When NFT meets Metaverse, everything will change

For those who are looking forward to the emergence of the Metaverse, the role of cryptography in the Metaverse will be the most urgent but least touched area.

Recently, the Metaverse (hereinafter referred to as the metaverse), which is called the “final chapter of human evolution”, has become a hot topic of concern for many games and technology giants, whether it is a real virtual world, a “fully real Internet” or a metaverse, it seems to be a rather vague concept. It seems to be a vague concept.

So, what exactly is the metaverse? What new business model will it have? And where will it lead humanity?

Recently, Piers Kicks, founder of Delphi Digital, a digital asset market research firm, mentioned in his paper “Into the Void: When Crypto Meets the Meta-Universe” that blockchain crypto will become an integral part of the meta-universe and will bring new business models and opportunities to the gaming and entertainment industries.

In the 23,000-word paper, he elaborates on the origins of the metaverse, the origin of blockchain cryptography, the conditions needed for the formation of the metaverse, and predicts new business models and investable areas for the future.

Here is the full content compiled by GameLook: (If you don’t have time, you can browse the ‘too long not to read version’, for a deeper understanding of the metaverse and new opportunities, we recommend reading the full content)

The purpose of this article is to explain why cryptocurrencies are an integral part of the open meta-universe, and I’ll start the article by reflecting on where humanity is in its digital journey and the role the gaming industry plays in it. Building on this, we first understand the origins of the metaverse concept and then explore its latest form, which is still a vague idea despite the fact that many aspects of the metaverse are coming into focus.

Therefore, we look at some of the core features that the future Internet may have, while recognizing that changes in technology are often unpredictable. Having identified the direction of the metaverse, we will explain why the tools provided by cryptography are necessary for that direction. We will understand some of the driving forces behind the current trajectory of the metaverse and why cryptography may be one of the most needed yet least appreciated components of our evolving digital world.

We will then explore the areas that can be applied, the paths that can be taken, the new business models that are being unlocked, and how the field of investable investments is expanding. Finally, some key areas of focus are summarized in the hope that it will provide useful information.

“Too Long to Read Edition” (TL;DR)

Cryptocurrencies are laying the groundwork for autonomous economic systems, open creator economies, and universal digital presentation and ownership dimensions through NFTs (irreplaceable tokens).

The metaverse is coming and trends show where our digital journey is headed. The next huge milestone awaits us as cyborgs: 7 billion digital souls who can choose to be almost completely online and participate in a virtual economy with social impact.

The growth of people’s time commitment online will lead to more digital value being created and consumed.

To maximize people’s willingness to allocate more time and assets to virtual environments, it is critical to build trust in the continuity and economic stability of virtual environments.

As awareness of web 2.0’s shortcomings increases, users will prefer trusted, neutral platforms that are completely free from arbitrary censorship, unreasonable rent charges (including hidden costs), or abrupt termination of services.

These threats will only be amplified as the digital environment becomes increasingly immersive, pervasive, and interconnected.

The decentralized network offers unique and unparalleled security, and the diminishing trust in institutions is forcing the emergence of alternatives.

NFT on top of this brings standardized digital presentation and ownership attribution to all native digital “things” such as gaming assets, digital art or domain spaces.

Early breakthroughs will successfully drive FOMO (fear of missing out) as onlookers scramble to understand the new toolsets available. The network effects of these protocols proved difficult to overcome, and their openness created innovation without licensing incredibly quickly, as each new creator stood on the shoulders of all those who had come before.

Owning these core parts of the new world will bring huge financial rewards to those who believe in the metaverse, many of whom come from emerging markets and will soon seize the opportunities that come their way.

Beyond the wealth, there are additional advantages to be gained by early participants. As pathfinders of various new business models and technologies, their accumulated intellectual property and know-how form important moats.

In the same way that the rise of the mobile web has forced a flood of mergers and acquisitions and competition for talent, the rise of crypto will have the same impact in the gaming and creator economic system.

In the future, the role of crypto in the meta-universe will be the most urgent but least touched area for those expecting it to emerge.

Synopsis.

