Over the past two weeks, our series on NFTs have tackled their impact on gaming and the art world. This week, we look at how these significant transformations are preparing the ground for a more fundamental shift, as NFTs help to build the metaverse economy of the future.
In late October 2021, Facebook announced it would be changing its name to Meta. Mark Zuckerberg ambled awkwardly around an uncannily realistic digital home in an accompanying keynote and explained the decision. He stated that his newly renamed company was committed to building the “embodied internet” known as the metaverse.
Of course, this was far from the first anyone had heard of this term. First coined by sci-fi author Neal Stephenson in 1992, it has been widely used in recent years to describe persistent, collaborative, and interoperable virtual spaces. These spaces are increasingly viewed as the next evolutionary step from the past decade’s socially driven and content-based mobile web.
This bold declaration of intent from one of the largest companies in the world marks an inflexion point. Facebook’s rebrand was accompanied by a commitment to spend tens of billions a year developing metaverse tech, including AR and VR hardware. As a result, what was once a nebulous image of a more-or-less distant future has now become big tech’s guiding focus. With the financial and technological firepower these companies have at their disposal, it seems unwise to bet against them.
But if 2021 was the year that the metaverse finally entered the public lexicon, it didn’t happen in isolation. The focus on the metaverse in Q4-2021 was in some ways a consequence of another transformative tech trend – NFTs. And trying to understand one without the other will leave us with only a partial picture of what the metaverse might mean for our online lives.
In this post, we’ll discuss how NFTs form the backbone of the metaverse by providing the cultural, social, and technological basis for a fully-fledged digital economy. Finally, we’ll look at how the use of NFTs in gaming and the art world – discussed in detail over the last two weeks – offers us a glimpse into how the metaverse might work.
But we’ll also stress that much is at stake over how the metaverse is built – and who builds it. Zuckerberg’s plans for the metaverse may result in an expansion and intensification of the problems that have beset the Web 2.0 era. A decentralised metaverse is not inevitable. Instead, it will require a concerted effort to innovate and build the necessary technologies, networks, and platforms.
MMOs as precursors to the metaverse
While there are ongoing debates over how the metaverse should be defined, Meta’s own definition is hardly ground-breaking: “The ‘metaverse’ is a set of virtual spaces where you can create and explore with other people who aren’t in the same physical space as you.”
By this definition, the metaverse has existed for a long time, and you need to look no further than the gaming world to see it flourishing. While the most obvious and oft-cited examples from recent years include Fortnite and Roblox, the core features of social interconnectedness and virtual collaboration stretch further back. For example, massively multiplayer online games (MMOs) have long featured persistent virtual worlds that supported social interaction alongside the more familiar gaming priorities of fighting enemies and gathering loot.
As the necessary hardware and software developed, so too did the size and complexity of these worlds. By the mid-2000s, games like Eve Online and World of Warcraft sported functional in-game economies that allowed for the buying, selling, and transporting in-game goods, with prices that fluctuated according to supply-and-demand principles.
Nevertheless, these remained games in the narrow sense. Though they offered a certain level of social interaction (the formation of guilds, for instance), the game mechanics were familiar iterations on long-standing formulae. For two key reasons, such games fall short of constituting the metaverse in the complete sense. Firstly, they are not sufficiently open-ended. They support only a narrow, task-focused set of interactions, with any social engagement ultimately geared to those ends. Secondly, and perhaps even more importantly, they are not interoperable. Your character, and all the items and goods they accumulate, stay within the confines of the isolated game world. The game’s economy only interacts with the ”real world” economy in narrow, deliberately limited ways.
The former issue has gradually been tackled by the increasing incorporation of varied social experiences into gaming worlds – to the degree that classifying them as games becomes somewhat misleading. Though it originated as a multiplayer battle royale game, by 2019, Fortnite was increasingly functioning as something closer to a social media platform for teens. The game’s “creative mode”, launched in late 2018, allowed players to meet up with their friends on a private island and build structures, fly around, or just hang out and talk – and Gen Z embraced these possibilities with open arms.
But this was just the first step. Following in the pioneering footsteps of “virtual worlds” such as Second Life, which famously featured theatrical performances, art exhibitions, and live music, Fortnite began to host large-scale events that drew tens of millions of concurrent users. In April 2020, the rapper Travis Scott performed a concert as part of a live event within the game world. In August 2021, Ariana Grande went one better by presenting a full musical tour across separate dates. In both cases, players could interact with a transforming game environment while listening to the songs – and of course, complete quests to unlock themed items or skins for their characters.
And indeed, it’s this final point that indicates the importance of Fortnite to the emerging metaverse, as well as its significant limitations. Fortnite took the concept of personalised player characters with items and skins that can be bought using real-world currency and pushed it further than ever before. As of 2022, there are over 1000 different skins players can choose from for their in-game character, alongside cosmetic upgrades for the game’s various tools and weapons. Many of these cosmetics are drawn from other games, films, or TV shows. You can play as John Wick, Batman, or Boba Fett; you can use gliders based on The Matrix films or wield Thor’s hammer to harvest resources.
