem requiring 850 full-time staff to operate it and $530 million of venture capital to continue steady growth. Far from being the future as we will see it could be seen as the walking dead.

So how can open virtual worlds first catch up and then at least equal let alone surpass the content and rich experiences of today’s dominant yet centralised virtual world and gaming platforms? Well, firstly, there are a longtail of millions of creators (in all forms of media production) currently locked out of participating and monetising their work at all in today’s virtual worlds. And in aggregate they dwarf the industry’s staff working for closed platforms. In fact, many of them are already contractors who would prefer to be doing their own thing. So it seems evident that the creatively excluded serfs will be more than willing to migrate their time, energy and ultimately careers to experiment in our open and permissionless economic systems, especially when they can derive a greater return on their time not just in the initial creation of work but in perpetuity through secondary sales through ‘on-chain royalties’.

Now, several months on from our paper, this is no longer just conceptual. It is abundantly evidenced in the successes of a growing ecosystem of diverse NFT minting platforms and marketplaces such as SuperRare, who achieved their highest monthly sale of $31m in October 2021, set against 2020’s high of $147,000 in December. Let alone Nifty Gateway (owned by Gemini), achieving an average of 50% monthly growth since its launch in March 2020 and OpenSea’s mega $1 billion in trading volume in August of 2021 alone. It has become clear creators when given the option, will overwhelmingly join The Open Metaverse, and people will value their digital works more when they can transfer it off any one platform and trade freely in open secondary markets. And we have only just got started; if you think of the growth curves enjoyed by fungible crypto exchanges like Binance and Coinbase who have onboarded millions of new users into crypto-currency imagine what happens when every possible non-fungible digital asset can be bought and sold freely. And in fact, they have both now launched NFT product offerings and Coinbase CEO Brian Armstrong announced he believed it would quickly become their primary driver of revenue and growth.

Furthermore, saw Beeple (Mike Winkelmann), a digital artist leveraging NFTs and a friend of mine, break art auction records selling a single NFT, Everydays: The First 5000 Days, for nearly $70 million almost immediately after we published our paper, and global franchises such as the NBA Top Shot NFTs generating a high of $231 million in sales in February of 2021, and reported $700m in total sales earlier this year from digital trading cards. But perhaps even more interestingly, rather than existing IP being translated into the Open Metaverse we are beginning to see what you might regard as entirely new ‘metaverse native brands’ emerge on top of blockchains, bottom-up.

A recent example is The Bored Ape Yacht Club (BAYC), a collection of 10,000 unique 8-bit 2D avatars released by an anonymous collective. It has now become a non-fungible token franchise and economy to rival those of crypto-currencies, now at the time of writing worth over a billion dollars. With someone recently paying a total of $3.4 million at Sotheby’s Natively Digital 1.2 online auction for Bored Ape Yacht Club #8817, which, like the rest of the collection, possesses unique traits and characteristics. In early September, Sotheby’s sold 101 NFTs from BAYC for around $24m, to put this into perspective the last 7 days trading volume has hit $23m where the majority of revenue goes to its early collectors and supporters making many millionaires in the process.

What’s truly remarkable and unusual here is whilst a user owns an ape they hold the rights to exploit their individual ape’s IP commercially either permanently if they continue hold it or just momentarily leading to whole ecosystems of BAYC derivatives from 3D avatars, clothing lines, wine, and even sports merchandise, becoming a truly global transmedia brand in just four months.

But it doesn’t stop here! In the closed virtual worlds of platforms like Fortnite, because of their sheer reach, they became powerful ways for entertainers like Travis Scott to reach new audiences. However, very quickly artists, like electronic music producer and recent member of the Outlier partnership Deadmau5, have come to realise rather than momentarily playing in our people’s platforms he can retain direct and full creative and financial control of the experience through what could be considered new kinds of ‘Direct-to-Creator economies’ in his own virtual world, called Oberhasli.

Furthermore, with LiDAR technology now available to anybody with the latest iPhone, the physical world can be mass rendered, translated into machine-readable 3D models, and can in theory be converted into tradable NFTs. These NFTs will be uploaded quickly into open virtual worlds, populating them with avatars, wearables, furniture, and even whole buildings and streets. And because they are machine-readable, leveraging open source standards like Pixar’s USD, NVIDIA’s MDL, Khronos Group and NVIDIA’s Omniverse, they can be fed into AI to spit out infinite variations which again can be better monetised in global and open markets than any one closed platform.

Just as we predicted projects like Mark Cuban backed Alethea AI project are now taking advantage of innovations AI, in the form of GPT-3 from Open AI, to use deep learning to produce human-like text and speech to bring to life otherwise dumb NFT avatars into characters imbuing them with ‘interactive superpowers’. And one can imagine when it extends to other forms of media, virtual worlds and their content will be able to be automatically produced infinitely.

This all means we can expect to dramatically reduce the time and cost to produce games or whole virtual worlds and economies whilst also tapping into a global workforce of millions of creators allowing seamless and decentralised collaboration well beyond the capabilities of a single gaming studio, record label or virtual platform.

Humanity’s greatest socio-economic experiment

One of the most exciting and intellectually interesting things about an Open Metaverse, pregnant with Web 3 principles, is that you can openly (and in a permissionless way) experiment with its underlying economics. Where the same level of experimentation applies to rules of the game that underpin it both at the protocol layer and within each virtual world itself. And each experiment can be done in parallel to the other, in concert and/or direct competition.

For example, a project like Axie Infinity by design makes sure you can not derive value in the system through pure speculation only by buying and holding Axies (playing cards). To earn a yield or at the very least not see your investment decay, you must put them to use regularly in play. If you don’t want to or lack the skill to do that yourself, you must create jobs by lending your NFTs to players to put them to work. This means you can participate in the system by productive capital or through the work itself. The consequence is there are whole villages in Southeast Asian countries like the Philippines doing just that, where the income available is better than many ‘real world’ jobs if they exist at all. And you can imagine it will be the same for the great unemployed youth from the COVID economic fallout.

This activity doesn’t just replace the economy proper, it creates entirely new wealth in a purely virtual sense, but one that actually puts bread on the table and roofs over people’s heads. Whilst play-to-earn is nothing new, it is now going mainstream as ‘play as work,’ where hold to play, share or curate to earn, and play for keeps, could become the primary income for hundreds of millions of people as a form of financial emancipation rather than digital feudalism.

Conclusion: Metaverse Washing, a GDP and The Open Meta DAO

In writing this post, it has been interesting to revisit many of the themes proposed in our thesis published in just January of this year (2021) and see that they have come true much sooner than we expected. As Raoul Pal of Global Macro Adviser says, this is The Exponential Age, made up of convergent exponential technologies and now assets. In short, things move dizzyingly fast.

Since our first paper, Facebook and their recent rebrand to Meta has dominated the headlines. And now every Big Tech company is obliged to present their Metaverse strategy and credentials to capture the zeitgeist and the stock market premium it brings.

It has forced every tech and media company to have a position on NFTs. Steam, the gaming publisher, has said they won’t allow games that enable NFTs. Epic has said they will roll out NFTs but in a permissioned way and Discord faced serious backlash at an aborted roll-out of NFTs from their user base showing that it isn’t entirely obvious to all companies and users, especially in gaming, why this is anything more than a passing fad and why digital property rights in the metaverse are so important.

Many are using the Metaverse narrative to push their own agenda and either deliberately or accidentally conflating key points and principles like Facebook Meta talking about privacy, not in the context of the privacy paradigm of user data and what they do or don’t do with it but instead simply being able to block people you don’t want to interact with. And if you subscribe to our proposition that the Metaverse is first and foremost a meta-economy, we believe enabled by integrating into the open and permissionless system of crypto, Big Tech would rather focus purely on the interface layer, and shiny UX, than addressing the economic systems and their business models.

Equally, I’ve been incredibly disappointed that even supposed champions of the Open Metaverse let Zuckerberg and Facebook business practices with all its contradictions with an Open Metaverse go unchallenged on what now looks to be a rather cynical ‘friendly influencer not mainstream media’ roadshow to distract from the mounting problems at Facebook HQ.

When combined with political headwinds in US and Europe taking a combative stance to crypto, primarily around stable-coins, I fear there will be an ‘out of the box state captured’ permissioned Metaverse where Big Tech as its corporate stakeholders will be coerced to integrate into the existing broken fiat-based system and forced to adopt CBDCs (Central Bank Digital Currencies) which perpetuate the indebted, inflationary and exclusionary financial system.

This is why we are deeply committed to and vocal about the Open Metaverse its principles as a counterpoint to Big Tech’s supposed version of the Metaverse. And will follow up with two more bodies of work that build on the Open Metaverse OS Paper one being on the subject of MetaFi; how DeFi can be leveraged in the Metaverse and what kinds of collateral will emerge and secondly beginning to formally track an Open Metaverse GDP; that is GDP created in a shared and open economic system enabled by crypto.