It may be easy to forget that 50 years have passed since the first two letters of the APRANET transmissionLogin crashed. It is always eerie to think that the first message transmitted via the Internet’s predecessor was “lo,” and that these events occurred in the year of the moon landing, exactly 20 years before the World Wide Web came into existence. The impact of this technology has proven to be astounding, yet we are experiencing further acceleration. In just half a century, it has connected 63% of humanity, and today digitally transmitted words expressing ideas are being formed in your mind, words entered by members of the human race who are completely different from you and have no actual contact with you.

The ability to communicate in complex ways is the main difference between humans and other creatures, it is the core foundation upon which social organisms are built, and the vast network of information that we have built in our short lifetimes is absolutely fundamental to the formation of human society. The nature of this information network and our relationship to it has changed dramatically over the years, from the earliest dissemination of ancestral knowledge through cave paintings and storytelling to the advent of written language and the invention of the printing press. In recent years, photography and telephone technology have unlocked ways of transmitting information through time and space, both of which felt strange at first.

Today, especially after the millennial generation, people are taking them for granted. Certainly, the COVID-19 epidemic gave us a reminder of the total dependence of humans on information networks. However, there has been little pause to reflect on the extraordinary digital world of modern life woven by close to 5 billion people. We routinely record information and pass it on to others around the world without knowing where the recipient might be, who they are, or even when they might exist.

Information is being saved and accessed to a degree that is simply unprecedented, and connecting with ideas and other people is becoming easier and more vivid. In the past, writing a letter may have been your best bet. With advances in communication technology, perhaps a phone call with a loved one will bring you closer together because voice has a higher resonance. Better yet, we can now hold video conferences and see the person we are talking to.

Peering behind the curtain of virtual reality, we are now beginning to see that by sharing the same environment in a “physical” way, we are able to share a social presence and spatial awareness with others. If it evolves into a dominant communication technology, what else needs to change? What might happen next?

The most resonant application of the Internet for us as humans is playing games with other people on a large scale, and its broad appeal has been a major driver of advances in networking and graphics technology. Currently, there are over 2.7 billion gamers worldwide, which equates to one-third of all humans playing games. Every day, the pulse of the web beats with the message as ever-improving experiences capture people’s attention and reach more and more people.

Throughout the history of the gaming industry, the concept of videogames (vedio games) and virtual environments has taken hold, despite brief periods of ebb and flow of trends. We have seen dramatic changes throughout the industry as new business models have placed entirely new demands on infrastructure. Perhaps most tellingly, the increased fervor for digital distribution and the advent of the mobile web in the late 20th century gave game developers a huge advantage.

Suddenly, a large publisher’s “ammunition pool” began to include these things: data science tools, massively scalable synchronous web services, widely accessible low-latency databases, online operations including customer support, content management and online service updates, and a growing number of high-impact marketing campaigns, all reflect the capricious and changing nature of gamer demand.

The underlying business model driving these behavioral changes is the free-to-play model with microtransactions, which today accounts for 78% of (2020) digital gaming revenue.

When NFT meets Metaverse, everything will change

Brett Seyler, founder of Forte Labs: “In the 10+ year history of the European and American markets and 15 years of the global market, free-to-play game economics and operations have become increasingly complex, requiring a tremendous amount of effort for even the most well-resourced projects in the industry. The complexity and difficulty of significant growth has led to stagnant efficiency, game design has stalled, growth has begun to slow, and the entire industry is in need of consolidation. The free-to-play model has been around for a long time, but the slow improvement in game design and economic models has brought developers diminishing returns. At the same time, players feel increasingly disjointed about the value of trading in these games, investing effort and choice in the game’s economic system.”

Once again, the currents are moving in the deep sea. As these “tried and true” business models become more entrenched and less innovative, most games bring us skinned gameplay year after year. On the periphery, new crypto technologies are emerging that can be applied to the gaming industry in interesting ways. I believe that decentralized networks and innovative crypto-economic systems can have a huge impact on the gaming industry and change the mainstream view of virtual goods once again.

New design spaces could enable standardization and true attribution of in-game assets, new liquidity systems, new buying tools, cross-game economies, multi-way value flows (from publisher to player), universal identities, and more. Last year, gaming spending reached $174.9 billion, up 19.6% year-over-year, and as a comparison, gaming revenues are twice as high as the combined revenues of the movie and music industries. The opportunity is there, and with the improving VR experience, the rapidly growing number of e-sports viewers, and the popularity of next-generation gaming consoles, the strong growth of the gaming industry is unlikely to cool down any time soon.