This idea of endlessly customisable avatars utilising a wide variety of cosmetic items is core to most visions of the metaverse. However, Fortnite’s implementation of this idea brings us back to the second limitation of the most popular gaming metaverses. These items are inextricably tied to the Fortnite game world and the player’s account to access them. If your account is deleted – if, say, you are suspected of cheating or some other terms-of-service violation – your items go with it.
Trading items with other players is also not supported. So, while you can buy items for real-world currency (once exchanged for in-game currency, of course), you can’t sell them. You can get a refund of the in-game currency you spent at best. If you acquire a scarce item, this merely offers you a degree of social clout. You cannot sell the item to other players nor convert the in-game currency back to fiat if you did so. But, of course, there are ways around this prohibition – but they all carry the risk of getting caught and having your account deleted, taking your items with it.
Most fundamentally, you can’t take these items with you outside of the game. However much time, effort, and money you put into tailoring your avatar’s appearance, it’s locked into the Fortnite game world. Wherever else you go online, nobody will be able to see your carefully cultivated look. If – or, inevitably, when – Fortnite loses popularity, and its servers finally go offline, your eye-catching avatar will disappear with it.
Put simply, whatever the metaverse-related ambitions of Fortnite and other similar games, they lack the core feature of interoperability. For example, you cannot move from Fortnite to Roblox to Meta’s newly launched Horizon Worlds with a single avatar and bring your digital commodities with you. So there isn’t even a way to trade items from one world for items in another or convert them for fiat currency that you can reinvest in another world – at least, not a way that the game developers support. This acts as a fundamental limitation to the emergence of a metaverse economy in the complete sense, putting actual digital ownership out of reach.
By providing a way out of this limitation, NFTs have kickstarted the metaverse revolution.
Art, sneakers, and real estate: Digital commodities and virtual worlds
Last week, we looked at how NFTs transformed the art world by solving the problem of digital scarcity. Digital objects are, in principle, infinitely reproducible, and this usually prevents them from acting as commodities and stores of value. NFTs enabled digital artists to sell their work through traditional channels to both established and new collectors by acting as verifiable proof of ownership.
There have been other solutions to the issue of digital scarcity, of course. In gaming, for instance, the answer has been to maintain a robust centralised control. As discussed above, digital assets in games – be they weapons, items, skins, or real estate – are assigned to players by the game’s developers. They are tied to a player account that the developer maintains control over, which they can modify or delete at will. Finally, the game engine is designed to limit player actions, preventing duplication. While attempts to get around those limitations are possible, the developer can always simply delete the accounts of those who do so.
While this is generally an effective solution, it also leads to the limitations described above. For developers to exert this kind of centralised control, they need to keep the game a “walled garden” that offers only minimal, controlled forms of interaction with other online spaces. This prevents the digital items from becoming assets, with owners being assigned the right to dispose of them as they choose with few restrictions.
NFTs, on the other hand, solve this problem without a centralised point of control. This makes them an essential step to the emergence of a truly open and interoperable metaverse. They offer a way to make digital assets, from cosmetics and fashion to art and property, transferable across distinct virtual spaces while still maintaining their uniqueness, as well as allowing for them to be freely traded on marketplaces.
As a result, both major game developers and fashion brands have begun to show an interest in NFTs and their application to virtual worlds. From Ubisoft’s somewhat ham-fisted attempt to incorporate NFTs into Ghost Recon Breakpoint to Nike’s acquisition of virtual sneaker designers RTFKT, it’s clear that the idea of making digital wearables verifiably scarce has significant appeal.
The question is, of course, how far any of these projects are willing or able to embrace the truly revolutionary nature of NFTs. Digital scarcity is just the first step. If buyers are not free to move across virtual spaces with their digital Nike sneakers, sell them, or trade them at will without approval or permission, we have not come all that far from buying Fortnite skins with v-bucks. It’s certainly hard to see it as an advance over Nike’s previous involvement with the online gaming platform Roblox, where the company launched its “Nikeland” virtual world in November 2021.
The most promising step in this direction by a major brand is Adidas’ “Into the Metaverse” project. Working in collaboration with NFT pioneers like Bored Ape Yacht Club, Adidas promises exclusive physical and digital rewards for holders of their token, including “virtual land experiences” in the metaverse. They accompanied the launch of the token with the purchase of 144 plots of land in The Sandbox, a “virtual metaverse” game that has also sold digital real estate to Snoop Dogg, Deadmau5, and the Smurfs – yes, those Smurfs.