In short, we had a good fight ahead of us. We invite you to join us in it.

About Metaverse Summit

Metaverse Summit is set to explore and build the future of Metaverse together. The summit will gather builders, entrepreneurs, investors and experts from 3D, VFXGaming, VR, AR, Web3 and beyond.

We believe that sharing and transmitting knowledge is the most sustainable way to develop the decentralized, fertile future of Metaverse.

Download the full Open Metaverse OS Thesis Here

“Metaverse Masterclass” is a series of reports, articles and interviews from experts around different topics in Metaverse. This is an article by Moish E. Peltz, Esq, Partner, Chair of IP Practice Group, Co-Chair of Emerging Technologies Practice Group in Falcon Rappaport & Berkman PLLC, originally published here.

Overview of Crypto and NFTs

Like cryptocurrency, NFTs have taken the world by storm. Everything is being tokenized. NFTs, or “Non-Fungible Tokens” are digital files with a unique identity that is verified on the blockchain.

Bitcoin (or real fiat currency for that matter), can be thought of as entirely interchangeable (or “Fungible”). If you owe me five dollars, I wouldn’t care if you gave me five $1 bills or a $5 bill (even if they each have a unique serial number), so long as you pay me my money. Same with Bitcoin — it’s a commodity.

However, NTFs are ‘Non-fungible’ because each NFT is somewhat unique (at least in theory). NFTs can represent a 1 of 1 “original,” such as a unique work of art. NFTs can also represent one of a fixed number of copies in a limited series (For example #3,100 of 10,000 CryptoPunks, sold for 4,200 ETH, or $7.58 million on March 11, 2021).

In fact, NFTs can represent almost any real or intangible property, including artwork, music, videos, collectibles, trading cards, video game virtual items, or even real estate. In sum, an NFT is the digital version of a certificate of authenticity, embodied in the blockchain.

For that reason, unique NFTs are bought or sold in auctions, or in marketplaces based upon the principles of supply and demand, with a dash of cryptocurrency speculative fervor thrown in. Lately, these NFT marketplaces (such as OpenSea, Rarible, or NBA Top Shot) have gone crazy, with millions of dollars being paid for single digital collectibles. Even the esteemed auction house Christie’s has gotten on board with the sale of Beeple’s EVERYDAYS: THE FIRST 5000 DAYS for an astounding $69 million.

Some view this is an unhinged speculative market that will eventually come crashing down. Others perceive it as the new frontier of digital commerce and art. Only time will tell.

But when it comes down to it, what does it mean to sell or to buy an NFT? What do you really own? If you are a brand with valuable IP, how do you approach NFTs?

How to Create NFTs

The basics of blockchain and cryptocurrency are beyond the scope of this article, and conversational knowledge is assumed.

NFTs can be created on one of any number of blockchains. The most popular of which is Ethereum, which has smart contract functionality (unlike Bitcoin). However, there are a number of alternatives, including: Binance Smart Chain, and Flow by Dapper Labs. On Ethereum, the Ethereum ERC-721 standard is the primary Non-Fungible Token Standard that powers the tracking and transferring of digital art and collectibles. This standard specifically contemplates tracking not only virtual collectables, but also physical property and “negative value assets” such as loans. https://eips.ethereum.org/EIPS/eip-721.

Once you have selected a blockchain, for ease of use you may want to select a platform that operates on that blockchain to help mint your NFT on that blockchain. For example, a popular NFT platform and marketplace running on the Ethereum blockchain is OpenSea, which has a section where you can ‘Create’ NFTs. You will deposit some ETH from your wallet to pay for the creation of your NFT on the Ethereum blockchain, accept the platform terms of service, and start creating the NFT.

Depending on the platform, creating your NFT can include uploading an image, video, or music file, adding a name and description. Additionally, NFTs allow the creator of the NFT to decide whether they will collect a royalty for future resales of the NFT, potentially an incredibly powerful tool that would allow a creator to profit from any future sale of the NFT. Various options currently exist on different platforms and additional options will undoubtedly be developed in the future.

Now that you have minted your NFTs, you can sell your NFTs to your fans. Choose a price and list it for sale or auction!

You can find a more step-by-step break down of this process in an article located here: https://www.coindesk.com/how-to-create-buy-sell-nfts

Copyright vs NFT Ownership

If you are an author of a work of art, who owns the copyright? At least from a US perspective, the default rule is that the author retains the copyright in their original creation. Although NFTs and other projects on the blockchain present numerous potential copyright minefields, there does not seem to be anything inherent about NFTs that would change this default rule as to copyright ownership.

The typical analogy is that copyright can be thought of as a ‘bundle’ of rights. For example, when an artist (or copyright “author”) sells a physical painting to a buyer, the artist/author is, by default, the copyright holder and will retain the original copyright in the work, even upon a sale to a buyer of the artwork, unless there is some deviation from the general rule. The buyer owns the physical copy and the related right to display that physical copy. The buyer does not have the right to make additional copies (that right is retained by the copyright holder), but the purchaser can of course resell his physical copy to a third-party without violating any copyright restriction. Indeed, the “first sale doctrine” limits the ability of copyright holders to control the further resale of their copyrighted works (and the application of the first sale doctrine to the digital era is already a bit of a gray area).

So, by analogy, if you were to create and sell an NFT which embodied your art, what does that mean for your copyright? Although these concepts have not yet been tested in Court, presumably, the author of the work still owns the copyright in the underlying work embodied in the NFT itself. That is, unless the author of that work specifically conveyed ownership of the copyright as part of the sale of the NFT (this is not likely, although presumably possible). As part of creating an NFT, you may sign up for a platform, and agree to further terms and conditions (likely including a grant of license to the platform to use your copyright to the extent required to create the NFT).

As a purchaser of an NFT, what are you receiving? The buyer of the NFT receives ownership of the NFT (with that ownership being recorded on the blockchain), and also presumably some implied right or license to make limited use of the underlying artwork embodied within the NFT in order to buy, own or sell the NFT.

By default, the purchaser of the NFT generally will NOT receive ownership of the underlying work of art embedded in the NFT, nor the right to reproduce, or transform that work of art. It is theoretically possible that this default rule could change, for example, if the work of art in question was issued pursuant to a creative commons license, or if the transfer of the underlying ownership were expressly stated in the terms and conditions governing the creation of the NFT.

Issues to consider:

• If you are planning to create an NFT, you should ensure that you own the copyright that will be embodied in the NFT. If a work of art is anything but 100% indisputably your own creation, this might not be obvious and should be confirmed before irreversibly committing it to the blockchain.
• Analysis of copyright ownership gets more complicated if there are multiple copyright authors for a single work. Joint works of authorship may have a slightly different analysis than what is discussed above. A good practice would be to ensure that you have the (written) consent of all co-authors in a work before creating an NFT utilizing that work.
• This analysis also gets more complicated if the copyright holder is a company. As a general rule, a company should ensure that it has documented its ownership of any copyright which it will be turning into an NFT. This might be pursuant to an employment agreement, independent contractor agreement, work-for-hire agreement, or assignment agreement. Don’t assume that you own the creations of your employees or contractors without having it documented.
• Does your work of art include, remix, or reference other works of art? Have you ensured that you have the right to do what you are planning to do when you create an NFT?
• Does a digital first sale doctrine apply in the context of NFTs? Are there ways that you control the resale of works embodying your work by limitations built into the blockchain?

Trademarks and NFTs

How do trademarks fit with NFTs?

If you are creating NFTs, as a best practice you will want to avoid using any trademarks of another company embodied within your NFT.

If you are a brand owner, like any new technology, you may want to consider how your brand can or will be utilized in a new context, and how you can engage with the new technology to reach new audiences. The artists Deadmau5 and Kings of Leon each released NFT packages branded under their trademarked artist names. Similarly, LVMH (the owner of Louis Vuitton, Tiffany, and Dom Perignon) reportedly is using the AURA blockchain to allow consumers to use NFTs to trace the authenticity of their branded luxury goods.

NFTs present numerous open and potentially difficult questions for brand owners:

• If you have a trademark for one type of goods or services, does your trademark cover your use of the brand as an NFT or on the blockchain? Should you apply for additional trademarks to cover uses in this area?
• Would your brand benefit from authentication of your goods via an NFT?
• If you are an artist or musician, are there real-world goods or services (for example, concert tickets, VIP experiences) that can be combined as an offering with the NFT? If so, does this present additional challenges?
• Are there ways to monitor and enforce potential uses of your brand on the blockchain or as embodied in an NFT? Are these ways more efficient than brand monitoring current practices?
• What do you do if someone creates an unauthorized NFT which includes your trademarked brand?

Patents and NFTs

NFT patents are already here, and more are surely on the horizon. For example, Nike has obtained a patent for “generating cryptographic digital assets for footwear,” which would allow a buyer of a shoe to ensure that their shoe is authentic, and also enjoy a digital collectible version of their shoe in their wallet (otherwise known as Cryptokicks). In general, blockchain patents continue to show accelerating growth.