Today, it’s still early in the transition, but the statistics reflect the direction of digital development: people will spend more and more time in these virtual worlds, and to think of the industry as just “video games” is short-sighted at best.

When NFT meets Metaverse, everything will change

Enter the metaverse/vision of the future

While the exact timing of the spread of the development of certain technologies or combinations of technologies is often difficult to predict, the broader trajectory of development can often be predicted years in advance. For example, long before the invention of the World Wide Web, Marshall McLuhan commented richly on the evolution of communication media at the beginning of the information age. A philosopher and professor of media theory, he viewed human history through four distinct eras: the acoustic age (spoken language), the literary age (written language), the print age (print media) and the electronic age (we have just touched the skin). His first major book, The Gutenberg Galaxy (1962), introduced the concept of the “global village”, where technology brings people together and gives everyone equal access to information.

He wrote in 1962: “The next medium, whatever it may be (and it may be an extension of consciousness), will have television as its content, not as the environment in which it takes place. The computer as a research and communication tool can enhance retrieval, replace mass library institutions, retrieve personal encyclopedia functions, and convert them into a private dedicated line of rapidly customizable data.”

Marshall McLuhan’s core theory, famously summed up in the phrase “the medium is the message,” is that the tools we use to absorb information (broadly defined as the medium) will become the “extensions” of our bodies, having a profound impact on the way we think and act. The medium is the message. When a major new medium arrives, it can reshape us as individuals and as a society. McLuhan’s further thought may be a rather eerie prophecy.

“Once we turn our senses and nervous system over to the manipulation of private individuals who seek to benefit from the tenancy of our eyes, ears and nerves, we have no more rights. Leasing our eyes, ears and nerves to commercial interests is like handing over a common language to a private company, or the earth’s atmosphere to a monopoly.”

These words were written 20 years before the first personal computer was introduced, 30 years before the advent of the Web and 40 years before Facebook went online. While he could not have imagined the intricate competitive dynamics brought about by the rise of social networks, or that the world would succumb to the exploitative ad-cash business model of the web giants, he was very clear about the reasons why. His article now appears to be a prescient warning that the raw power of information technology is being harnessed by private companies, which in turn could have a huge impact on society.

Since the early 1980s, many technologists have speculated about the emergence of a “successor” to the Internet. The concept wore other masks for some time, first referred to as cyberspace by William Gibson in 1982’s Burning Chrome, an illusion of collective consensus in computer networks and a central theme in his famous book Neuromancer (1984). Since then, cyberspace has evolved through universal use into simply the Internet. However, in Neal Stephenson’s 1992 book Snow Crash, the term was replaced in its original context by the word “Metaverse” (Metaverse is a compound of meta, which means “beyond” in Greek). (Metaverse is a compound of meta, which means “beyond” and “universe” in Greek).

While the true scope and form of the metaverse is elusive, a growing wealth of ideas is beginning to merge with increasingly powerful technologies that may lead to something far-reaching for decades to come. Mainstream awareness of this idea is also growing, with Spielberg’s original 2018 film adaptation, Ready Player One (2011) from Ernest Cline, playing a major role.

Beyond pure speculation, experiences are beginning to push the boundaries of what we think is possible, forcing those who are curious to look further afield. A recent powerful example is Fortnite’s Travis Scott concert, where 12.3 million players gathered in real time to witness the release of his new song. The event was an exciting blend of pop culture, a game with deep social elements, and cutting-edge concurrent infrastructure: it has become a game that turns players into celebrities and celebrities into players.

When NFT meets Metaverse, everything will change

The various tropes of recent decades seem to blend the accepted definitions, and for the sake of clarity, we define the metaverse as

When NFT meets Metaverse, everything will change

(A persistent, living digital world that provides a sense of presence, socially present and shared space of consciousness, and the ability to participate in a vast virtual economy with far-reaching social implications)

The last part is what Tim Sweeney, founder of Fortnite and Unreal Engine, says, noting that for the metaverse to reach its potential, it needs to soar at an unprecedented scale and provide a next-generation successor to many of the communications media that came before it. This is not an incremental enhancement of our existing digital experience; the metaverse represents the next great milestone in our evolution as a networked species.

