Building the Open Metaverse Part 1: How Cryptocurrency Could Create Long-term Value in the Metaverse

Cryptocurrencies are enabling new ways to engage with virtual worlds. However, a history of risks and failures has brought their long-term reliability into question. Can they help to promote stability and longevity in the virtual economies of the metaverse? By integrating them with interconnected experiences that place authentic user engagement at the forefront, there is significant reason to believe that they can.

This is Part 1 of a series exploring how to build the foundations of a flourishing open metaverse. Subscribe using the form below to keep up with all our latest blogs!

31 August 2022
Anthony Tomlins

In these early stages of the metaverse, developers are thinking about how to build metaverse worlds that provide genuine value and staying power. Much of this thinking centres on the concept of a virtual economy. After all, an economy describes the movement of value, held in assets like raw materials, products, land, and currency. It is therefore a reflection for what people find most fulfilling and worthwhile, generated out of the fundamental interplay between that which creates value, and those who benefit from it.

Current examples of virtual economies are almost invariably designed as closed systems and restricted to the virtual worlds that host them. These economies are built around the idea of the virtual world as a product, and thus an end in itself, made to attract economic value but not to create or share it. We think here of MMOs, where users pay to participate in gamified economies merely for fun, or of the hugely lucrative model of selling cosmetic items, animations, and time savers to be used in a particular world.

Pushing the boundaries somewhat, sandbox worlds like Roblox and Second Life have created virtual currencies that can be traded for user-created goods and exchanged for real currency on-demand. There is thus some scope for extracting economic value from these virtual worlds, and yet the basic functionality of the virtual currencies and user-created assets themselves remains tied to their respective worlds. This is further shown in the black-market economies that surround MMOs, where players exchange in-game currencies for real money outside of the game’s functionality, maintaining a separation between a player’s activities in the virtual world and their ‘real-life’ economic interests outside of it.

Unlike these examples, the metaverse promises an economy that extends beyond the walls of a siloed virtual world, where users can have a real sense of ownership over their digital possessions, whether they be crafted, bought, or earned, and carry them into a range of virtual worlds created by a variety of developers. The promise of the open metaverse hinges on the idea that it will be a future internet wherein virtual worlds and apps intertwine seamlessly not only with each other, but with a user’s ‘real world’ identity and livelihood as well.

Blockchain-based cryptocurrencies and NFTs have provided a decentralised economy system, and a method of verifying ownership of digital assets, that transcends the siloed databases of individual companies and their virtual worlds. This presents itself not only as an enabler of interoperability between virtual worlds within the metaverse, but also, crucially, as a pathway to realising the ‘meta’ in metaverse by building frictionless bridges back into the economic systems of the ‘real world’.

Why is cryptocurrency labelled as risky?

At this nascent stage in the development of the metaverse, various isolated projects that have probed into the possibilities of building virtual worlds with cryptocurrency as an economic foundation have appeared to be furtive and short-lived, more like proofs of concept than long-term pillars of our metaversal future. Some such worlds have generated a great deal of investment from the general public and businesses alike (The Sandbox and Decentraland have generated around $543 million and $913 million in historical trading volume for their digital real estate tokens, respectively, as of 2022), showing belief in the synergies between digital currencies and the metaverse. However, after huge surges of interest, the decline that each of them has experienced raises concerns around the viability of crypto-based virtual economies in general.

‘Bubble bursting’ has become a common phenomenon in the world of cryptocurrency. This is where orchestrated hype campaigns artificially inflate the value of a cryptocurrency, followed by a catastrophic crash. Often, those who helped to drum up the hype will sell at the highest points, knowing full well that it is only a temporary price, while other investors will find their currency is suddenly worth nothing. Sharp rises and equally sharp crashes in values have so far defined the popular story around cryptocurrency. In fact, according to Satis Group (Delisle, 2018), around 80% of ICOs in 2017 were identified as scams.

Metaverse worlds built on cryptocurrencies have suffered a similar fate. Hype trains built around virtual asset and land ownership with promises of lucrative returns for early adopters often lead to an initial surge of activity and investment, but ill-conceived ‘tokenomics’ and lack of sticky functionally to keep people engaged beyond the financial incentive will eventually lead to divestment and a resultant crash; once the mist clears, the worlds themselves are left barren, bereft of intrinsic meaning and utility. While the metaverse may be the future of a democratised internet, current experiments in metaverse world creation all too often appear as a means for a small group of investors to make a quick buck.

But this doesn’t have to be the case. Beyond hype trains, celebrity endorsements, corporate partnerships, and the nauseating ups and downs of the market rollercoasters, can cryptocurrency and the blockchain provide functionality that actually boosts longevity and authentic engagement in a flourishing open metaverse? There is significant reason to believe that it can.

What is the value of the blockchain for the metaverse?

