The Marriage of Crypto and the Metaverse:

May the union belong, fruitful, and revolutionary

The Metaverse is a term used to describe a variety of virtual shared spaces. The term was first used by Neal Stephenson in his 1992 science fiction novel where humans interact both with each other and software actors. But this term has come to represent the idea that as we spend more time interacting on the internet, society will eventually progress to the point where the majority of social interactions will be held in virtual spaces. Virtual or not, value is being created in this new world. Items that are no more than 1s and 0s can be ascribed to the monetary sum that’s deemed fair by community members. New economies are being built from scratch in these virtual worlds. From an investment standpoint, the opportunities to invest in virtual economies could be a path to explosive growth.

A more unified metaverse will have an economy and with this comes the chance to create a new, fairer economy, which has been a dream of many. This is possible with Crypto and Blockchain technologies that allow the assets that are created in the virtual world to have value in the real world.

Tweet from Alexis Ohanian on the future of digital assets

Why Now?

It is a good time to seek these companies out to invest in mainly due to the fact that our society spends more and more of its time immersed in the virtual world and a greater acceptance of new technologies.

The amount of internet usage spiked during the pandemic and time spent gaming increased by 75%. The global gaming market hit $159 billion in 2020. The need for the metaverse is not just rooted in gaming, but is inherently social. Facebook saw a 50% increase in overall messaging during the Last month of march and many other social media websites saw similar spikes. As the world becomes increasingly less physical and more virtual people are looking for immersive social experiences through virtual mediums.

This has also coincided with a huge development in the areas of Crypto and Blockchain. Technology has become more increasingly accepted by institutions and the public. Bank of America is beginning to use Ethereum to settle transactions, while companies like DapperLabs, Rarible, and others have started a wave of NFT crazes. And while many of the consumers engaging with the technology don’t quite understand it, the support has been instrumental.

Market

Below is one of the most comprehensive lists of the main players in the metaverse. It outlines that this space has many components and moving parts, as well as big tech companies and startups making plays in the market.

From Jon Radoff’s article “Market Map of the Metaverse”

The gaming market is set to reach 256 billion dollars by 2025 and more than 2.5 billion people worldwide playing games. The market cap of cryptocurrencies has been volatile but in 2021 peaked at $1.3 Trillion. However, the most exciting part of this market are the submarkets and sub-economies that will be created from applications stemming from the marriage of crypto and gaming. Game universes have the potential to become their own economies that are only bound by the value that users ascribe to the experience. In total, gamers spent 157 billion dollars on games alone in 2020. Spending on things like characters, items, and digital property can be transformed from a cost to an asset. These assets can yield companies transaction fees or percentages on every transaction. The opportunities to create monetary incentives that better align developers and players are endless in the metaverse.

Exciting Verticals in the space:

Identity

NFTs and Tokenization

The Creator Economy

Permissionless Transactions

Governance for Gaming

Decentralization

Economic Management of In-Game Economies

Competition & Risks

The first heavy risk in the space is regulation. The U.S Treasury has called for stricter cryptocurrency compliance with the IRS and announced any transfer worth $10,000 or more to be reported. Notable NFT company DapperLabs was sued on grounds that its popular NBA top shot NFT products are unregulated securities. But responsible regulation can also lend more credibility to this booming industry. While the space has many critics it also has powerful support from people like Mark Cuban, Elon Musk, and Colorado Governor Jared Polis.

Another potential risk is high costs. The Ethereum network is facing scaling challenges with the influx of growth that it has experienced in the past 2 years. These scaling challenges have to lead to exorbitant fees on transactions that make it hard to justify purchases. The complex smart contracts needed to build game logic require higher fees. But the developer world is working hard to meet this challenge. The upcoming Ethereum 2 update will lower transaction fees with software updates as well as third-party layer 2 solutions that can help the Ethereum blockchain have low cost and faster transactions. There are also another era 3 blockchains like Solana and Cardano that have solved these problems inherently and are working to achieve greater adoption.

Lastly, adoption by game developers is a potential barrier to the spread of crypto-enabled multiverses. Currently, most game developers have complete control over their economic ecosystems, and that provides safety and predictability.

A tweet from the head of partnerships at Riot Games

However, Crypto-enabled games and multiverses can better align players and game creators. A crypto-enabled Multiverse would allow in-game assets to become valuable outside the game. This would allow players to be more invested in the games they play and the communities around them.

Companies To Watch:

Rally:

Image by Rally.io

Rally is an open network that enables creators to launch vibrant and independent economies with their communities. It allows creators to gain independence through a decentralized monetization system. Fans can access unreleased content in private communities and early access to tickers.

Enjin:

Image by Enjin

Ejin aims to create next-gen NFT’s for everyone. They have created a proprietary blockchain developed specifically for blockchains. Recently they partnered with Microsoft to create NFT badges product for the Microsoft Azure developer community.

Dapper Labs:

Dapper Labs is in the serious business of fun and games on the blockchain. This company produced NBA Top-Shot (the #1 decentralized app in the world) with 3 million transactions and over $500M in total sales. NBA Top Shot sells key moments in basketball history as NFTs. DapperLabs also has developed infrastructure to help other decentralized apps create collectibles. They also created Flow, a proprietary blockchain for open worlds. Dapper raised 305 million dollars in order to develop new NFT platforms.

Bit.Country:

image from Bit.Country website

Bit.Country is a decentralized metaverse platform with NFTs, token economies, and self governance. Anyone can start their own metaverse with their own fungible or non-fungible tokens. This company has raised $4 million dollars to build the platform and has went through the Blockchain at Berkeley accelerator.

Alchemy

Alchemy is the leading blockchain development platform that aims to create the Amazon Web Services for blockchain development. They power some of the most notable blockchain-based companies out there like Dapper Labs, Open Sea, AAVE, Nifty Gateway, and many others. They have helped solve the many scaling problems for blockchain companies. They recently raised a $80M dollars to expand to help more blockchain companies grow.

What’s next?

For Crypto and the metaverse to find the funding it will need to grow, it will need more support from existing institutions. But more importantly, it will need more acceptance from users. More people seeking out these experiences and engaging with these new economies will make the strongest case for why this is the future. There are strong trends and evidence that this is already happening.

The applications for crypto-enabled Metaverses don't just stop allowing for items and currency to leave game worlds. Game developers could create smart contract-enabled systems for game governance, items could hold history and track who’s held them or what events they've been through. Game devs could even better incentivize players to build better communities. The applications are endless and incredibly exciting.

If you would like to join me in seeing how the space continues to grow follow me on Twitter.