In late November, someone traded $650,000 for a yacht. The massive boat came equipped with a DJ booth, hot tub, dance floor and two helipads. The buyer paid with Ethereum cryptocurrency - though that’s not the most remarkable element of this story.
Rather, the yacht is a part of a line of luxury non-fungible tokens (NFTs) developed for The Sandbox platform by Republic Realm. Called “The Fantasy Collection,” the key word is, indeed, fantasy. The pixelated party pad exists in “the metaverse.”
Since the sale of this bit of 1s and 0s code, headlines have continued popping up spotlighting all manner of crazy metaverse/NFT/crypto-related transactions leaving people asking: “What the F is the Metaverse?” So, let’s try to answer it.
The M-word was coined in 1992 by writer Neal Stephenson. His third novel, Snow Crash, described a completely digital world in which the book’s characters interact via avatars and invest in digital real estate. Stephenson called this virtual environment “the Metaverse.”
Fast forward to 2021 and the term shot to mainstream use when Facebook renamed its company Meta and declared its intention to build out this next evolution of the internet.
For those who are new to the concept, which is to say most people, the metaverse sounds like an exciting future blending of the physical and digital worlds or a complicated, fragmented, speculative video game.
While there’s no hard, agreed upon definition of the metaverse - it’s many things, a vision of the future, and yet nothing - this series is a primer on its key components and predictions on what might come next.
First, there is no “metaverse,” despite the word’s singular insinuation. Wired staff writer Eric Ravenscraft, a journalist worth reading for his healthy skepticism, suggests replacing the word metaverse with cyberspace, and “nine times out of 10,” he said during a phone interview, “the meaning won’t change.”
Turning to Google for additional perspective, the search for the definition of the metaverse yielded dozens of articles. In aggregate, the working vision for a metaverse is that it’s the next evolution of the internet, a once-in-a-generation change, that will feature a platform accessed with virtual reality hardware, powered by blockchain technology, where people from around the world can hang out, play games, attend concerts, and spend money. Many of these articles mention the impending next iteration of the internet, Web3. However, it’s not an interchangeable idea; rather, Web3 is a metaverse building block.
In a New York Times Opinion piece called, “Who’s Behind Web3,” Kara Swisher writes, “think of it as the next phase of the internet following Web1 (broadly, websites and browsers), and Web2 (encompassing apps, social media and mobile) that’s meant to be a more decentralized internet run on blockchain, the technology that underpins things like cryptocurrency and NFTs… that are all the rage.”
Forbes contributor and “godmother of the metaverse” Cathy Hackl frames Web1 as connecting information, Web2 as connecting people through social media and the sharing economy, and Web3 as connecting people, places, and things or “people, spaces and assets.”
Why do we need a new internet? When’s the last time a search on, yes, Google, yielded a small business at the top of the results list? Shopping for art, furniture, clothing - most users are directed to the biggest advertisers starting with Amazon, Walmart, and Wayfair.
Web3 is supposed to return power to the people, or individual creators, and divest it from huge corporations like the aforementioned. Of course, large corporations won’t relinquish their stranglehold on internet commerce so easily. Hence, the Facebook to Meta play, accompanied by a $50 million investment in creating the Facebook Metaverse via its virtual reality platform, Horizon World.
If visions of a metaverse manifest, there could be trillions of dollars of opportunity for a multitude of players, from retail investors, gamers, digital collectors, and developers, as well as individual creators, engineers, AI firms, chip manufacturers and AR/VR hardware developers.
Inside the Metaverse
The metaverse isn’t one thing; rather, it’s a complex vision of a future composed of several merging pieces all in different stages of evolution. There is the underlying technology called blockchain; virtual world cryptocurrency economies; non-fungible tokens (NFTs) representing digital assets purchased in these worlds; various platforms providing gateways to these worlds; the burgeoning economy of land sales within them; and finally, the virtual and augmented reality hardware that will define how people interact with one another in the metaverse. Sound like a lot? Let’s break these pieces down.