Thinking of how to create longevity in crypto-based metaverse worlds forces us back to the fundamentals of value. Whether we are talking about gaming and entertainment, or utilitarian spaces such as offices, educational facilities or medical consultancies, the value of virtual worlds in the metaverse hinges on their ability to fulfil purposes for which there is popular demand, such as fun, productivity, learning, or the performance of essential services.

Paired with quality of life factors like smooth functionality and enjoyable user experience, the sense of satisfaction at the fulfilment of a purpose is what brings value, and ultimately longevity, to an experience. This principle applies to experiences universally, in real life just as much as in virtual worlds. In the real world, however, such experiences are intrinsically tied to our own sense of identity, our subjectivity, our personal history, and our unique needs, motivations and preferences. So why shouldn’t these be a factor in our virtual worlds?

At present, virtual worlds built in isolation are not capable of integrating these senses fully. Each virtual world is a fresh start, with users creating identities from scratch for a merely contingent presence in the world. In the gaming sector, storefront clients like Steam hint at these senses only secondarily, with each user having a personal profile that stores memories and achievements from the variety of games that they have engaged with.

What if a persistent sense of identity, tied to our personal avatars, histories, and inventories, could be built right into every virtual world that we come into, and play a real part in our interactions with these worlds and other users within them? Cryptocurrencies and the blockchain present an intriguing solution for making this a reality.

Leveraging cryptocurrency to build engaging virtual worlds

For one, cryptocurrencies and their underlying blockchains enable interoperability of assets between worlds. They do this by providing a method of verifying ownership of digital assets that is trustless, objective, and decentralised. Items and currency can thus be possessed by users and taken across worlds, with individual worlds calling on the decentralised blockchain to affirm and interpret their existence and functionality. This simple capability enables a new perspective on the user’s place within a broader multifunctional metaverse ecosystem (i.e. the open metaverse), forming a sense of presence and identity that exists beyond any particular world, but also within all of them.

Moreover, to counter any hesitancy on the part of developers to allowing items made elsewhere to come in and disrupt the economic models of their individual world, or investing in the creation of assets that can subsequently be used to enrich a rivalling world instead of their own, assets on the blockchain can be programmed with smart contracts that enable automatic fulfilment of incentives structures such as taxes, tariffs, royalties and licensing fees. By providing a streamlined and trustless way of guaranteeing compensation for developers and creators that engage with an interoperable economy in the open metaverse, sidestepping much of the bureaucracy of non-digital finance, cryptocurrencies provide the backing for a more engaging and multifaceted virtual economy.

Secondly, the propagation and usage of cryptocurrencies and NFTs invests users with a real sense of stake in the success of their favourite metaverse worlds. Put plainly, the ability for users to own assets that can be traded for other forms of value outside of a specific virtual world encourages them to keep engaging in the activities that produce them. In a healthy metaverse ecosystem, users will have a lot of choice about where to use their assets; however, the value of the asset itself, be it a currency, land, or an item of some sort, is ultimately tied to the success, reputation, and equity of the virtual worlds from which they originate. Developers and users alike are therefore incentivised to create and maintain a fulfilling virtual environment, free of toxicity, and with genuine long-term purpose and functionality that increases the value of the assets that are tied to it and sustains the value-creation potential of the world itself in turn. Far from incentivising users to ‘cash out’ on their assets as soon as possible, an authentically engaging metaverse world encourages users to reinvest and stay engaged with it.

The role of ecosystems in creating longevity in the metaverse

Linking metaverse worlds into an open ecosystem can amplify these favourable effects considerably. Simply put, a broader interconnected ecosystem containing a variety of experiences has the potential to attract more users. This instigates a virtuous cycle of network effects, as increased user engagement and spending power attracts investment of money and talent in building better, more engaging worlds within the ecosystem, leading to further engagement and spending, and so on. Creating and engaging with virtual worlds in the metaverse is therefore not a zero-sum game. Both creators and consumers have an interest in the long-term success of the broader ecosystem, as this is what can maximise the potential value of their own assets within it, whether they be cryptocurrencies, NFTs, licences, royalty rights, etc.

For the cryptocurrencies themselves, integrating with and facilitating an ecosystem of intrinsically valuable metaverse worlds presents them with ready potential for a growing and engaged user base, and a viable alternative to the short-sighted hype campaigns, bubble bursts, and rug pulls that plague so many of today’s ICOs. As the size and value of an ecosystem increases, so does the value of the currencies and virtual worlds that leverage it well. Harnessing these benefits is all about building metaverse worlds that have user engagement as a first principle, using cryptocurrencies and blockchain to create functionality that is valuable beyond the mere movement of currency, and an increased sense of autonomy, agency and persistence that keeps users invested in the long term.

At Hadean, we want to see the promise of the open metaverse fulfilled. The Hadean Metaverse Hub enables virtual worlds to come together into a seamless ecosystem that maximises the power of the blockchain by creating engaging and meaningful virtual economies on an interoperable, scalable and secure platform. Read more about it here.

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