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- The Metaverse is a shared vision among technology entrepreneurs of a three–dimensional virtual world that overcomes spatial, temporal, and resource–related constraints imposed by nature.
- The technological infrastructure of the Metaverse, i.e. Web3, consists of blockchain technology, smart contracts, and Non–Fungible Tokens (NFTs), which reduce transaction and agency costs, and enable trustless social and economic interactions.
- The Metaverse may give rise to new products and services, new job profiles, and new business models.
- The market capitalization of incumbent (Web 2.0) firms working on Metaverse technologies is $14.8 trillion, while the estimated value of (Web 3.0) Metaverse entrepreneurs is only $0.03 trillion.
- Metaverse entrepreneurship is on the rise, with an explosive growth in decentralized applications (dApps) specifically designed for the Metaverse.
- The Metaverse has several advantages, including expanding the living and working space, extending human intelligence to knowledge robots, and enabling human “superproductivity” via multiple avatars.
- There are also several challenges that need to be overcome, such as data privacy, moral and ethics, health–related concerns, and the adoption of decentralization logics.
What is the Metaverse?
- The Metaverse is a shared vision among technology entrepreneurs of a three–dimensional virtual world, an embodied internet with humans and the physical world in it.
- The Metaverse is a persistent virtual system with real–time information processing capabilities that makes available the current state of knowledge to all users at the same time at all times.
- The Metaverse is a decentralized platform that features a high degree of interoperability to enable the mobility of digital identities, experiences, and possessions across the Metaverse from one place, event, or activity to another.
- The Metaverse overcomes limitations of Web 2.0–based virtual realities by enhancing users’ self–perception and presence, increasing human interactivity, and improving realistic expressions of human qualities, such as emotions.
NFTs the enablers of the Metaverse
- NFTs are the enablers of the Metaverse because they are based on technical standards for interoperability.
- NFTs have between–application utility.
- NFTs can be expected to spur economic activity in and the development of the Metaverse.
- The elasticity of the supply consensus is an important determinant of NFTs’ value.
- The degree of NFTs’ compatibility with third–party applications creates value.
- Similarly to the second pillar, between–application utility enables continuous social identities that transcend across Metaverse applications.
- Metaverse developers can extract some of this value, for instance, by selling minted NFTs, charging commission fees for facilitating NFT trade, or entrance fees for new developers to join existing Metaverse projects.
- The virtual NFT–based world is fundamentally capitalistic.
- In contrast to the government’s monopoly of setting the rules of the game in the physical world, the Metaverse allocates governance rights in a decentralized way to applications’ communities.
The Metaverse Economy
- The Metaverse is demand–driven in the sense of Keynes (1937) because digital objects can be created largely without any constraints thanks to the infinity of digital resources.
- A survey by Newzoo (2021) reports that more than one–third often or occasionally join game worlds for social rather than gaming purposes.
- When asked about activities that respondents would be interested or very interested to shift to the Metaverse, more than two–thirds reported routine social activities.
- The Metaverse will also produce new business models and job profiles, such as smart contract lawyers and digital fashion designers.
- The Metaverse could also have a positive impact on social inclusion, for example by virtual identities not being bound to their physical identities‘ disabilities.
- The Metaverse may also reconcile economic growth with environmental sustainability, for example by activities that are environmentally unsustainable in the physical world being sustainable in the virtual world.
- The Metaverse could also serve as a bootstrap mechanism to improve human and model–based decision–making.
- The Metaverse will be built by either startups or incumbents.
- The public Metaverse is a decentralized, open and interoperable virtual world, while the private Metaverse is a centralized future controlled by big corporates.
- The Metaverse may improve the efficiency of social and economic interactions by reducing transactions costs and increasing productive time.
- However, the Metaverse will also feature granular markets with high market participation and completion, which will lead to search frictions and resource misallocations.
- The path to equilibrium in the Metaverse economy may feature resource misallocations, e.g., in the form of bespoke footware for avatars long before they can be “worn“.
- An interesting study finds that virtual land plots in the Metaverse auctioned by Decantraland have various premia attached to them, depending on their virtual proximity to important virtual landmarks or memorable addresses.
- Related work finds that the pricing of NFTs, as enablers of the Metaverse, are relatively inefficient.
- The inefficiency of the market for Metaverse assets may reflect a deeper issue, at least during the early–adoption phase of the Metaverse: The pricing of digital goods in the Metaverse is difficult.