The metaverse, a term first coined in 1992 by Neil Stephenson in his novel Snow Crash, has developed over the past two years from a science-fiction theory to a real-world technology that is predicted by Goldman Sachs to be a $12.5 trillion opportunity by the end of the decade.
This bullish outlook from Goldman is driven by the assumption that one third of the global digital economy will shift into virtual worlds and then increase by 25% each year. This might sound ambitious, although considering that Facebook recently completed the largest rebrand in history to Meta, signalling their long-term commitment to becoming a leading metaverse company, and many other Fortune 500 businesses around the world making big bets on the space, it might become reality.
What is the metaverse?
The metaverse is the next progression of the world wide web and the centre of the new web 3.0 enabled internet. It provides added value for developers to build immersive 3D virtual worlds with provable ownership of the land that makes up the worlds and with new programmable virtual currencies that power commercial transactions in them. It is an enhancement to the current two-dimensional internet and is on track to disrupt and redefine every new industry, in a similar capacity to how the internet did over the past two decades. Buying non-fungible token (NFT)-based real estate in these metaverses has frequently been referred to by leading business publications as akin to acquiring farm land before cities are built.
In these 3D worlds, developers can build any type of experience that they can think of, as well as impossible structures that can only be created in virtual worlds. A real-world entertainment company might build a festival stage or a sports stadium to broadcast their real-life experiences to a new audience, a university might build an education centre to expand their classroom size or a gambling company might build a casino as an alternative channel to engage their users. Equally possible is that entirely new companies are created that capture these niches as it is easier to penetrate this emerging market, similar to how many new internet startups challenged traditional businesses in the early dot com boom.
The ownership of the land that the experiences are built on is represented on the blockchain as an NFT, which is tradeable between buyers and sellers similar to how a land deed is transactable by landlords in the real world. The amount of land available in each metaverse, the size of each parcel of land and the layout of the map is determined at the launch of the world. Oftentimes and certainly in popular metaverses, the amount of land is fixed and scarce. In addition, having multiple connected parcels in an “estate” provides the landlord with the ability to build higher, and therefore more valuable experiences.
"Many of these metaverses are backed by significant venture capital investment."
The digital currency that is native to each metaverse can also have arbitrary economics and governance and provide a way for users to earn an income through their participation in the virtual worlds, as well as a means for the creators of the metaverse to raise seed financing. These digital currencies can also be withdrawn outside of the game and converted immediately to bitcoin or any other digital asset, a significant advancement from previous closed gaming economies where users are not able to withdraw the value they create in the world and exchange it for currencies outside of the game.
There are also private and public metaverses, similar to there being private intranets used as a secure network for a single company or group and the public internet which has shared access to everyone around the world to build on. Fortnite and traditional video games are examples of private (or closed) metaverses as the entire world is built by a single development organization which also has full ownership of all the land. Public (or open) metaverses have the ownership of land divided amongst all the users who can build whatever experience they want. My thesis is that similar to the public metaverse and the public blockchain, the majority of value will accrue to public metaverses because an entire world of collaborators and development has proven to be stronger than a single organisation building internally.
Metaverse growth and real-world adoption
The public metaverse is already growing exponentially. When Decentraland, the first public metaverse, launched in February 2021, there were approximately 15,000 monthly active users. Today, there are about 15 public metaverses that are operational for users including SandBox, Somnium Space, CryptoVoxels, SuperWorld and Axie Infinity, among others, with a combined 1.5 million monthly active users, representing a 10,000% growth in just over one year. According to a NordVPN survey, 74% of adults in the United States are considering joining the metaverse today.
In addition to exponential user growth, there are new metaverses coming to market every few days with more than 70 now represented on Opensea, the leading marketplace for NFT assets such as virtual land. Many of these metaverses are backed by significant venture capital investment as well as celebrity or brand endorsements to accelerate user adoption. Land sales are also growing exponentially with millions of dollars transacted daily and Fortune 500 companies such as JP Morgan and Samsung creating their first metaverse experiences. There have even been music festivals and fashion weeks in the metaverse, attracting top performers like Paris Hilton and Deadmau5 and global retail brands such as Dolce & Gabbana, Forever 21 and Tommy Hilfiger.
There is no doubt the metaverse is becoming more and more integrated into society. If the current growth trajectory continues, we can expect to see more than 1 billion daily active users of the metaverse by the end of the decade.