To some extent, the metaverse is unlikely to be truly known now, although we understand some of the core properties it may possess. Matthew Ball, an excellent writer and a source of inspiration for me, has probably articulated his ideas around this strange and vague concept more than most people. To summarize, we expect the metaverse to be.

When NFT meets Metaverse, everything will change

(metaverse properties)

In addition to these expected features, there is still some controversy about the way the metaverse will appear. If Facebook makes it a closed platform, does it count? If not, to what extent must it be decentralized? Who will “run” it? Perhaps it could be managed and operated globally by its residents? Is there a standard universal identity, or do different ecosystems have different ways of logging in?

Can it exist on top of the current Internet architecture, or do we have to develop a more native support for many-to-many connections? In the long run, will the actual computing itself happen on decentralized networks? If possible, how do modern organizational structures translate into the meta-universe? What level of anonymity is permissible and which features are allowed? Who will decide?

When NFT meets Metaverse, everything will change

This last issue is particularly important. In the absence of any form of democracy, the Internet emerged with decisions on key issues such as security, privacy, and user sovereignty. As we now know, many of these choices have had far-reaching and often irreversible consequences that will reverberate throughout the digital world for decades to come. Likewise, as we project ourselves deeper into the digital realm, we are about to enhance our environment on an unprecedented scale.

As we will explore, cryptography presents a potential solution, but it is limited to this. Decentralized technologies can certainly limit the potential for violations while providing incentive structures to orchestrate reasonable behavior at scale, but design decisions still need to be made about where and to what extent they are implemented.

As a species, humanity stands at a critical crossroads, which requires blending the ancient wisdom built up over thousands of years of exploration of human existence with modern, contemporary knowledge. In doing so, we should attempt to have a clear understanding of tomorrow’s values and experiences in order to allow only our best features to exist in an increasingly digital future. It is important that we approach these choices with care and respect the results they bring, or we will once again risk making McLuhan’s dire fears a reality!

Where does encryption technology come from?

First, if you are unfamiliar with irreplaceable tokens (NFTs), I strongly suggest you stop and read this article; they are likely to play an important role in the future of the network. Essentially, all current digital products exist in isolated databases in widely varying formats that cannot interact with anything outside of them. Standards exist for other basic elements of the network, such as shared packet protocols like TCP/IP or file formats like GIF/MP3.

For the first time, NFT enables a decentralized, universal digital presentation and ownership that is scarce, unique and authentic, and can be managed transparently. In order for the metaverse economy to flourish, widely accepted shared standards and protocols for the issuance and circulation of virtual goods must first be formed.

When NFT meets Metaverse, everything will change

The five key parts of the metaverse: content/standards and protocols/infrastructure/media/culture

While there is no doubt that the convergence of these five components will eventually form the metaverse, I believe that crypto is the basis for many of them to flourish, even though it is not yet recognized at all by the “mainstream” players. Therefore, from an early investment perspective, I think its application in the virtual world is particularly compelling. In contrast, other integral aspects such as large concurrent infrastructures or next-generation media tend to be dominated by large players who can leverage significant economies of scale and R&D budgets. Arguably, these wheels are already in motion. From an investment perspective, they are virtually inaccessible areas.

While significant progress is needed on all fronts, I believe that the best solutions to the problems of digital scarcity and uniqueness, digital property rights, large-scale coordination effects across virtual environments, and strong privacy-focused systems that do not benefit the few at the expense of the many exist in NFT and cryptography. Without a robust economic barrier, the entire concept of a metaverse will soon collapse.

In a rapidly growing number of vertical markets, crypto-economic incentive systems provide us with the tools to spark interest, give meaningful ownership to early explorers, and instill in users the ability to govern the projects they love through these rewards. For the first time, we are seeing the rise of community-owned protocols, networks and games that are creating enthusiastic evangelists while removing the need for trust from increasingly dubious and opaque platform operators.

Furthermore, it seems self-evident that native digital cryptocurrencies will play an integral role in the seamless transfer of value throughout the native digital world. Digital assets and crypto seem to be the most urgent, but also the most under-appreciated, part of the process of building a metaverse. Therefore, I spend some time analyzing their path to popularity, what the investable field looks like, and the new business models they can unlock.