If you are a blockchain inventor on the blockchain, you should be considering whether what you are doing could possibly qualify for patent protection. While obtaining patents for blockchain-related items might be difficult, it is also possible. In the US, a patented invention must be patent eligible, new or novel, useful, and non-obvious. Thousands of blockchain patents are already being filed every year.

Licensed Brands and NFTs

Artists or brands may choose to license their brands instead of creating NFTs themselves. For example, the National Basketball Association licensed the NBA brand and content to Dapper Labs to allow the creation of NBA Top Shot. NBA Top Shot is an application that allows users to trade, collect and showcase digital blockchain collectibles containing officially licensed NBA content, such as gameplay highlights. If you are a fan of the Miami Heat’s Tyler Herro and think he’s going to be the next NBA superstar, you can buy an NFT including a highlight of Herro as he “gets in the paint and nails the high-arcing floater over the outstretched arm of Anthony Davis during third quarter action of Game 4 of the NBA Finals.” Lowest asking price for a 1 of 43 edition? $22,500.

With NBA Top Shot, the NBA has a verifiable hit on their hands that can barely keep up user demand. Certainly, other brands will want to get in on the action. When they do so, like any other licensing arrangement, there are numerous considerations, including:

• Who are you partnering with and can you trust them to execute your vision?
• How will you protect your intellectual property in the context of an NFT licensing arrangement?
• How will payments and royalties be handled?
• How will disputes be resolved?

Enforcement against NFTs that have an Unauthorized Use

What do you do if someone has infringed your intellectual property in an NFT? The area of NFT copyright infringement, NFT trademark infringement, or NFT patent infringement is not fully developed, and the implications are unclear.

To the extent you can identify an individual company or individual that is infringing your intellectual property, you may be able to take action to enforce your intellectual property rights. However, it may be extremely difficult, impossible, or just not economically feasible to pursue random copycats duplicating your intellectual property within an NFT. Artists have already reported finding that their art has been stolen and sold as NFTs without their knowledge.

Some of the platforms, such as OpenSea state that they will work to “take down works in response to formal infringement claims and will terminate a user’s access to the Services if the user is determined to be a repeat infringer.” It is unclear to what extent the DMCA applies to NFT platforms, and how different platforms will respond to such infringement submissions. More decentralized platforms may not have appropriate avenues to make formal IP complaints.

There are potential limits to suing people for actions taken and recorded on the blockchain when their actions are decentralized, pseudonymous and international.

NFT Risks

Like any other cryptocurrency investment, the value of an NFT is uncertain and ultimately is only worth what someone else is willing to pay for it. The current environment is likely somewhat of a bubble. An initial time and money investment is required and transactions creating NFTs carry fees that may not be recouped if no one buys your NFT. NFTs (at least for now) do not generate cash flow and are only worth what someone else would pay for them. This amount, like the price of Bitcoin, could presumably drop by 90% in a period of weeks.

The creation of NFTs is largely irreversible and the future implications of NFTs are unclear. If you make a misstep, it may lead to unintended consequences that may not be correctable. Like any other marketing or advertising campaign, things can go wrong. You could do harm to your brand and intellectual property if you don’t get things right the first time. For that reason, it is important to think through possible consequences and associated downside risks that may be caused by NFTs before pressing ‘mint.’

Conclusion

The maxim to live by in cryptocurrency is to “never risk anything that you are not prepared to lose.” Creators should abide by this same mindset when creating NFTs. NFTs present an exciting new opportunity to engage and find new fans in a new territory, and perhaps make some money in the process. As an artist or brand owner, you must be mindful that you are also putting your intellectual property at risk, with uncertain and undetermined consequences.

In the meantime, artists and businesses that are seeking to participate in these markets should do so carefully, and as always, be mindful of their risks when it comes to ownership of their intellectual property.

More Questions? Contact Us!

Falcon Rappaport & Berkman PLLC has the knowledge and experience necessary to guide you through intellectual property and cryptocurrency matters. To set up a meeting with one of our attorneys, please call (212) 203–3255 or submit a request through the contact form below.

Disclaimer

This summary is not legal advice and does not create any attorney-client relationship. This summary does not provide a definitive legal opinion for any factual situation. Before the firm can provide legal advice or opinion to any person or entity, the specific facts at issue must be reviewed by the firm. Before an attorney-client relationship is formed, the firm must have a signed engagement letter with a client setting forth the Firm’s scope and terms of representation. The information contained herein is based upon the law at the time of publication.

“Metaverse Masterclass” is a series of reports, articles and interviews from experts around different topics in Metaverse. This is an article by Naomi Oba, originally published on Minima.

The Web is constantly evolving. Web 1.0, for the first time, made information available to anyone to access with nothing more than an internet connection. Web 2.0 brought tremendous improvements in usability, the richness of experience, and more importantly, turned everyone into a potential content creator.

Thanks to Web 2.0 platforms, we stayed connected with our friends, even during lockdowns, and could order anything from wall art to hardware wallets from the comfort of our living room — Delivered straight to our door. What’s not to love?

The downside of the convenient Web 2.0 we’re enjoying is that we’re constantly tracked. Google knows our most intimate worries, Instagram (or is it also now Meta?) knows that you’ve been stalking your ex, and Amazon knows all the things you’ve ordered. All this information together gives them a reasonably accurate idea of what you might be likely to buy, which is what advertisers pay for.

Our data is harvested and monetized without any benefits to ourselves. Consumers are slowly waking up to the implications; as an IRS survey indicates, only 17% of participants found personalized ads ethical.

In recent weeks, we’re seeing Big Tech starting to hijack a term that’s been used by crypto enthusiasts for a while: Web 3.0. Microsoft is planning to establish Excel tribes (VFOOKUP)in it, and Facebook’s rebranding is trying to turn it back into a cool, Metaverse company.

That’s not the Web 3.0 we meant, nor the one we want to see come to fruition.

The Semantic Web

Even before Bitcoin, Tim Berners-Lee, the inventor of the world wide web, spoke of a new iteration of the Web (3.0), which he coined the Semantic Web. When talking of the Semantic Web, he referred to a version of the Web that is more open, smarter, and more autonomous. All the things that our current Web 2.0 has lost.

Semantic is a term from linguistics that is defined as “relating to the meanings of words or phrases.”

In the semantic Web, machines would process content in humanlike ways and enhance user experience and connectivity. This semantic Web hasn’t entirely happened yet. Ten years ago, we might have thought that by now, AI would be able to communicate and completely understand humans, but we’re not there yet.

How would a machine know the difference between Jaguar (the car) and Jaguar (the animal)? For us, when used in a conversation, it’ll be obvious, but for a machine, it’s not. Building AI that grasps these taxonomies and concepts on every word is complicated. Just ask the team at IBM how it’s going with their AI assistant Watson.

So if Web 3.0 is not the semantic Web as envisioned by Tim Berners-Lee, what is it?

Features of Web 3.0

Web 3.0, despite having been mentioned over a decade ago, still is not a clearly defined term. Britannica features an article on Web 2.0 that refers to Web 3.0 but lacks an article on it. A pattern repeated across other encyclopedias.

While there might not be a unified definition yet, Web 3.0 has a set of features that set it apart. Crypto plays a significant role in Web 3.0, but it’s a lot more than just value transfer.

• Open: The new Web is built from scratch on open-source software. That means anyone can develop on top of it, contribute, propose changes and add new features. The entire development cycle happens in plain sight — a level of transparency unheard of by Web 2.0 companies.

Interesting fact: In 2021 100% of the top 500 supercomputers are running on Linux, an open-source operating system

• Trustless: Web 3.0 is a network that allows users to interact trustlessly -without a need to disclose their identity. They can choose to interact privately or in public. Instead of trusting one party explicitly, trust is now placed implicitly into all nodes holding up the network.
• Permissionless: In 2020, India shut down access to the internet for millions of its citizens 109 times — despite an increase in demand triggered by the pandemic. Media Outlets such as the New York Times are blocked for Chinese citizens, and Social Media Platforms tend to censor accounts that they find critical. The new Web 3.0 is the complete opposite. Anyone can participate without any authorization whatsoever from governing bodies or other traditional gatekeepers.
• Ubiquitous connectivity: This is the part where the semantic Web comes into play again. It can be seen as a part of Web 3.0 — the part in which information is more connected thanks to semantic metadata. Data can be accessed from anywhere, at any time, without relying on centralized cloud providers such as AWS or GCP.
• 3D graphics: Three-dimensional designs will create a more realistic engaging cyber-world (also dubbed the Metaverse) that creates new business opportunities and could blur the lines between the real and the digital world.

Trustless, permissionless, open — sounds like Blockchain? Yes, it is. Blockchain will be the backbone of Web 3.0, among other technological components.

What powers Web 3.0?

