The Metaverse and the Potential of Blockchain

Many believe that the Metaverse idea is more than just intertwined and dependent on blockchain. This is absurd to others. It is not necessary to establish or manage asset ownership. If the NBA, Disney, or Valve claimed who owned an image or virtual currency they would be believed by everyone. It is not necessary to transfer money quickly and safely (Alipay or PayPal move billions of dollars per day through purely digital networks).

Due to their centralization, blockchains are plagued with many shortcomings, including high "gas" fees, slowness, energy consumption, and costly "gas” fees. These flaws are so severe that nearly all NFT platforms store as many as possible (e.g. These weaknesses are so severe that almost all NFT platforms store as much information as they can (e.g. credit card information, profile photos) in centralized databases rather than on the blockchain. NFTs, on the other hand, rely on fragile "pointers", which could be lost at any time. It's easy to see why some people view the blockchain as a backwards move. It's important to remember, too, that today's virtual economy generates more than $50B annually and spans hundreds upon billions of hours of usage - all this without crypto or blockchain.

It doesn't matter if the blockchain is technicallysuperior for a given purpose, especially when compared to current, point-in time alternatives. It's not about whether blockchain standards can increase developer profits over time and grow the Metaverse economy.

Let's first review some of the lessons learned from this primer and essay. An economy usually benefits from payment rails that are quick, affordable, flexible, secure, extensible, and cost-effective. There are often tradeoffs between these two values in most modern payment rails. Payment rails in virtual reality are designed around closed platforms and disadvantage developers and users. They are also expensive and cumbersome and do not maximize economic returns. Although interchange solutions and open standards can be helpful, they are often less effective than closed platforms because they don't have the revenue to convert market leaders or overcome closed platform controls.

This is why many people in the Metaverse community find blockchain technology compelling. This is because cryptocurrencies are essentially programablepayment railways. For example, Bitcoin is programmedto automatically pay those who use its cryptocurrency network. This differs from traditionally-defined open source projects, which mostly rely on altruism or philosophy. This programming is transparently embedded in the network's code (hence, "trustless") and no one entity or faction can ever "control", nor determine who participates (hence, "permissionless")

Later blockchains, including Ethereum, developed upon this idea and created their own programming language (Ethereum's Solidity). These languages enable developers to build applications ("dapps," for decentralized apps) on top of an existing blockchain and its networks, and issue their own cryptocurrency-like tokens to compensate their network/contributors. These tokens are not limited to mining or computing resources, but can be used for any purpose. The dapp creator has the option to reward their network for delivering any resource they can measure or consider scarce, such as time, users, content and bandwidth.

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There are many benefits to the decentralized, trustless and automatically compensating, blockchain model. The most important benefit is that users and developers can both invest their capital and time with confidence that the blockchain's economics, policies, and incentives won't change in an attempt to rent seek or over time. There is no Ethereum Corp, for example, which could suddenly decide to increase Ethereum gas fees, or to take a fee for every NFT sale, deny an emerging technology or standard, launch a first party service to compete with the most successful developer businesses, or repossess user accounts/entitlements/assets. Chris Dixon says that a blockchain-based Web 3.0 would be incompatible with the Web 2.0 ethos.

Developers will find it much more expensive and difficult to create on a public blockchain and then disconnect from it after they have succeeded. (Remember how Google's open Android and commitment to the Open Handset Alliance has changed over time. This is crucial. This is key. I have written earlier about how the current hardware platforms are stifling virtual platform growth. We hope regulators will intervene in the United States as well as abroad. However, we don't want Roblox to be the Metaverse's gatekeeper. Tencent's WeChat charges low transaction fees but the company has used its control of digital payments to charge 40-55% for all downloads and virtual goods. This is far more than Apple's 30%.

Blockchain's trustless, permissionless, and financial systems allow their networks to be decentralized in operation and adoption. The former reduces control, increases performance and liquidity, and decreases gas fees. While the latter increases utility and network effects, the former increases network effects. Developers can issue governance rights to their users easily and reward contributors with programmable tokens.

What does this translate into in practice?

Virtual Currencies

You can trade cryptocurrencies such as Bitcoin and Ether worldwide. Users don't need to have a bank account or join any mega-platform like Square, Microsoft, Sea Limited. Businesses and sellers don't have to register or negotiate long-term contracts with crypto rails. It is amazing that the system, which does not have a central authority, but instead has tens of thousand of independent miners, was able to transfer as much as $68B in one day across a dozen blockchains.

And while Ethereum and Bitcoin gas fees of $4-6 are high on a percentage basis for small transactions, they're cheaper than wires at any transaction size and beat ACH and credit cards after transactions/transfers exceed $200 (and offer other benefits, such as near real-time processing). Many expect that Ethereum will soon make gas fees lower by as much as 90%.

