Issue #34: Metaverse

In April, my friend Patrick and I were having a conversation about Decentraland - a virtual world launched in 2019 that exists in part on the Ethereum blockchain. He had purchased a few virtual buildings (each an NFT) but needed plots of land to place them.

Years earlier, I had purchased 10 parcels (also NFTs) from another friend. I wasn’t doing anything with them, so I agreed to let him place one of his buildings on a 2 parcel x 2 parcel plot.

This particular building was a PvP arena, short for “player versus player”. Two people can enter the arena and battle with different characters and weapons, Mortal Kombat-style. Since players need to pay a small amount in ETH to use the arena, we agreed to split any revenue 50/50.

He found a designer to customize the building, advertising the games we supported. When the arena was done, it was deployed to my plot of land. I give him all the credit. He had the vision, all I did was give permission by signing a transaction with my wallet’s private key.

Let’s break this arrangement down in real estate terms:

  1. A real estate developer (my friend) develops a plan for a new business (the arena)

  2. He negotiates with the landowner (me) for the rights to build on the land

  3. He hires an architect to design the arena

  4. He builds the arena on the land

  5. He operates the arena and splits revenue with the landowner

Sounds like any other commercial real estate development deal. The only difference is this was virtual - a virtual arena, on virtual land, visited by virtual people.

Welcome to the Metaverse!

Here’s a look at the finished product, which was featured on an episode of The Block Runner podcast in June (timestamp 37:30 if you’re interested).

A few weeks ago I wrote about the Metaverse being one of the technology trends that is converging with blockchains to produce net new innovation. Today, we’re going to dive a little deeper.

Let’s zoom in…

The Metaverse

There are different definitions of the Metaverse, but the one I like is “the virtual equivalent of our physical world”. This implies expansive, interconnected virtual space where people can interact the way they do in real life - building, buying, selling, owning, socializing, entertaining, working, learning, etc. 

Ancestors of the Metaverse were games like the Sims and Second Life, which allowed people to live, work, buy and sell things and own property. The difference being these were closed loop systems, completely controlled by the game creators. More modern versions like Decentraland are open loop, sitting on top of public blockchains and featuring real economies extending beyond the borders of the virtual world.

Depending on your generation, this either sounds like a complete waste of time and resources, or a global sandbox with infinite possibilities. Whichever side you fall on, the Metaverse is the inevitable future.

How we got here is simple. In a truly global society where everyone is connected and communicating, digital interactions are more efficient. Over time, the quality of our digital interactions improve. The better they get, the more real they feel. The Metaverse is simply the next step in our society’s quest to build a better digital experience.

For the first 30 years of the commercial Internet, digital interactions have been built around a user experience akin to reading a newspaper. Think about it. Everything is formatted to fit on a page. The screens on our computers and phones are just digital pages that update when we visit a new website or open a document.

The analogy here is looking out the window and seeing kids playing in front yard (a page-based experience) vs. being out in the front yard playing (an immersive experience).

Why the Metaverse needs Blockchains?

Imagine a virtual world identical to ours, accessible via the Internet. What’s missing?

Physics.

Our physical world is constrained by physics. The law of conservation of mass, for example, dictates that matter cannot be created or destroyed. Absent a meteor hitting us, the matter that exists on Earth today is the matter that will always exist on Earth. This simple fact impacts the structure of our economies. Supply and demand working together to arrive at a market price for something exists because supply is finite. If everything was abundant, everything would be free. Therefore…

Physics = physical scarcity = supply & demand based economies.

Physics don’t apply in a virtual world. We can create more matter - more land, resources, etc. The problem with an abundance of everything is you can’t create an economy around it. Video games have tackled this problem by imposing artificial scarcity (their own law of conservation of mass), creating a fixed supply of something to establish demand and a market price. Therefore…

Centralized control = artificial digital scarcity = virtual supply & demand based economies.

Remember, blockchains do two things uniquely well - they maintain the total supply of something, and keep track of who owns what at a particular time. Put differently, they preserve scarcity relative to supply and ownership. For this reason, I’ve described them as the “accounting systems for the Internet”. Therefore…

Blockchains = actual digital scarcity = virtual supply & demand based economies

To summarize, blockchains do for the Internet what centralized administrators do for video games what physics does for our physical world. They enable scarcity, which enables supply and demand, which enables an economy.

Here’s a way to visualize the relationship between the Internet, blockchains, DeFi and the Metaverse. Eventually, they all converge to form the tech stack for the virtual world.

Parting Thoughts

Today’s Metaverse is largely filled with toys. Our virtual pvp arena, avatar NFTs, casino games, digital art.

Bitcoin started the same way 12 years ago. Just some digital asset a small group of people were mining and transferring around because they thought it was cool.

It took a decade, but that toy eventually became a legitimate financial asset held by some of the largest financial institutions on the planet.

Just like Bitcoin, the Metaverse and NFTs will be less of a toy every year.

This is where the next generation of billionaires and billion-dollar companies (or DAOs) will be.

Jump in…

Thanks for reading,

Andy

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