Chris Dixon, General Partner at az16, believes that Web 3.0 is just around the corner (Source). This is primarily down to the technological advancements we’ve made in the last few years. Web 3.0 relies heavily on Edge Computing, Blockchain, and AI & Machine Learning.

Edge Computing

In 2019, every second, 127 new devices were connected to the internet for the first time. We don’t just have smartphones anymore. We have entire smart homes now. All these devices create a tremendous amount of data. The traditional approach to analyzing such data would be to send it to a centralized data center. However, Web 3.0 is pushing computing to the edge of the network.

Edge Computing works on a decentralized approach by processing data closer to the point where it’s generated. Already by 2025, 75% of data will be processed outside the traditional data center or cloud, according to Gartner’s estimates.

Processing data on your device is great but even more vital in combination with the next component of Web 3.0: Blockchain & tokens.

Blockchain & Tokenization

Public, permissionless blockchains underpin Web 3.0 and enable data generators for the first time to be fully in control over the data. Similar to how edge computing pushes the act of computing to the edge of the network, tokenization empowers participants at the margin.

Suddenly, it’s not the Big Tech platforms in control anymore, but all the individuals making up the network. With Tokens, every user gains property rights to the things they purchase and create online. Non-fungible tokens are a perfect fit for unique assets and IDs.

Cryptocurrencies, as natively digital currencies that function without a central entity controlling their supply, are the payment network for Web 3.0. With cryptocurrencies, users can transfer value without the need for middlemen, often at a fraction of the cost of using centralized institutions.

AI & Machine Learning

Artificial Intelligence and Machine Learning are already employed by most Web 2.0 platforms today. Just think of the LinkedIn chat that suggests answers to your messages. These are generated based on machine learning, AI use in everyday life. While sometimes far off, at times it’s quite convenient to be able to just click on “Thanks, you too”, instead of typing it all out.

On Web 3.0 AI will play a role in making this version of the web more intelligent, and powerful in regards to processing information. It will enable machines to better interpret what the meaning behind data is, and deliver a smarter user experience. Accessing data on top of decentralized structures could provide powerful predictions on things that go way beyond targeted advertising into areas like drug design and climate modeling. We already see companies like Ocean protocol explore ways to train AI without exposing the underlying data owner’s privacy.

Together, these technologies build the backbone of Web 3.0. At this point, we’re just scratching the surface of Web 3.0, but it could bring vast improvements once truly established.

Why we want Web 3.0

So far you might wonder, what the benefits are that Web 3.0 will bring along, and why we should care.

• Disintermediation: no more paying to rent-seeking middlemen, no more reliance on Big Tech for your livelihood, or even just your social life
• Resilience: A truly decentralized Web 3.0 built on the back of blockchain can’t be shut down.
• Access: Regardless of gender, income, and demographics, anyone will be able to access Web 3.0. You won’t need a government-issued ID to access Web 3.0 services. Your decentralized ID (your history on Web 3.0) becomes your ID.
• Power to the people: your data is going to be yours on Web 3.0. Instead of being tracked down, organizations will come to you and offer to pay you to access your data. You will be able to monetize assets you previously couldn’t. With Brave, we already see how this could play out in advertising. You get paid to watch ads; your attention is valuable.

Overall, Web 3.0 tackles many of the problems we face when interacting with Web 2.0, where we’re often the product and not in control of what happens with our data. Web 3.0 will entirely shift how we think and interact with web services. It’s a more human-centric Web, with native money that enables anyone to start entering transactional relationships with others all over the world.

For Web 3.0 to deliver on the above benefits, we must build it on truly decentralized networks. Networks in which everyone is equal, and no one player has the power to shut others down. There is no space for big conglomerates in Web 3.0 unless they give up control.

Web 3.0, when done correctly, could be a return to the original web. A web where “no permission is needed from a central authority to post anything…there is no central controlling node, and so no single point of failure…and no “kill switch” (Tim Berners-Lee, 2021).

The Web is constantly evolving. Web 1.0, for the first time, made information available to anyone to access with nothing more than an internet connection. Web 2.0 brought tremendous improvements in usability, the richness of experience, and more importantly, turned everyone into a potential content creator.

Thanks to Web 2.0 platforms, we stayed connected with our friends, even during lockdowns, and could order anything from wall art to hardware wallets from the comfort of our living room — Delivered straight to our door. What’s not to love?

The downside of the convenient Web 2.0 we’re enjoying is that we’re constantly tracked. Google knows our most intimate worries, Instagram (or is it also now Meta?) knows that you’ve been stalking your ex, and Amazon knows all the things you’ve ordered. All this information together gives them a reasonably accurate idea of what you might be likely to buy, which is what advertisers pay for.

Our data is harvested and monetized without any benefits to ourselves. Consumers are slowly waking up to the implications; as an IRS survey indicates, only 17% of participants found personalized ads ethical.

In recent weeks, we’re seeing Big Tech starting to hijack a term that’s been used by crypto enthusiasts for a while: Web 3.0. Microsoft is planning to establish Excel tribes (VFOOKUP)in it, and Facebook’s rebranding is trying to turn it back into a cool, Metaverse company.

That’s not the Web 3.0 we meant, nor the one we want to see come to fruition.

The Semantic Web

Even before Bitcoin, Tim Berners-Lee, the inventor of the world wide web, spoke of a new iteration of the Web (3.0), which he coined the Semantic Web. When talking of the Semantic Web, he referred to a version of the Web that is more open, smarter, and more autonomous. All the things that our current Web 2.0 has lost.

Semantic is a term from linguistics that is defined as “relating to the meanings of words or phrases.”

In the semantic Web, machines would process content in humanlike ways and enhance user experience and connectivity. This semantic Web hasn’t entirely happened yet. Ten years ago, we might have thought that by now, AI would be able to communicate and completely understand humans, but we’re not there yet.

How would a machine know the difference between Jaguar (the car) and Jaguar (the animal)? For us, when used in a conversation, it’ll be obvious, but for a machine, it’s not. Building AI that grasps these taxonomies and concepts on every word is complicated. Just ask the team at IBM how it’s going with their AI assistant Watson.

So if Web 3.0 is not the semantic Web as envisioned by Tim Berners-Lee, what is it?

Features of Web 3.0

Web 3.0, despite having been mentioned over a decade ago, still is not a clearly defined term. Britannica features an article on Web 2.0 that refers to Web 3.0 but lacks an article on it. A pattern repeated across other encyclopedias.

While there might not be a unified definition yet, Web 3.0 has a set of features that set it apart. Crypto plays a significant role in Web 3.0, but it’s a lot more than just value transfer.

• Open: The new Web is built from scratch on open-source software. That means anyone can develop on top of it, contribute, propose changes and add new features. The entire development cycle happens in plain sight — a level of transparency unheard of by Web 2.0 companies.

Interesting fact: In 2021 100% of the top 500 supercomputers are running on Linux, an open-source operating system

• Trustless: Web 3.0 is a network that allows users to interact trustlessly -without a need to disclose their identity. They can choose to interact privately or in public. Instead of trusting one party explicitly, trust is now placed implicitly into all nodes holding up the network.
• Permissionless: In 2020, India shut down access to the internet for millions of its citizens 109 times — despite an increase in demand triggered by the pandemic. Media Outlets such as the New York Times are blocked for Chinese citizens, and Social Media Platforms tend to censor accounts that they find critical. The new Web 3.0 is the complete opposite. Anyone can participate without any authorization whatsoever from governing bodies or other traditional gatekeepers.
• Ubiquitous connectivity: This is the part where the semantic Web comes into play again. It can be seen as a part of Web 3.0 — the part in which information is more connected thanks to semantic metadata. Data can be accessed from anywhere, at any time, without relying on centralized cloud providers such as AWS or GCP.
• 3D graphics: Three-dimensional designs will create a more realistic engaging cyber-world (also dubbed the Metaverse) that creates new business opportunities and could blur the lines between the real and the digital world.

Trustless, permissionless, open — sounds like Blockchain? Yes, it is. Blockchain will be the backbone of Web 3.0, among other technological components.

What powers Web 3.0?

Chris Dixon, General Partner at az16, believes that Web 3.0 is just around the corner (Source). This is primarily down to the technological advancements we’ve made in the last few years. Web 3.0 relies heavily on Edge Computing, Blockchain, and AI & Machine Learning.

Edge Computing

In 2019, every second, 127 new devices were connected to the internet for the first time. We don’t just have smartphones anymore. We have entire smart homes now. All these devices create a tremendous amount of data. The traditional approach to analyzing such data would be to send it to a centralized data center. However, Web 3.0 is pushing computing to the edge of the network.

Edge Computing works on a decentralized approach by processing data closer to the point where it’s generated. Already by 2025, 75% of data will be processed outside the traditional data center or cloud, according to Gartner’s estimates.

Processing data on your device is great but even more vital in combination with the next component of Web 3.0: Blockchain & tokens.