To understand why NFTs will revolutionize gaming and the rest of the digital economy, it is important to understand the structural flaws and absolute size of today’s virtual economy. The market for virtual goods is estimated to be about $50 billion and is expected to grow to $190 billion by 2025. A significant portion of the economic activity around gaming (i.e., revenue leakage) occurs in obscure unofficial secondary markets, so this number may actually be higher.

There are three main reasons for the large number of gray markets in the orbit of these virtual economies: the lack of legitimate alternatives, the irresistible opportunity for obscure revenue streams, and the complete lack of regulation in these digital jurisdictions.

When NFT meets Metaverse, everything will change

Ultimately, money is a mechanism by which we transmit value, and for all living things, the most pervasive driver of value is time. Thus, regardless of its manifestation, money can be thought of as a form of time allocation. This concept can just as easily be applied to cyberspace, and in some cases is more appropriate for cyberspace.

For years, there have been gold swiping studios in MMO games, especially in many third world countries, where this is more lucrative than work. For example, during the economic collapse in Venezuela, many people chose to make money swiping gold in Runescape to buy supplies for their families. This way not only allows them to earn a living, but even earns a monthly income 10 times higher than the salary of a Venezuelan doctor.

One user said on social media that the existence of a country that makes 15-20 times more money than a doctor in Runescape is unimaginable, but in reality, such a country may not be the kind of MMO game people think of, but a metaverse.

It’s a fast-growing digital nation, and anyone can take advantage of the opportunities it offers, and regardless of background. Other large-scale gold sales may bring their operators a profit of $50,000 per month. 40-50% of active players in Runescape are buying gold from illegal game coin brokers every month, MoD MMG said in an interview. The gold playing is mainly done by third-party scripting software, but it continues in places like Venezuela, Pakistan and other places that are realistically poorer. More importantly, the operators of these services benefit greatly from the social isolation that COVID-19 brings.

The price of in-game gold coins appreciated by 50% in March and April 2020, based on the dollar selling value, as demand for gold coins soared during the social isolation. What if this had been a liquid, tradable market on which speculators could bet without fear of being scammed or blocked by in-game gold traders?

When NFT meets Metaverse, everything will change

More creative internet users are able to distort the time-allocated properties of money in their favor by running a gold swiping service or selling hacked goods or accounts. Results that would normally take hundreds of hours to achieve in-game can be obtained in just minutes. For example, a free open-source hex editor called HxD in early 2020 can edit the code behind Call of Duty: Modern Warfare executables and unlock weapon skins, calling cards and other custom props.

For those who don’t know, these types of props take hundreds of hours of gameplay to unlock. While exploiting the exploit is actually very simple, many people don’t realize how it works and instead choose to have so-called “professionals” execute it for their account. There are hundreds of YouTube videos connected to thousands of user Discord channels, and their hosts charge more than $100 per account.

Again, exploiting the vulnerability takes only a few minutes to complete, so the focus is on expanding and marketing the service, and its masterminds usually create a YouTube video showing the results and linking to a Discord channel, and then use a variety of forums as distribution channels. The video showing the link alone had over 32,000 views in the first 3 weeks, and if we assume a conversion rate of just 1.25% (at the time of writing, the Discord channel had a 5% conversion rate), at the minimum $100 in advertising, then the service alone could generate $40,000 in revenue in less than a month.

Not surprisingly, “xLegehnd”, which runs the service, also has seemingly reasonable terms and conditions: “Financial App, Apple Pay only” and “If you get blocked, it’s none of my business, and there’s no way to get a refund at the end There is no refund method in the end if the number is blocked. I don’t want to go to great lengths to explain the starting point of these terms, give me a game and I’ll find a market, they are everywhere, and these liminal environments are an early form of value exchange between the analog and digital worlds we imagine.

When NFT meets Metaverse, everything will change

Most gaming companies try to tighten restrictions by actively fighting these gray economic systems, as evidenced by zero-tolerance ban policies on gold swiping, account trading, and third-party upgrade services, for example. Despite their ongoing efforts, detecting and stopping these activities can be a daunting task and can place a tremendous strain on resources.

Gray markets exist in most online games, and their operators draw on decades of experience in exploiting game mechanics and player psychology. They have built strong networks of contacts to facilitate the progress of these activities and have very sophisticated operations, often with dozens (or even hundreds) of full-time employees.

