The metaverse and the importance of the virtual economy
In October 2021, the US tech company, Facebook, changed its name to Meta. At the same time, it announced that it wanted to expand the metaverse into the most important future business segment. Even though the idea of a metaverse was no longer new at the time, Facebook seemed to be outlining its vision for the internet of the future. But what exactly is the metaverse and what is the potential of this technology?
Transformation of the internet
In order to understand the metaverse, you need to take a look at the history of the internet. While Web 1.0 was still a collection of websites connected to each other through simple links, Web 2.0 features an expansion of social networks and forced interactions between billions of users. The original promise of an open internet in which all users had equal access was gradually eroded by the ubiquitous presence of the big tech companies.
And now it’s the turn of Web 3.0. Web 3.0 is a reaction to the centralising effect of Web 2.0 by individual corporations and, as a result, sets its sights on a decentralised network: The aim is for people to (re)gain sovereignty over their data and digital goods, and have a say in the design of the internet.
The metaverse in Web 3.0
So, what is the metaverse now? While a decentralised Web 3.0 is – in simple terms – a vision of the internet of the future, the metaverse builds on the architecture of Web 3.0 and stands for the vision of an immersive internet which seamlessly integrates into our daily lives. According to Suresh Balaji, Chief Marketing Officer Asia-Pacific at HSBC, the metaverse is “how people will experience Web3, the next generation of the internet — using immersive technologies like augmented reality, virtual reality and extended reality”.
The metaverse is a digital 3D world in which real people move around and interact digitally. You can enter the metaverse via a metaverse platform, which is nothing more than a website or an app. Since the metaverse represents both a virtual (e.g. visual 3D environment) and a social environment, the user must ‘represent’ themselves to other users; this is done by creating a metaverse avatar. To make it more realistic and increase the visual depth of the metaverse, you can use technical devices like, for example, a virtual reality headset.
Metaverse platforms include Decentraland and The Sandbox, which not only give users access to a virtual world, but also allow them to buy, for example, a virtual plot of land as a unique digital identifier that cannot be copied, known as an NFT (non-fungible token). They are paid for with the cryptoassets of the relevant provider: MANA (Decentraland) and Sand (The Sandbox). NFTs and cryptoassets are used in two ways, firstly to denote digital ownership and, secondly, as a form of money in the metaverse.
Potential areas of application
There are plenty of opportunities in the metaverse for businesses from a variety of sectors, not just the gaming industry. An example from the entertainment sector: All kinds of events can be hosted in the metaverse – concerts, museums, fashion shows, film premieres, sporting events, theme parks and much more. The virtual environment could help complement these different events by seamlessly integrating an NFT marketplace.
The metaverse could also change the way we work day-to-day and move social interactions into the virtual space. Virtual conversations in the metaverse differ from those we have in 2D online meetings because of the realistic ways you can interact with other participants. You can move around and interact with others as if you were actually at a real live event together. For example, one European banking association is already planning to set up its own small version of the metaverse to act as a networking platform and create a space for meetings and events. Facebook’s Horizon Workrooms and Microsoft’s Mesh for Microsoft Teams already allow you to organise virtual events in the metaverse. Although both companies offer platforms for mainly business users, Microsoft has entered into a partnership to make its metaverse solution compatible with Meta’s VR headsets. Microsoft’s 365 tools will be accessible on these devices.
An example from e-commerce: According to a white paper from Deutsche Bank, the metaverse has the potential to spark the next revolution in e-commerce due to its visual and immersive experience. Since the e-commerce experience in the metaverse allows products to be extremely personalised, not only can users customise the colours and imprints on a product, they can even design it themselves. And this is why businesses that use omnichannel sales strategies for their products and services could benefit most from the 3D world of the metaverse.
The metaverse is also very interesting for the manufacturing industry: The manufacturing industry is already exploring the opportunities of what they are calling digital twin technology. It refers to the virtual representation, for example, of a manufacturing plant which you can then control or conduct simulations for via the metaverse. This will save manufacturers money, time and resources. The first projects are already being implemented: For instance, Boeing is researching digital twin technology to build and maintain aeroplanes. Siemens Energy has developed a digital twin to provide predictive maintenance for power plants. Ericsson is building digital twins of cities to examine the interplay between 5G cells and the environment for maximum performance and coverage.
There are also examples of applications in the medical environment. Surgical procedures via telemedicine can be implemented with extreme precision across considerable distances using metaverse applications. For example, in the treatment of claustrophobia, sufferers and therapists can train specific situations created in the metaverse.
On top of which, the hype surrounding the metaverse has also led to a boom in virtual goods, particularly in real estate. Virtual plots of land are already being bought and sold on platforms, such as the Sandbox, Axie, Infinity and Decentraland.
Market potential of the metaverse
But how much economic potential is there really in the metaverse? The size of the market depends very much on the definition of what the metaverse is supposed to be. Due to the lack of a uniform and generally applicable definition, there have been a plethora of individual interpretations.
According to Bloomberg, the metaverse could achieve a market volume of around 800 billion US dollars in 2024 with the market share for entertainment, games software and services, and advertising being particularly high. According to one report from Brandessence Market Research, the market volume of the global metaverse market for 2021 was estimated at 209.77 billion dollars. By 2027, it could reach a market volume of 716.5 billion dollars, which corresponds to an average annual growth rate of 22.7%. Gartner, one of the world’s most respected companies for market analyses, has not published any growth figures, but predicts that the metaverse will need at least another ten years before it has a major impact on the economy and on society.
However, scepticism about the future prospects of the metaverse has grown considerably in recent months. There are many reasons for this. Some experts believe investors are sceptical because the technology is not yet fully developed and because the required hardware is frequently unavailable. For example, it was unclear for a long time whether Meta’s virtual reality headsets could be sold in Germany due to a number of legal question marks. Others believed that the cryptocurrency crisis and unrealistic expectations of digital “miracle tech” sent a minor shockwave through large parts of the tech sector this year, which also affected the metaverse.
In June 2022, the Metaverse Standards Forum was founded to accelerate its development and introduction. The forum promotes cooperation between standardisation organisations and businesses. In the two months after it was set up in June 2022, around 1500 businesses and organisation were involved in developing standards.
What does the metaverse mean for the financial industry? Why are so many banks already buying up land in the metaverse? Can financial institutions also operate in the metaverse? We answer these questions and take a look at banking in the metaverse in part two of this article.