Blockchain & Tokenization

Public, permissionless blockchains underpin Web 3.0 and enable data generators for the first time to be fully in control over the data. Similar to how edge computing pushes the act of computing to the edge of the network, tokenization empowers participants at the margin.

Suddenly, it’s not the Big Tech platforms in control anymore, but all the individuals making up the network. With Tokens, every user gains property rights to the things they purchase and create online. Non-fungible tokens are a perfect fit for unique assets and IDs.

Cryptocurrencies, as natively digital currencies that function without a central entity controlling their supply, are the payment network for Web 3.0. With cryptocurrencies, users can transfer value without the need for middlemen, often at a fraction of the cost of using centralized institutions.

AI & Machine Learning

Artificial Intelligence and Machine Learning are already employed by most Web 2.0 platforms today. Just think of the LinkedIn chat that suggests answers to your messages. These are generated based on machine learning, AI use in everyday life. While sometimes far off, at times it’s quite convenient to be able to just click on “Thanks, you too”, instead of typing it all out.

On Web 3.0 AI will play a role in making this version of the web more intelligent, and powerful in regards to processing information. It will enable machines to better interpret what the meaning behind data is, and deliver a smarter user experience. Accessing data on top of decentralized structures could provide powerful predictions on things that go way beyond targeted advertising into areas like drug design and climate modeling. We already see companies like Ocean protocol explore ways to train AI without exposing the underlying data owner’s privacy.

Together, these technologies build the backbone of Web 3.0. At this point, we’re just scratching the surface of Web 3.0, but it could bring vast improvements once truly established.

Why we want Web 3.0

So far you might wonder, what the benefits are that Web 3.0 will bring along, and why we should care.

• Disintermediation: no more paying to rent-seeking middlemen, no more reliance on Big Tech for your livelihood, or even just your social life
• Resilience: A truly decentralized Web 3.0 built on the back of blockchain can’t be shut down.
• Access: Regardless of gender, income, and demographics, anyone will be able to access Web 3.0. You won’t need a government-issued ID to access Web 3.0 services. Your decentralized ID (your history on Web 3.0) becomes your ID.
• Power to the people: your data is going to be yours on Web 3.0. Instead of being tracked down, organizations will come to you and offer to pay you to access your data. You will be able to monetize assets you previously couldn’t. With Brave, we already see how this could play out in advertising. You get paid to watch ads; your attention is valuable.

Overall, Web 3.0 tackles many of the problems we face when interacting with Web 2.0, where we’re often the product and not in control of what happens with our data. Web 3.0 will entirely shift how we think and interact with web services. It’s a more human-centric Web, with native money that enables anyone to start entering transactional relationships with others all over the world.

For Web 3.0 to deliver on the above benefits, we must build it on truly decentralized networks. Networks in which everyone is equal, and no one player has the power to shut others down. There is no space for big conglomerates in Web 3.0 unless they give up control.

Web 3.0, when done correctly, could be a return to the original web. A web where “no permission is needed from a central authority to post anything…there is no central controlling node, and so no single point of failure…and no “kill switch” (Tim Berners-Lee, 2021).

“Metaverse Masterclass” is a series of reports, articles and interviews from experts around different topics in Metaverse. This is an article by Lane Rettig, originally published on Etherean.org.

The advent of immersive digital worlds give us an unprecedented opportunity to rethink the relationship between people and property. Let’s take advantage of it before it’s too late.

Ownership

We rarely, if ever, pause to think about concepts as abstract as ownership. Indeed, the idea of ownership is woven into the very fabric of modern society thanks to capitalism. When you actually reflect on it, however, you realize that ownership is a pretty strange notion.

It’s one that I’ve been thinking about a lot recently. Ownership makes intuitive sense to me in the physical, offline world. If there’s one bowl of single serving pea soup between us, then either you have it, and can enjoy it, or else I do, and can — but not both. Of course it’s even more germane for truly scarce commodities like land: we can always grow more peas and make more pea soup, but we cannot really grow more land (reclaimed land aside).

In the digital realm, Bitcoin also makes intuitive sense. There is clearly some value in the idea of digital gold, even if its scarcity is artificial and socially enforced. Why? Because currency is useful, and in order for currency to have value, it has to be scarce. Bitcoin is pretty close to a platonic actualization of decentralized, digital currency.

What doesn’t make intuitive sense to me is ownership of other types of digital assets, in particular things like digital art and “land” in virtual worlds. In order to understand why I feel this way, I’ve been pondering the basic question: What does it really mean to own something?

We’re used to the way ownership works in the pre-blockchain world. To own a piece of land, for instance, means to have a publicly recognized, verifiable title to it, entitling its owner to use, profit from, or dispose of it however they please, within legal bounds.

On the surface, blockchain-based ownership actually isn’t that different. What it literally means to own some bitcoin is to possess a few bytes of data, a cryptographic “key” that can be used to “unlock” a transaction stored in the Bitcoin distributed ledger.1 This is not unlike holding a title to land, with the caveat that a bitcoin private key is a bearer instrument in the sense that he who holds the key holds the bitcoin that it controls. In the case of Bitcoin, possession really is 99% of the law.2

In both cases, ownership is publicly verifiable and enforceable. Indeed, without these properties, the whole idea of ownership is pretty meaningless. The main difference is that enforcement of the first is primarily legal, whereas for blockchain-based assets like bitcoin, it’s primarily cryptographic and computational in nature.

Ownership is social

In fact, ownership of both land and bitcoin is a socially enforced construct.

Land, of course, has intrinsic value: it’s practically useful for renting, growing, building, or storing things. It’s therefore tempting to think that the value of land derives entirely from its intrinsic value, but in fact, its value is highly social. This should be evident when you consider two otherwise identical plots of land in two different social settings: one in the middle of a highly desirable city, the other thousands of miles away from the nearest town. Moreover, to own land is to rely on a public, verifiable land registry, title to the land, and various institutions and mechanisms of the state to enforce that ownership, such as evicting a delinquent tenant or calling the police if someone trespasses.3

Ownership of bitcoin, too, may not seem inherently social at first glance due to the cryptographic nature of its enforceability. However, if you peer a little deeper, the social layer becomes visible. The private key and the ledger entry corresponding to your bitcoin holdings have value only because other people believe they have value. In other words, just like fiat currency, bitcoin has no intrinsic value. Another reason bitcoin has value is the fact that a group of people has agreed to run software that conforms to the Bitcoin protocol, not to debase bitcoin by issuing too much of it, etc..

Presentation

But there’s an important way in which these two types of asset differ. Tangible artifacts such as land need no presentation layer. Digital assets, on the other hand, are meaningless and, indeed, invisible without a presentation layer. You can only claim, and see, and spend the bitcoin you own because you have a wallet application that talks to the Bitcoin network on your behalf, interpreting things like cryptographic keys and presenting them to you as legible things like transactions and balances.

The idea of a presentation layer is a very old concept in the digital world. Think of reading your email on your laptop versus reading it on your phone. You’re using two very different applications to access and interact with the same data: this is the presentation layer. The possibilities for how to present even the most mundane data creatively are endless.4

Fungible and nonfungible assets

The concepts of ownership and presentation get very interesting in the world of digital assets. The first and most common form of digital asset is the fungible asset, which includes bitcoin: like a dollar, every bitcoin is the same as every other bitcoin, so they are totally fungible.5

By contrast, an asset like land, or a piece of art, is not fungible. Each one is unique and special. Nonfungible assets can be traded, but the correspondence is never precisely one to one: even two plots of land of identical size that are near each other will almost certainly have characteristics which mean their values will differ!

While the concept of a nonfungible asset makes intuitive sense in the tangible world, in the digital realm it’s a bit murkier. It’s easy to value bitcoin because of its fungibility. What makes an asset like land or art nonfungible is that it has a lot more variables. Land, for instance, is valued not only on the basis of its area, but also its shape, location, drainage, elevation, history, improvement/development status, neighbors, etc..6

A digital nonfungible asset, however, has none of these intrinsic properties. Like bitcoin, under the hood it’s really just a series of bytes on a ledger. Everything else — including all of the properties that actually matter — lives in the presentation layer, and is therefore subjective.

On the one hand, this disconnect between the ownership layer and the presentation layer is wonderful because it allows for a lot of creativity in how digital assets are composed and presented. Witness one of the oldest, and most well-known, nonfungible digital assets: CryptoKitties. One could build a different presentation layer that presents the same underlying genetic data that gives a kitty its fur color and eye shape as, say, a robot, or a pair of shoes. One can also compose multiple nonfungible digital assets: giving a crypto kitty a unique hat, for instance.