Some might argue that these markets are somehow more entrenched, that their operators are strategically correcting mistakes and are always one step ahead of the platform in an eternal game of cat and mouse. What would happen if developers were able to monetize more of the game’s assets (such as in-game lands, prop items, or skins) and generate ongoing revenue by facilitating secondary sales of these goods? By pulling these gray transactions out of the peripheral market and figuring out how to combine this obvious need with an emerging business model, tremendous value can be unlocked for players, creators, and developers.

When NFT meets Metaverse, everything will change

Paul Graham said, “When start-ups replace existing existents, they usually start by serving small but important markets that are ignored by the big companies. It’s better if the big companies’ attitude toward this behavior is laced with contempt, because that often means they’re misguided.”

A great deal of content will eventually be tagged as NFT and crypto mediums, in addition to the most easily understood gaming assets at the moment. The industry is already tokenizing tweets and blogs, music and community access. Hypermedia has given rise to a non-linear information medium that spans graphics, audio, plain text and hyperlinks. With encryption, we can infuse media with digital property rights.

When NFT meets Metaverse, everything will change

One day, we will be able to see the rich history of all the “things” we interact with online: the origin stories, the personalities, and the large networks of property rights that weave these “things” together. For all we know, much digital content could be tokenized, greatly expanding the granularity of interconnection: each unique object has its own creator, history, and owner.

We cannot expect an increasing number of users to invest significant time and money in the digital domain if they do not have the means to manipulate or even own these inputs. Establishing trust in the economic dimension of the metaverse is crucial, and the application of decentralized bookkeeping technology brings great security in this regard. Importantly, digital properties inherit the security of the underlying decentralized networks that issue them. While these technologies are still in their early stages and it is difficult to predict which network will win in the future, the ERC-721 NFT bookkeeping standard provides strong support for them. The head network’s NFT market cap is estimated at $540 million, with close to 200,000 users creating, trading and playing.

When NFT meets Metaverse, everything will change

Despite this, Ether still requires expensive fees at times of high usage, which completely disrupts the user experience for most applications. It is unclear whether the planned scaling solution is technically feasible as these technologies spread to the mainstream population, and the technical burden of engineering an in-house solution will likely put pressure on most developers. other well-capitalized, custom blockchains such as Flow are entering the market to address these issues, but Ether’s synergies in user lock-in, developer share and fast-growing “DeFi” and other network effects cannot be ignored.

It has built a huge ecosystem of support in terms of wallets, remittances and regulatory familiarity, all important things that didn’t just happen out of nowhere, and any challenger will have to achieve all of the above while competing with Ether’s continued growth rate. Like it or not, the success of a secondary solution is likely to undermine the key value proposition of an alternative chain with higher scalability.

Finally, it seems that Ether represents exactly the core idea of decentralized asset ownership and trust deficit, with the network and its participants consistently avoiding short-term scale-up in favor of network health and decentralization. The whole point of these sometimes slightly unwieldy technologies is to enable secure, untakeable, audit-resistant systems, which brings us to the next relevant area of the metaverse.

The use of these technologies can curb coercive political forces, and even the world’s largest online platforms are vulnerable to politics, as evidenced by YouTube’s removal of sensitive content and Facebook’s tensions over Zuckerberg’s refusal to remove Trump’s posts during the 2020 protests. As long as there is centralization, decentralization cannot be left alone, and the ability to arbitrarily censor users can easily cause harm to society for anti-competitive, political or other reasons.

“The Cambridge Analytica scandal should be ample proof that large media platforms are directly influencing democracy, as evidenced by the countless cases of banning and invisibly banning the voices of “opponents,” as evidenced by the former U.S. president himself, whose account was deleted from all major social networks. social networks. However, it is important to distinguish between moderation and censorship, because what we see in the United States and what we see in China are very different things.

Lack of moderation can be just as damaging to society, as people can overreach and draw the wrong conclusion that their words and actions will not have any consequences. So we need to think carefully about what the right balance is and what that balance might look like between decentralized networks. On top of that, major technology companies are now being effectively armed by the state to fight political opponents. The scary thing is that they often succumb to this pressure, and in doing so ban certain users or expose private data.

As more value moves online, the ripple effect of censorship grows. In an increasingly immersive, ubiquitous and connected digital environment, these threats will only be amplified.