Blockchain
In its simplest definition, blockchain is an immutable permanent digital ledger of transactions. When a transaction occurs, a record of it is added to every participant’s ledger, or block in the chain, across a network of computer systems. This decentralized form of recordkeeping makes it difficult for individual parties to manipulate records (hide, edit, or delete), whether it’s the sale of an NFT mega-yacht or the purchase of cryptocurrency like Bitcoin or Ether.
Decentralized networks that record cryptocurrency transactions are open-source projects, which means its code is publicly accessible and there is no single controlling group, whether the government, a corporation, or a bank. This means anybody can build products, services, and apps on an open source blockchain like Ethereum. This, in turn, theoretically expands opportunities for growth.
Web3 is based on blockchain-enabled decentralized applications. Public blockchains share transactional history for all the world to see. Of course, you’ll need a crypto wallet to conduct transactions on the blockchain. We’ll get to that later.
Cryptocurrency
By now, everyone and their grandmother has heard of Bitcoin or Ethereum. Maybe grandma even purchased one Ether (ETH) token for her 1-year-old grandkid and transferred it to a crypto wallet like MetaMask or took the funds offline into a cold wallet that looks like a thumb drive, as an investment gift for the child’s 16th birthday. Okay, maybe not, but crypto has gone mainstream enough for every news site to run 24-hour clickbait headlines spooking readers about its volatility and impracticability.
Cryptocurrency, as defined by Investopedia, is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Cryptocurrency has no intrinsic value like gold or the paper a dollar bill is printed on; it relies on trust which is baked into the system of cryptographic proof rather than government backing. Trust is created by the immutability of transactions recorded on the blockchain. The system functions without a centralized intermediary like a bank.
Crypto can be bought with fiat money on a trading platform or app like Coinbase, Gemini, or Kraken. These sites sell all manner of speculative tokens, including the ones used as currency in the virtual worlds. Sandbox issues its own token called SAND, and Decentraland uses MANA. Players can use SAND and MANA to buy virtual plots of land or collectible NFTs in these worlds.
As opposed to the coins accumulated in fantasy games, think XP in Fortnite, these coins can be exchanged for fiat currency on crypto exchange platforms. Hence, the monetization component of the metaverse.
Non-Fungible Tokens (NFTs)
Investopedia defines NFTs as cryptographic assets on a blockchain with unique identification codes and metadata that distinguish them from each other.
Uh-huh. What does that mean in practical terms to the average person? Let’s go back to a clear spring day in March when a headline changed the world.
“Beeple sold an NFT for $69 million,” wrote Jacob Kastrenakes for The Verge on March 11, 2021.
What or who is a Beeple? Apparently, some people knew and were willing to shell out life-changing money on a collage of digital photos. Since then, everyone knows someone who has become an NFT “artist” “dropping” their work on virtual gallery platforms like OpenSea and the more exclusive Nifty Gateway.
Everyone wants in, especially the luxury sector. Maserati dropped its fine art NFT series on platform SuperRare. Right behind it: Porsche and Lamborghini. Wine and Spirits NFTs from brands like Hennessy, Penfolds, and Patrón have been dropping their rare bottle NFTs on BlockBar. Many of these drops are advertised on metaverse platforms. The land you buy in the metaverse is technically an NFT, as are the wearables for your avatars.
Virtual Worlds
The metaverse, or cyberspace, to defer to Ravenscraft’s preferred verbiage, isn’t one place. These worlds, or multiple platforms developed by different groups and companies, don’t link to one another with a virtual bridge or tunnel, which means you can’t get behind your NFT Porsche in Decentraland and drive over to Cryptovoxels.
Yet these decentralized virtual worlds are a large part of the vision for the metaverse. They are real-time, “shared, 3D virtual spaces linked into a perceived virtual universe that provides for user-controlled avatars representing human beings or software agents,” writes Beatrice Mastropietro for Coinspeaker in an article titled, “What is Metaverse?”
Platforms include Sandbox, Facebook’s Horizon Worlds, and Decentraland.