On the other hand, however, there’s something odd and a little troubling about the way that all of the variables and properties that matter in a nonfungible asset are open for interpretation in the presentation layer. This calls into question even very basic concepts such as value and ownership. Do you really “own” a CryptoKitty in any meaningful sense if under the hood what you possess is really a series of bytes that have no intrinsic value and are meaningless without interpretation? What about a piece of virtual art — say, a digital image — when, in practice, you really only control an arbitrary series of bytes on some ledger that are at best a hash of the contents of the art, and at worst are totally arbitrary? Given that the art is digital, it’s trivial to copy, and many people may choose to enjoy or even display it simultaneously, “ownership” or no.

Assets can have value for intrinsic or extrinsic reasons. Intrinsic reasons tend to be less subjective and to require less interpretation, whereas extrinsic reasons tend to be highly subjective and to rely on a socially-constructed interpretation. You can acquire an oil painting, hang it in your house, and admire it. No one else in the world can possess and admire precisely the same piece of art in the same way at the same time. This uniqueness is an intrinsic source of value for traditional forms of art. Digital, nonfungible assets do not have this same property. Their value is almost entirely extrinsic and subjective.

To be clear, I am not suggesting that digital art, land, collectibles, or nonfungible assets in general have no value. My point is that, to the extent that we as a society collectively choose to attach value to them, that value will necessarily be fundamentally different in nature from the value of traditional assets such as land and art. We’ve barely begun the process of understanding these assets and the ways in which they may possess value in the eyes of society.

As fascinating as digital assets are, there’s an aspect of the way they’re being marketed today that worries me.

Reimagining

What attracted me to blockchain was the once-in-a-century opportunity that it presents to reimagine so many aspects of our society: how we communicate and collaborate, how we relate to one another, how we form institutions and bonds of trust, etc.. In the same way, blockchain presents us with an equally rare opportunity to totally reimagine basic social concepts like art, community — and, yes, ownership. It is of course natural that we should start by attempting to import already-familiar ideas and analogues. Some of them may even stick! Decades later, we still have a “recycle bin” sitting on our “desktop”: great, useful examples of skeuomorphism. Some less useful analogues, however, should be jettisoned while we still have the chance.

Rather than attempting to recreate the world of scarcity, of “this is mine, not yours,” why blithely bring these offline constraints with us into the digital realm? The entire point of the digital world is that, free from the constraints of the physical world, digital assets need only be precisely as scarce as we want them to be! Digital assets need not be rivalrous nor exclusive: we can both enjoy a digital bowl of pea soup, and my enjoyment doesn’t detract one whit from yours.

As we collectively undergo a once-in-humanity phase shift from an offline, agricultural and industrial world, a world of scarcity and need, to a more digital, online world based on data and information, we have a unique opportunity to rethink fundamental concepts such as wealth and ownership. We have a rare opportunity to transition from a scarcity mindset into one of abundance. The next hundred years of human society will be less about which scarce assets we own and exclusively control, and more about which networks we are a part of — and, thus, which connections and information we have access to.

What sort of novel experiences could we conceive of if we relax the constraints of the offline, tangible world? It’s probably too soon to tell, since we’re still quite early in the development of virtual worlds and experiences, but the platforms that exist today do offer a glimpse. One good example is the avatar: platforms like Decentraland, Mozilla Hubs, AltspaceVR, and VRchat, not to mention Fortnite, offer users a fantastic array of ways to express themselves in the form — literally — of avatars of all shapes, sizes, colors, species, and agility. Some platforms do allow users to buy or pay to upgrade their avatar, and maybe that’s okay, but I suspect the dominant model will let the user express themselves creatively at no or very low cost.

Just an ordinary day in the crypto VR meetup scene: lower fidelity than an in-person event, perhaps, but lots more latitude for creative expression. A panel chat, part of Consensus Distributed, held in VRChat.

It’s about the experience, dummy

The point is that we should be innovating on the experience, and that means innovating on the presentation layer, not on the ownership of arbitrary blobs of cryptographic data. The average person cares a lot more about experience and self-expression than they do about some abstract notion of self-sovereign ownership. There’s a reason that well-designed, centralized games like Fortnite have hundreds of millions of active players while the most popular dapps have many orders of magnitude less.

Ownership is not, in and of itself, an experience. If you ask me it’s not something that 99% of humanity cares about or is looking for in the digital world. As one example, young people everywhere are frustrated by high levels of debt, and property that feels totally out of reach (a situation that’s quickly getting worse). I suspect they’d sooner keep living in the offline world than subscribe to a digital world that also forever relegates them to second-tier, rentier status.

There is probably some value in moving existing traditional assets, such as stocks, bonds, and derivatives, onto blockchains. And the idea of fractionalizing ownership of traditional assets such as art or real estate is genuinely interesting. Indeed, work on all of this is proceeding apace in the #DeFi space.

But let’s not seek to commoditize all the things. Once we figure out the experience, there will be ample time to figure out the economics. By leading with economics, the same old economics we’ve been stuck with for generations, we’ll never win the hearts and minds of the 99% of people who feel less than enfranchised by the current system.

My greatest fear is that, in conceiving of and building a new, digital world for humans, we manage only to recreate and indeed to exacerbate existing socioeconomic divisions that have sown strife and discord in the offline world for millennia — in other words, a Black Mirror-esque dystopia.

The types of people that have been the most active thus far in conceiving of, and building, digital worlds, and blockchains, have by and large been beneficiaries of the current system. It’s therefore unsurprising that we should have recreated aspects of the system, such as scarce assets and old-fashioned property rights, on chain.

But it’s time we recognize this opportunity for what it is — an epoch-making opportunity to rethink every human social system — and boldly envision and build a better future together. In particular let’s be careful not to enshrine ownership and property rights as primal, at the expense of intangible but essential things like experience, identity, and self-expression.

[Special thanks to James Prestwich for invaluable pre-publication input.]

1. This, of course, assumes you hold the keys and custody the bitcoin yourself, which you really should do. Not your keys, not your coins. If you don’t, holding bitcoin is really not very different from holding fiat money in an ordinary bank account. ↩
2. Whether or not the legal system of this or that jurisdiction might provide some protection if this key is stolen is a thorny question and will differ from place to place and case to case. This is what makes up the last 1%. ↩
3. This works well enough where property rights are clearly delineated, and enforced, and where one can rely on the rule of law. It doesn’t work so well where these things are not the case. Witness jurisdictions where people hold land without explicit title, or where all land is owned by the state and can be requisitioned for state purposes at any time. The concept of ownership is much fuzzier in such situations. ↩
4. One of my favorite examples of creative presentation of everyday data is the Foursquare Time Machine. ↩
5. This is an oversimplification and isn’t completely true in practice for digital assets like bitcoin — read more about crypto’s “fungibility problem.” Fungibility and privacy go hand in hand, and true fungibility is a goal of privacy-preserving platforms like Zcash. ↩
6. To be fair, in addition to these intrinsic properties, land does have a set of extrinsic properties that are the product of a social presentation layer, so to speak: things like zoning, taxation, air rights, etc.. Here, the presentation layer is the set of formal and informal laws and norms that apply to the land’s ownership, use, and disposition. ↩

“Metaverse Masterclass” is a series of reports, articles and interviews from experts around different topics in Metaverse. This is an article by Jamie Burke, CEO and Founder Outlier Ventures, originally appeared on Ourlier Ventures Blog.

We believe the next phase of growth in the evolution of DeFi will come not from better integration into the existing financial system, more regulation or real world assets and CeFi but instead by unlocking digital value already native to the Metaverse.

In our follow up to The Open Metaverse OS paper we introduce MetaFi: decentralised finance in the Metaverse.

Download the full report

Background context

The concept of decentralised finance (“DeFi”) has been steadily gaining momentum within the crypto community since 2018. Built on the principles of sovereignty of wealth, permissionless innovation and the promise of financial inclusion, the mission of various DeFi protocols and applications is to construct a digital financial system that is more open, innovative, efficient and less extractive than the one the majority of the world still relies upon today, which in contrast is referred to as CeFi or TradFi.

While DeFi has commanded a lot of attention in the crypto space, its adoption is still relatively low, estimated at under 5% of all crypto assets being put to work as collateral in it. In 2021, DeFi achieved $4.6bn in annualized monthly revenues, which is less than 5% of JPMorgan’s revenues last year. Furthermore, DeFi is still primarily limited to basic forms of borrowing and lending against stablecoins, Ether, or wrapped Bitcoin. While there is notable work being done to create bridges from centralized finance (CeFi) into DeFi — for example, to introduce real-world and income-bearing instruments as new forms of collateral — an increasingly hostile regulatory environment, low capital efficiency, and challenges around managing counterparty risk for institutions make this bridging seem a long way off.

In this paper, we propose that the majority of growth in DeFi will not be driven by CeFi. Instead, we explore how it unlocks value in the Metaverse through what we call “MetaFi”: the decentralised financial tools of the Metaverse. But what is the Metaverse exactly? What kinds of value exist within it? And more importantly, how will DeFi be combined with continued innovations in tokens and crypto-assets to enable MetaFi at scale?