We should carefully consider how to design robust systems that minimize the potential for error while promoting and rewarding user behavior and interactions within it that meet expectations. The fundamental difference between encrypted economic systems and other technologies is that they are both a social and economic breakthrough and a technological breakthrough. It is a technological breakthrough because it makes up for what has been called the original sin of the Internet: the omission of the digital native free model value transfer protocol (technology).

Crucially, this advancement brings both cryptoeconomics and the feasibility of cryptoeconomics, namely the combination of cryptography and game-theoretic incentives (economics), which is at the heart of this revolution, where the convergence of digital native value transfer protocols and cryptoeconomic incentive systems opens up a new dimension of massive freemium model (social) harmony.

Previously access to resources and services had to be mediated by trusted third parties, including their inherent privacy, censorship, and transaction costs, which can now be replaced by crypto-economic systems. The result is that cooperation need not rely on increasingly untrusted intermediaries, but only on the age-old human instinct for profit. We now have the tools to fundamentally create better systems that allow more people to participate in the economic system of value creation. As the Internet and our interactions with it evolve, it will provide many meaningful opportunities.

That said, crypto has issued a stark warning that where there is value, there is a catch. Companies are already spending significant resources to protect their customers from such activities, and it is unclear whether we have a good solution in Web 3.0 and beyond.

When NFT meets Metaverse, everything will change

Liu Cixin once wrote in “Three Bodies” that “if everyone is not set up to be profit-oriented, then the whole economics will collapse”.

The advent of blockchain NFT makes true ownership of virtual assets a reality, and one that is indefinite and beyond the control of the creator. This underrated breakthrough technology has fundamentally changed the nature and scope of the virtual goods space, which is now in the tens of billions of dollars per year. Take, for example, Fortnite, the most popular game of 2018, which generated $2.4 billion in annual revenue, the vast majority of which came from paying for in-game customization items that serve little practical purpose other than to look better (and to show off in front of other players).

Leaving aside the fact that it will fundamentally affect the current business model, let’s ask: What if you could not only sell your blockchain-protected Fortnite skins on the open market, but also use rare skins as collateral for loans and cash flow when you get tired of them (for example, in order to buy the latest Battle Pass)? Fortnite could consider charging commissions for this economic activity. It is amazing that players continue to spend time and money on centralized game items, services that are owned by a company that provides no ongoing cash flow and no real ownership/control for investors. They will certainly be adopted as soon as a viable alternative emerges.

NFT is certainly not limited to the gaming space, they have already made an impact on the digital art scene by opening up direct cash mechanisms for creators. Not only can they now symbolically publish works with full authenticity on the blockchain, but they can also sell them directly on the global art market and even charge secondary sales fees (splits) in perpetuity. In fact, NFT can be a useful tool for the distribution, tracking and realization of almost any creative product.

To better understand their near-infinite usefulness, I highly recommend Jack Brukhman’s article on why all digital content is coming to the blockchain. He talks about why NFTs can be understood as encapsulating the intellectual property of the assets they describe, and why we are moving toward an era of “mobile IP” that will unlock billions of dollars in value, as well as new ways to manipulate intellectual property that were previously impossible or prohibitively expensive. As the real and virtual worlds continue to merge, the standards that these native digital “things” exhibit, and the native economic tracks that support them, are likely to be woven into the fabric of the metaverse.

When NFT meets Metaverse, everything will change

What needs to be done?

It’s important to recognize the tremendous opportunity that NFT presents. Those already familiar with Bitcoin have likely encountered the concept of Bitcoin as a currency: Bitcoin possesses the best combination of desirable monetary characteristics, which are realized through its mathematically decentralized nature, immune to inflation through its predetermined issuance schedule and uncounterfeitable production costs. Importantly, the economic foundation of the metaverse may rely heavily on Bitcoin: it is the world’s first Internet-native reserve currency.

There is an idea called Gresham’s Law: that any currency in circulation is divided into “good” and “bad” money (e.g., copper and silver coins of equal value), and that bad money will soon replace good money. This manifests itself in a greater willingness to spend the “less good” money before spending the better money, effectively driving the good money out of circulation.

Interestingly, this also applies at the level of virtual goods when considered from the perspective of collectibles. It is worth noting that collectibles are the predecessors of money. Money is a social technology that enabled the expansion of civilization. Throughout the emergence of the first human tribes, tribal members practiced reciprocity among themselves. As the size of the group grew, so did the amount of reciprocity that needed to be tracked. Tribes that did not have a cooperative system eventually died out, but those that found a universal reciprocal tracking system were able to scale effectively and eventually flourish.