To dive a bit deeper into one of these places, let’s look at Decentraland. It’s technically software running on the Ethereum blockchain that opened to the public in 2020. Decentraland is governed by its users through a decentralized autonomous organization (DAO). For the full experience, the browser-based site requires users to connect a MetaMask wallet so they can participate in the economy, AKA, spend money on virtual land or NFTs. Far more interesting, hyper-real video games already exist, however if one accepts that these visually simple worlds are in their infancy, then you can imagine potential uses.
For example, in October 2021, Decentraland hosted the Metaverse Festival with 80 artists performing including Deadmau5, RAC, 3LAU, and Paris Hilton. Sotheby’s opened its first virtual gallery in Decentraland’s Voltaire Art District. If you decide to “create” to monetize, you can build on your land, make and sell NFT artworks, or design fashion collections to sell to other players as wearables for their avatars. (Yes, that sounds as superficial as it is.)
For now, these virtual worlds can be accessed through a computer or smartphone, but eventually, as major players are betting, it will be experienced through AR and VR headsets.
Real Estate
Headlines running in the NY Times touting the great land rush in the metaverse have spurred feelings of FOMO. For anyone who dismissed Bitcoin ten years ago, getting in early by buying land in Sandbox seems tempting.
Yet, prices are wildly expensive. A recent inquiry to the metaverse group yielded the following response:
Thanks for reaching out to the Metaverse Group and GDA Capital. I received your inquiry to Metaverse Group about an investment towards virtual land in the Metaverse and wanted to touch base with you to provide some details and context. Virtual land as of today costs a minimum of:
$12,600 USD - 1 parcel in Decentraland
$14,400 USD - 1 parcel in The Sandbox
The email went on to say that investors with “a larger appetite ($50,000 or more)” would have access to a suite of advisory services including virtual real estate tours, access to unlisted properties, and advice on developing and renting the plot.
All this begs the question: are you getting in early, or are you buying an over-hyped speculative virtual asset in a world that may or may not exist in a decade?
Some companies firmly believe (or publicly posture anyway) the former. Last November, a Toronto-based investment firm called Tokens.com purchased a digital plot for nearly $2.5 million in cryptocurrency, the biggest of its kind at the time on record, as reported by CNET Money. The firm also bought a 50% stake in virtual NFT-based real estate company Metaverse Group. Plans include developing a virtual fashion district, similar to Fifth Avenue or Rodeo Drive. Soon after, metaverse real estate company Republic Realm paid $4.3 million for land in Sandbox.
During our call, Ravenscraft outlined a few problems with buying land, one being that a speculative token is attached to the sale. “Fifteen-thousand for a remote plot in a game nobody is playing is wildly overpriced unless the goal is to sell the tokens,” he says. And while many of these platforms are suggesting they’ll become centers of social life and commerce, Ravenscraft argues, “nobody knows if these worlds will be bustling vibrant ecosystems or if they’ll be dead.”
Who is the Metaverse For?
The most confusing aspect of the metaverse, for now, is how anyone who isn’t a gamer, creator, speculator, collector, or land investor, will participate.
Older Americans, even younger ones caught up in the real-world game of paying bills, raising kids, and squeezing in gym time, don’t necessarily devote hours to researching and exploring virtual worlds. They don’t have the time to make NFTs in hopes they’ll hit the jackpot. The pitch is that the rest of the world will show up to hang out, whether with busy friends who can’t leave the house due to a new baby or with loved ones living in another state.
“We assume that any new tech is a paradigm shift,” says Ravenscraft. “But when gaming consoles were invented, not everyone adopted them,” he points out.
Another concern is how aging Americans with diminishing eyesight and movement will accept virtual or augmented reality hardware that leans on these capabilities.
“Focusing on what older people will want is instructive. VR and AR are built around seeing and moving which may exclude people who can’t do these things. There’s a lot of ableism in this discussion,” he says.
Even if the metaverse goes mainstream, limitations will remain. You can join your parents at a virtual wine bar in the Sandbox for happy hour, but you better mail them the bottle of wine first. No digital glass of Pinot Noir can replace the real thing.