In advance of reading this article, and if you are new to the Metaverse and our thinking, we recommend first reading our Open Metaverse OS thesis published earlier this year back in January 2021. You can download and read the original paper and updated primer here.

However, in summary, the Metaverse could be understood as an interface layer between the physical and virtual worlds, comprising a combination of innovations in hardware and software, but most importantly, an economic system parallel to the fiat financial system. In that context, it’s critical that we think about it in terms of financial inclusion. This anchor will be important as we unravel the concept of MetaFi.

The internet in its current state suffers from drawbacks like limited inclusion of digital assets by the banking system, dynamic terms and conditions of centralized platforms and value being siloed in platforms by design.

We view MetaFi as one of the potential solutions to these problems as it adopts the core DeFi principles of unstoppability and composability.

This paper outlines how the adoption of MetaFi will be driven by four key trends: improvement of the DAO services stack, mutualisation of risk, development of financial tooling, and gamification of finance and the financialization of everything. These trends will be most visible in the main clusters of activity of MetaFi, like virtual worlds, games, avatars, wearables, marketplaces, yield-bearing NFTs, and access tokens. We invite you to download the full paper for a complete overview of MetaFi and the possibilities it will unlock in the medium to long term future.

Some paragraphs from the report (Download the full report)

The Metaverse is Crypto

As discussed, the Metaverse is first and foremost an economic system, a meta-economy if you will, that enjoys supremacy over any one digital economy, virtual world or game which should rather be considered a singular instance of the Metaverse, or individual verse. In fact, on a long enough time horizon, as the combined GDP of this meta-economy outgrows those of nation states, so too will it enjoy supremacy over their fiat based economies. We believe, The Open Metaverse at least, is an open and permissionless version of this meta-economy, made possible through what we might in aggregate refer to as Crypto. And in the absence of an alternative meta-economy today you could, and we do, make the argument The Metaverse is Crypto and Crypto is The Metaverse.

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Status Quo of the Digital Economy

Today, there are billions of dollars of value currently trapped in proprietary web platforms such as social media (Facebook, Instagram or TikTok) or gaming (Fortnite and Roblox). What we refer to as Web2 has actively and deliberately built “moats” to trap that value and the user for as long as possible in order to extract as much “lifetime value” as possible for the benefit of shareholders. Web2 firms generally operate on the principle of shareholder supremacy over all else, even or especially, at the expense of the user. This value, in the case of social media or free-to-play games, is often primarily monetized through advertising and the profits generally not directly shared with the users themselves. Even with Roblox, where the whole premise is the ability of creators to monetise their user-generated content (UGC), the percentage they receive is only estimated to be 25%1. This extends to the music streaming model and programs on YouTube. In aggregate, it is estimated that the digital economy is currently worth US $11.5 trillion globally, equivalent to 15.5% of global GDP2. It has grown 2.5x faster than global GDP over the past 15 years, almost doubling in size (since 2000) with an increasing percentage of the population depending on the internet for their livelihood. If we zoom into a subset of the digital economy — the digital creator economy, it is currently only a fraction of the mainstream digital economy, but its core areas are growing. This includes fields like publishing, gaming (skin creation), digital art, streaming, music, film, and more. On the supply side, there are currently up to 50 million3 content creators in the space, who consist of mostly amateurs (46.7 million)4 and around 2 million professionals. Professional participants in the digital creator economy can easily earn up to $100,000 per month. However, the majority earn much less, their income is irregular, and receipt of funds as they work their way through the system can take several months after delivery. We argue that much of the digital creator economy today would not be considered part of the Metaverse, because value is not freely tradable across platforms and is primarily locked into the value of platform equity alone.

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Web 3, NFTs and the Metaverse

In contrast, in the Web3 world of crypto-currencies, DeFi and NFTs, the whole paradigm is oriented around the user and their sovereignty: their identity, data and wealth. In Web3, even data itself can be a form of digital wealth and income. This means that while there are still platforms that help with the creation, discovery or curation process, the user is in full control of the output and can freely transfer value between platforms to resell, borrow and lend against in a completely permissionless way. In short, transferability is a fundamental “property right.” Unsurprisingly, we have seen in the early successes of Web3 that when moats are removed and transferability made possible, people spend more time and money on platforms they like, such as the blockchain game Axie Infinity5. This is something we laid out in our previous paper. Long-term, the Metaverse and its platforms (including much of Web2) will adopt Web3 technology and principles, not necessarily because it’s philosophically the right thing to do, but because it’s good business.

Download the full report

Defining MetaFi

For us MetaFi is an all-encompassing term for the protocols, products and/ or services enabling the complex financial interplay between non-fungible and fungible tokens (and their derivatives). For example today, with MetaFi an individual could use a fraction of an NFT as collateral in a DeFi lending platform. To understand MetaFi, we must first highlight the two core principles of DeFi that make it possible. It is 1) unstoppable and 2) composable, acting as a form of “money lego” for developers, which in aggregate form a highly innovative parallel financial system. Developers all around the world can openly participate and compete to provide the highest yields, whilst ruthlessly removing inefficiencies. It is also important to note that regulators can only limit how the fiat-based systems they oversee interact with DeFi, but not necessarily what happens in DeFi itself — that is, as long as projects and their teams themselves are sufficiently decentralised. MetaFi brings together these DeFi principles to the wider Metaverse through a mix of non-fungible and fungible tokens combined with novel forms of community governance such as Decentralised Autonomous Organisations (DAOs). The combination of these different crypto primitives enables a fully-fledged parallel economy bringing hundreds of millions, and eventually billions of users, into the crypto ecosystem over the next decade.

Download the full report

“Metaverse Masterclass” is a series of reports, articles and interviews from experts around different topics in Metaverse. This is an article by Sandra Helou of Zilliqa, originally appeared here.

New virtual worlds are full of opportunities, writes Sandra Helou of Zilliqa. But what if real-world problems get magnified in the metaverse?

What are the risks of recreating reality in the metaverse?

In Neal Stephenson’s 1992 science fiction novel “Snow Crash,” the world was offered its very first taste of a parallel digital universe. Predating non-fungible tokens, the metaverse has been part of the literary and entertainment canon for almost 30 years now. Often depicted as a virtual escape from the limitations of reality, the metaverse is seemingly a logical next step as we look at where we’re headed as a society.

With so much of our lives already lived online — from our very own digital representations housed on social media platforms to the extent to which we rely on online marketplaces to shop for leisure or necessity — the infrastructure is already here. But as projects, startups and big firms alike hope to cash in on the metaverse trend, we must pause and ask ourselves: what are the risks in store?

Is this real life or is this just fantasy?

In South Korea, we’re now seeing the stirrings of a new phenomenon. With rising property prices, socioeconomic inequality and dismal career prospects following the devastating impact of the coronavirus pandemic, Generation MZ is hurriedly flocking to the metaverse. In the metaverse, buying and selling pockets of land suddenly becomes a very real possibility and when combined with real-world monetary value, it serves as a leveling force in a society where the odds aren’t necessarily fair.

Defined as the age group that grew up with digital connectivity since birth, Generation MZ combines both millennials and Gen Zs alike. This new segment of society has had to contend with the realities of an “untact” economy more than ever, as it pertains to a “contactless” state of affairs — befitting, considering the impact of a pandemic that has demanded social distancing.

Untact is a concept that describes “a future where people increasingly interact online and companies replace humans with machines to immunize themselves against the effects of rising wages and a rapidly aging workforce.” South Korea itself has already committed to becoming a leader in developing technologies and infrastructures for an increasingly untact world. Sure enough, its citizens are some of the world’s dominant users on metaverse platforms such as Earth 2 and Decentraland.

South Korea, as well as other markets such as the Philippines, where citizens have flocked to virtual worlds like those offered by Axie Infinity, show how persistent structural inequalities are driving people to seek out alternatives. It may not be a dystopian present just yet, but the catalyzing factors are similar. It’s a similar trend we’ve observed with digital assets, amid rising inflation, currency devaluation and economic instability — people will want to maximize their returns in the hopes of making any gains possible.

Deepening digital divides

In the same way, when it comes to accessing the metaverse, what of the inequalities that could potentially arise there? Much has been said about Facebook’s foray into the space, largely enabled by its Oculus business unit. Critics have been quick to point out that the entrance of big tech into the metaverse simply takes away from the core tenets of where the internet is already headed in terms of the rise of Web 3.0 — a more decentralized, equitable online ecosystem. With Facebook at the helm, the metaverse is likely to become but another opportunity to leverage ever-growing swaths of user data for monetization while harkening back to the same issues of surveillance and accountability in the virtual world.

Meanwhile, the growing inequalities we’ve already seen in terms of the digital divide may very well be magnified in the metaverse. Equal access to the same tools and infrastructures when engaging in immersive, continuous 3D landscapes will likely require not only a great deal of computational power but also high-speed internet access and top-of-the-line headsets. Similarly, with advertising likely being a key component of funding “closed” or corporate-backed metaverses, will inequality be determined by who can afford an ad-free version of a metaverse or whose avatar is of better quality? Do we not risk creating a new divide of haves and accessibility?