The market is highly competitive and these fees are paid to the people who do the actual work (i.e. The transaction fee is calculated - not the burdensome banking institutions that are protected by an assortment of obsolete payments systems (e.g. CHIPs), and decades of regulatory capture. They have virtually no marginal cost for digital payments.

(As an aside, the benefits and structures highlighted above explain why blockchain-enthusiasts argue cryptocurrencies represent the first truly digitally/virtually-native payment rails. Although they are referred to as "digital payment railroads", Square and PayPal are actually a facsimiles or tied to legacy rails. This is why they force users to pay to get their money fast, don't allow peer-to-peer transfers between accounts, have high profit margins, exclude many potential users em>

Virtual Assets

It doesn't matter if cryptocurrencies are accepted in the "real" world, but they are increasingly used in gaming via NFTs, blockchain-based studios, as well as for initial user payments and UGC payments. The "crypto Metaverse" has significantly less currency fragmentation today than the gaming ecosystem. Minecoin, V-Bucks, COD Points, Robux, etc. Supports two-way exchanges (i.e. USD to Ethereum and back), is widely interoperable (the exact same "currency", can be used in Decentraland , and AxieInfinity ).

Let's now move on to the items. Over the past year, there have been obvious signs that the NFT market is prone to excessive speculation. It is also evident that NFTs' hard-coded promises -- irrevocable ownership and open economies as well as the ability to endlessly reuse virtual assets -- have led to significant consumer spending. In the media industry, open standards are often not able to generate more developer revenue. Not so in crypto.

Larva Labs, for example, has used NFTs in order to create unique, verifiable avatars which sell for more than a thousand dollars than the prices of popular games such as Fortnite or Call of Duty. (There are 10,000 total CryptoPunks, and 20,000 Meebits). Despite their modest user base (50-250,000 DAUs), AxieInfinity and Zed Run are still generating millions of dollars per week. The combined value of cryptoworlds such as Upland and Decentraland is in the hundreds of millions or more. Dapper Labs (Disclosure - a portfolio company), has used NFTs in modernizing the millennia old collectibles category. It generated close to $1B gross sales in less than a year with just one sport and fewer than 1MM users.

These trends will continue and blockchain-based revenue will be irresistible. These trends are likely to persist at least for the medium-term. Every trend is growing: NFT developers, active wallets, transactions daily, primary sales, secondary, market value for NFT franchises etc. All.

Only a small percentage of gamers and online users have a crypto wallet today, and virtually no brands or games offer NFTs. But irrespective of multi-month dips in the blockchain/crypto/NFT economy, we see more of these groups embrace blockchain-based experiences each month. This creates a virtual circle that encourages more people to register wallets, mint NFTs, and integrate crypto assets. It also increases the utility and value of all other blockchain products, thus bringing more to the technology.

Gala Games, which is co-founded Zynga, and Mythical Games, which are former executives at Activision and Niantic respectively, are building Unity-based games on blockchain. In-game items can be purchased as NFTs. Players can also operate nodes and buy tokens that allow them to participate in the game's economic governance. These attributes are expected to lead to stronger network effects and better monetization, according to advocates. This will lead to a lot of gaming industry. It will soon be replaced by new entrants.

There are many competing blockchains today such as Ethereum, Flow and Solana. However, a few meta-protocols and meta-chains are trying to fix this problem, including Polkadot. These solutions have been committed by most of the major NFT platforms and blockchains. This will increase the network effect of blockchain technology and the utility all cryptocurrencies and NFTs while decreasing fragmentation.

The best way to get today's top games, platforms, and brands involved in the Metaverse is through blockchain standards. Companies like Activision Blizzard or Take-Two might recognize the potential for open economies and platforms. However, they are unlikely to sign on any system managed by Epic or Valve because they present too much risk.

It's not hard to see why publishers choose to in-house more of their content than to outsource to Unreal and Steamworks. For the second season of Disney's The Mandalorian, Lucasfilm used a proprietary engine called Helios for rendering real-time. Pixar's USD format has been adopted only because it is open-sourced.

The token model, i.e. The token model (i.e. smart contracts) provides a technical solution to one of the most difficult problems in the gaming industry: revenue leakage. As we have discussed, players want to transfer their entitlements and assets from one game to the next. Many developers make their majority of their income by selling their players exclusive goods that they use in their games. Game developers' business model is threatened by the ability of players to "buy elsewhere, but use here". Third-party developers may try to "race to the bottom" on pricing, as they do not need to recover on operating or initial costs for a game's development. Perhaps players will stop buying virtual items if they have enough in other games. They may just prefer Developer A's skins to Developer B's but Developer B's game is more appealing.