The Sandbox, alongside its main competitor Decentraland, is perhaps the strongest example of how NFTs can act as the economic foundation for a truly open and decentralised metaverse. Unlike the superficially similar experiences offered by Roblox or Fortnite’s creative mode, The Sandbox and Decentraland are built on the Ethereum blockchain. As a result, rather than operating as “walled gardens” – or, at best, extrinsically incorporating NFTs like Ghost Recon Breakpoint – these games are built from the ground up to support NFTs. And unlike blockchain-based games like Axie Infinity, they leave behind the combat and item gathering of their MMO forebears in favour of open-ended interaction and collaboration.
Both The Sandbox and Decentraland have their native tokens that can be used for various purposes within the virtual world, including buying real estate. The parcels of land are themselves NFTs, as is more or less everything else you can purchase. You can even display NFT artworks you’ve bought on marketplaces like OpenSea in frames in your virtual home, as well as images of characters you own in games like Axie Infinity or CryptoKitties. And of course, there are the wearables – all easily mintable and tradeable by the players themselves with limited oversight.
As a result, we can begin to see the true significance of NFTs for the emerging metaverse. By providing a decentralised solution to verifying the uniqueness of digital assets, NFTs allow for fully-fledged economies to emerge within virtual spaces that, while still primarily considered games, have moved far beyond the MMO model. Moreover, thanks to the innovation of NFTs in conjunction with blockchain-based gaming, the growing markets for digital wearables, art, and land can intersect within an open virtual community. From DeFi to GameFi to MetaFi, the possibilities are beginning to emerge.
As Meta and others willingly acknowledge, we are some years away from the emergence of a metaverse in the fullest sense. The various blockchain-based virtual worlds are not yet interoperable in any real sense. While you can sell your land parcels in Decentraland for Ether and use this to buy a plot in The Sandbox – perhaps taking advantage of price fluctuations in their respective currencies to maximise your investment – the direct transfer of your carefully styled avatar from one world to the other is not yet possible. Ultimately, any flourishing economy of blockchain-based digital assets will need to avoid the need for users to rebuy the same items across different platforms. While owning ultra-stylish digital sneakers may have serious value as our social lives move online, buying different pairs for each of the virtual worlds you inhabit is a much harder sell.
Who will shape the emerging metaverse?
There are reasons to be optimistic that the existing blockchain-based virtual worlds will gradually move toward a highly interoperable, multi-platform space. Indeed, even Meta, coming from a more traditional, centralised perspective, are eager to stress that a single company will not build or own the metaverse.
However, there is some cause for concern that, as companies like Meta move to take control of the emerging metaverse, it will fall far short of its true promise. As it develops, the metaverse will require many significant technological innovations to support it, from affordable VR and AR hardware to massive cloud computing resources. Companies like Meta have the financial and technological resources to substantially accelerate these developments, as seen in their investment in Oculus VR headsets. But Meta, in particular, has spent the last few years making clear why we should be wary of their involvement.
A recent report in the Financial Times analysed several metaverse-related patents filed by Meta since the company’s name change. They found that a significant number of them are related to biometric tracking technologies that would monitor eye movements and body pose. This could allow for the personalisation of your metaverse avatar – allowing others to see your physical movements more clearly in the virtual space, for instance. But they could also be used to produce hyper-targeted ads based on, for instance, how long you spend looking at particular objects. Suppose this type of hardware and software becomes foundational for the metaverse. In that case, we face simply reproducing the same dangers that have bedevilled the Web 2.0 world, from relentless data tracking to socially damaging optimisation strategies.
That’s why we must begin to build the tools, networks, and platforms to support a truly open and decentralised metaverse. While the NFT revolution, and the blockchain technology underlying it, have been vital first steps, much remains to be done. As discussed previously, the existing blockchain solutions have fundamental issues related to scalability and sustainability, making them a shaky foundation for the metaverse. What’s more, the metaverse will require substantial computing resources to enable the persistent hosting of massively interactive virtual worlds. Turning to established, highly centralised cloud computing solutions would be a major risk.
And this is where Cudos comes in. We’re working toward the mainnet launch of our innovative blockchain solution, which will offer a significantly cheaper and more sustainable alternative to the now-dominant Ethereum chain. But this is just the first step. Cudos is also pioneering decentralised cloud computing to help build the foundations for the metaverse in an open, trustless, and permissionless way.
How can you help Cudos build the foundation for the metaverse?
If you want to be part of building an open, sustainable and secure future for the metaverse, you can support the Cudos blockchain as we approach the mainnet launch. Or why not become a validator on our network?
You can get involved right away by following the links below:
Cudos is powering the metaverse bringing together DeFi, NFTs and gaming experiences to realise the vision of a decentralised Web 3.0, enabling all users to benefit from the growth of the network. We’re an interoperable, open platform launchpad that will provide the infrastructure required to meet the 1000x higher computing needs for the creation of fully immersive, gamified digital realities. Cudos is a Layer 1 blockchain and Layer 2 community-governed compute network, designed to ensure decentralised, permissionless access to high-performance computing at scale. Our native utility token CUDOS is the lifeblood of our network and offers an attractive annual yield and liquidity for stakers and holders.