With so many aspects of life now being lived online, across education, career, and even dating, leveling these infrastructural access points to the metaverse will be critical.

A glitch in the matrix

French philosopher and sociologist Jean Baudrillard coined the term hyperreality, the state in which reality and simulation are so interwoven that we lose sight of the distinctions between the two. Baudrillard argues that eventually, the simulated world matters more than the “real” as it becomes the site from where all meaning and value is derived. Much like Generation MZ who now find that much more satisfaction can be achieved by flipping real estate in Decentraland, will there ever be a state in which we’ll only ever want to be plugged in?

Eventually, if it does become the case that the idea of the metaverse simply becomes reality in itself, what do we want it to be based on? If we look to “Snow Crash” as a cautionary tale, what we end up seeing is the rise of city-states ruled by the interests of big business — inequality ultimately prevails, and the metaverse instead serves as a virtual escape, an idealistic distraction from the ruins of reality.

We, as the collective blockchain ecosystem — whether that’s NFT projects, play-to-earn games, or virtual worlds — coupled with a growing number of programmers and UX designers around the world have the opportunity to create something really great. Empowered by an ideology of decentralization, we can develop a metaverse that is accessible, fair and beneficial to all, no matter who they are, and where they might be. Let’s not waste the opportunity, we don’t need to borrow from reality — instead, we can do more.

“Metaverse Masterclass” is a series of reports, articles and interviews from experts around different topics in Metaverse. This is an article by Noah Shin published on Venturebeat.

The year was 2021; Webster Dictionary had added a slew of Gen-Z-related words and phrases like digital nomad, NFTs, blockchain, cryptocurrency, augmented reality, and my new personal favorite dubbed by Mark Zuckerberg, the metaverse. The translation? The internet is evolving to a stage that is more immersive, intuitive, and one step closer to completely immersive virtual reality experiences. Zuckerberg may make Meta the first big tech corporation to invest $10 billion in a virtual universe, but we are beginning to see indications that other major corporations will soon follow suit.

Technology is encroaching on a new era where the different forms of technological communications merge into one seamless experience, from work meetings to social life to workouts to conference calls. In a study by Pew Research, 90% of U.S. adults say the internet has been essential for them during the coronavirus outbreak. Screen time is at a record high, so a massive shift to a more immersive online presence seems almost inevitable. Online activity has accelerated during the global pandemic when digital technology has served as a lifeline for many Americans and corporations, whether that’s seeking new job opportunities or Zoom meetings for teleworkers. Moreover, digital tools and the hiring of young technologically savvy workers are becoming points of emphasis in every sector, from finance to health care, and manufacturing.

So what does this mean? The public is witnessing an internet evolution greater than the innovations from the DotCom era or Social Media era, or perhaps even greater than the internet itself. Consumers are approaching a time of digital immersion, stamped by the approval of big tech giants and corporations everywhere. Now, most of us have begrudgingly conceded that the internet is a powerful tool and even deserves to have a monetary value attached (hello, cryptocurrency). For everyday American consumers, it is necessary to be aware of this digital immersion and how it affects our daily lives – from job opportunities to educational art and science curricula.

Technology companies look to incorporate video game elements

In his keynote presentation on Facebook company’s rebranding to Meta, CEO Mark Zuckerberg states: “If you ask people today what they thought the metaverse was…people that follow the space would say it’s about gaming, and that’s because gaming provides many of the most immersive experiences, and it is the biggest entertainment industry by far.”

The gaming industry certainly dominates the entertainment industry. On January 17, 2019, tech-streaming giant Netflix company announced its biggest consumer company rival in a letter to shareholders, “We earn consumer screen time, both mobile and television, away from a very broad set of competitors…We compete with (and lose to) Fortnite more than HBO…There are thousands of competitors in this highly-fragmented market vying to entertain consumers.” Since June 2020, Fortnite has surpassed over 350 million registered users, and gamers logged 3.2 billion hours in the game in April 2020 alone. Assuming people live until they’re 79, that is the equivalent of 4,624 human lifetimes.

Online video games, console games, and mobile games have billions of downloads and continue to emerge as one of the most prevalent media forms in our society. Most console and role-playing games (RPG) already incorporate versions of their metaverse into their gaming structure. Game companies like Roblox, Epic Games’ Fortnite, and Grand Theft Auto already have metaverse-like platforms which depend on their communities for their business model. In-game purchases of character skins and other game assets are the majority slice of a game company’s ad revenue, especially free-to-play games. Open world games continue to stand at the forefront because it opens a virtual reality space where users can interact with the computer-generated environment and the ecosystem of users.

Online communication fosters positive interaction. Online games are highly social, and communication among friends and online players promotes teamwork and delegation for different game roles to succeed. Gamers are not in the monolithic category; there is no rigid or fixed type of uniformity when discussing role-playing games. That psychology of online communication among users is what tech companies are looking to imitate. Another instance of this gaming integration includes child and toy elements into gaming frameworks. By integrating child-like effects into their technology like friendly-looking avatars, cartoon guns, and harmless games, these factor into a fun, interactive experience – something game developers understand and what tech companies look to enact into their metaverse structures.

Fortnite numbers are statistics any company would salivate for, and we are beginning to see these corporations follow suit. Google, Microsoft, Apple, and hundreds of startups continue testing virtual and augmented reality products, from glasses to deals with game companies. Large tech corporations are investing in-game platforms in hopes of a more lucrative business model. Nike has quietly filed trademarks in preparations of selling virtual apparel, which apparel consumers can don via their virtual avatars. The Los Angeles Staples Center was given $700 million to change its name to Crypto.com Arena by the Singapore-based cryptocurrency exchange app. Adidas partners with NFT gorillas Bored Ape Yacht Club and other NFT communities, and the Seoul Metropolitan Government (SMG) has publicly announced its work into their version of a virtual communication ecosystem with economic, cultural, tourism, and civic services, provisionally dubbed Metaverse Seoul.

Digital assets will skyrocket in value

The point is: Virtual communities make these companies successful, and if big corporations and governments are working to create virtual realms, it’s more than likely that Facebook’s metaverse will thrive and remain sustainable, so long as they continue to be community-centric. As tech frontiers shift their focus to building virtual worlds, further attention turns to its byproducts. This includes the entire spectrum of digital assets. I have a personal bias towards the role between game companies and implementing photo capture modes within their console systems or art developed to what is now known as virtual photography. As video games evolve to hyper-realistic models, the lure to capture the game world’s beauty and emotion follow a newly implemented innovation that might interest audiences outside the gaming genre.

Virtual photography shows its value by presenting a form of memorabilia while showing still imagery can exist in a new, exciting digital medium. Console games with photo-op modes offer new innovative compositional tools, options to incorporate aspects like painting and illustration, graphic design, and other artistic tools. There is a practical use here that can aid workflow and design processes while offering engaging, interactive material.

Within current gaming audiences, where teen and gen-z consumers are the primary markets, game developers tend to focus on an important aspect: fun and entertainment so users can spend as much time within the virtual world. Role-playing games seek to extend the gamers’ experiences past the general story mode.

Redefining digital art

Virtual photography is just one of the many examples of branding the new modern digital artist, and it changes the perception of branding digital artwork. Type “media jobs” on the LinkedIn job board, and you’ll see a million different titles. Digital communications manager, social media strategist, graphic design manager, NFT creatives, multimedia specialists, et cetera.

Technological intuitiveness and a certain amount of media fluidity are becoming necessary to navigate the world of industry professionals. I can recall a time I was teaching a summer tech camp in Palo Alto, California, where students were given curricula in the forms of vlogging, 3D building, audio engineering, and design. Maybe the most surprising classes were the video game-oriented classes, where teachers taught students the fundamentals of Roblox, an online video game platform and game creation system. Most importantly, the camp taught students the fundamentals of building, coding, and design, all through playing a video game. While this is a relatively new trend, educational institutions are seemingly embracing the educational aspects of gaming.

The tech metaverses will prove valuable for its educational purposes. Virtual realms can aid in institutions teaching logic and problem solving than many school curriculums. Puzzle games, select real-time strategy games, and select simulation games fall into this educational category. Games with gameplay elements that require users to utilize creativity are called Sandbox Games. Minecraft (2011) and The Sims franchise are building task games with no true end objective. Educational platforms seek new ways to integrate the arts with the sciences, and gaming turns out to be one of the most innovative aspects of progressive curricula.

It’s no surprise that digital immersion is expanding at an exponential rate, and many video game corporations have used similar business models for years. These games generate a mass ecosystem of game users by following most entertainment structures. The most successful games create open-world gaming environments with interactive possibilities while maintaining a compelling narrative with goals and objectives and minimal constraints. If tech companies like Facebook look to follow suit, maintaining an integral, loyal community must remain at the forefront of their mission.