Developers are also held back by concerns that they may create more value in an open economy than they actually capture. Developer A might create Skin A for Game A only for Game A's decline and Skin A becomes a valuable (and popular) item in Developer A's longer-running title. Developer A actually created content that was superior to theirs. Maybe Developer A's creations are so iconic and valuable that they have a higher value than the developer.

These challenges can partly be addressed with "tax", "duty"/'fee, which means that the creator of an item receives a compensation each time it is traded or brought into a third-party environment. While this doesn't stop leakage, as prevention requires that the system be fully optimized, it does ensure that creators receive more revenue as their creations produce more value. This solution is difficult to implement technically. Each participant developer, publisher, or intermediary must track and maintain an interminable number of in-game items, data, and then make (auditable reconciliation payments). It is possible (see the banking system), but it is difficult (ibid). This is possible because the token/smart contracts structure makes it all automatic, proven, instantaneous, and doesn't require "trust". Dapper Labs receives a cut from every Top Shots secondary sales, even if it is a peer-to-peer transaction that uses third-party wallets.

Overall, however, the blockchain-based revenue model offers major publishers more than just greater revenues. It also provides a system that is equally fair and unalterable for competitors. It is difficult to imagine a better way to openness.

Virtual Collaboration and Funding

However, the most disruptive aspect of digitally-native, "programmable" payment trains is their ability to allow for greater independence and funding.

Smart contracts allow you to create a multi-member entity in minutes. Signing documents are not required. Credit checks, lawyers, government filings, and even knowledge of members are not required. Smart contracts automatically manage all payments, governance rights, information rights and 'bylaws'.

This smart contract is the most intuitive and manages fundraising for projects. Mirror.XYZ (Disclosure : A portfolio company) operates a little like a blockchain-based Medium. To achieve this, writers can sell tokens to their readers to finance new essays, series, or videos. They then mint NFTs and share the proceeds with their patrons. A group of authors could also issue tokens to fund a fundraise to create a magazine. This magazine would then be managed and only available to token-holders. Smart contracts allow writers to share tips automatically with others who have inspired or helped them. This does not require credit card numbers, entering ACH information, or invoicing. It's also guaranteed to be what you owe.

Mirror is focused on media applications. Smart contracts can be used for any purpose. Friends with Benefits is an example of a membership club that uses tokens to access private discords and events, as well as information. Some argue that FWB is replicating the centuries-old "membership fees" model of all exclusive clubs, but using tokens to gain access to them, the "crypto" hype makes it seem like FWB is simply replicating this old model. This misunderstands FWB's token design. Members do not have to pay "dues" each year. To gain entry, members need to purchase a certain amount of FWB tokens and keep them for the rest of their lives. Every member becomes a part-owner and can sell their tokens at any time. Because these tokens increase in value as the club grows or becomes more desirable, members are encouraged to invest their ideas, time, and resources in the club. Spammers are less likely to join FWB because of this appreciation. However, under normal circumstances, popularity encourages malcontents. The club has to work harder to maintain its role in the lives of members because appreciation is a sign that it appreciates their efforts. Smart contracts are a way to reward members for their contributions or programmatically welcome new members into the club, even if they don't have the means.

Smart contracts play a vital role in enabling collectives. The majority of the most expensive NFTs were purchased by DAOs, made up of many pseudonymous crypto users who could not have bought the NFTs on their own. The tokens allow the whole DAO to control when and how much these NFTs are sold at, as well as manage disbursements. One DAO invests in venture investments into " exceptional female crypto founders" (Disclosure:

This might seem a bit far-fetched for a Metaverse essay. We want it to be simple, fast, and affordable for people to fund, organize, and manage projects in the Metaverse. We want this to occur outside of the gatekeeper platforms, involve the maximum number possible, reward them all, and happen as quickly as possible. If they don't, their time, money and energy will only be used to fund closed conglomerates.

"[Blockchain] is an indisputably neutral and distributed way to express individual ownership...the most plausible path toward an ultimate long-term, open framework where everyone’s in control of themselves without gatekeeping." Tim Sweeney (2021).

It is important to remember that blockchain-based experiences and games are still subject to restrictions and regulations, despite the potential. Apple doesn't take a cut from cryptocurrencies purchased through Robinhood or funded to the Rainbow wallet. However, most blockchain games and NFT platforms rely on browsers. Apple would have to pay 30% for native applications. Apple's browser policies prevent developers from creating rich 2D or 3D rendered experiences via browser, as we have already discussed. Developers could try to circumvent these policies, such as allowing users to import NFTs purchased via browser into their natively-installed apps. However, this would likely lead to a swift crackdown.

Source: https://www.matthewball.vc/all/metaversepayments