Before that, however, humans had evolved to look for collections with specific desirable attributes that would help solve the problems found in cooperation. While money has become our favorite tracking technology, collectibles have endured and remained consistent across all cultures, historical periods, and ages. To this day, trillions of dollars worth of physical collectibles remain around the world.

In Szabo’s book Shelling Out, he explains how Mengele found the following characteristics of “intermediate goods” that increased expectations and became collector’s items.

More security against accidental loss and theft. For most of history, this has meant carrying it around and hiding it easily.

It is harder to counterfeit its value. Ridiculously expensive items become desirable, not unlike the Zahavian signals we observe in nature.

Their values can be more accurately predicted by simple observation or measurement. These observations would be more reliable, but less costly.

As Tony Sheng points out, pre-encrypted digital commodities can be considered very unreliable compared to physical commodities that can be held, certified and sold. They continue to exist in isolated databases and walled gardens, offering virtually no ownership to the user and often only with the permission of the issuing company.

“an ‘owner’ with a crypto digital item faces substantial liquidity and trust risks, with pre-crypto digital items being issued by a centralized authority party that manages the digital item (risk 1), can influence supply as desired (risk 2), and often limits the ability to trade the item (risk 3). A good digital collection should be valuable at least in more than one order of magnitude.”

According to Gresham’s Law, people should prefer better versions of digital collectibles, and users will soon replace non-cryptographic collectibles with crypto collectibles, storing hundreds of millions of dollars in value, and better digital collectibles should have at least as much chance as “digital gold”.

In short, blockchain offers stable cryptocurrency and digital products. Both of these opportunities are in the trillions of dollars and, if realized, will have a broad impact. Today’s cryptocurrency and collectibles are problematic, but the path to the mass market remains unclear and carries significant execution risk. While users should like better digital products just as much as they like better currencies, existing currencies are unlikely to support the popularity of cryptocurrencies, and the crypto-native social world is unproven and still requires considerable time and effort. Despite these challenges, there will eventually be a shift to better digital products, which is a win for users.

The Road to Universal Access

In the short term, much of the activity is likely to be driven primarily by speculators. Crypto experts have been toughened by previous bubbles, and despite the massive crash in 2018, most of those who stayed have made good gains. There is still a significant amount of opportunistic capital in the ecosystem. the Nonfungible 2019 report predicts that $250 million in value will be traded in 2020 in the form of NFT, but that number has proven to be underestimated. As a result, we occasionally see news of artwork selling for $750,000 or NFT cars selling for $113,000 make headlines, which inevitably attracts the attention of everyone around.

Broadly speaking, there are four main categories that have started to attract different users so far: art, collectibles, virtual worlds and games.

When NFT meets Metaverse, everything will change

The art community has always been inclined towards technological progress and willing to engage with new technologies, so I’m cautiously optimistic about the art experimentation angle. Interestingly, “crypto art” seems to be the first NFT category to really find a product market fit, where the technology needed to realize its core value proposition is already in operation. Due to the reduced frequency of exchanges, there are fewer issues with scaling when moving art on the chain, and the user experience is in a tolerable state that is not too disruptive to users.

The space has already attracted creators with large followings, such as Beeple, who sold $3.5 million worth of art in a single weekend. Since then, secondary market sales have almost doubled.

When NFT meets Metaverse, everything will change

Another category that is about to see results is the collectibles market, where branded IPs such as the NBA, Global Football League and UFC are releasing content in the nature of tokens to fans. Kylian Mbappe recently sold a portion of a global fantasy soccer game for $66,000, and there are rumors that the game will close with a $300 million valuation, and Ja Morant’s Phoenix Suns dunk sold for $100,000. Both of these collectible areas have seen significant growth in 2020, but NBA Top Shoot has already surpassed the previous year’s sales in the first 3 weeks of January. This is another area that draws a large audience and will likely appeal to the most passionate group on the planet: sports fans.

When NFT meets Metaverse, everything will change

In other areas, blockchain-based virtual worlds are still selling assets for $50,000 or more to users after an initial boom. In other crypto-based virtual reality worlds, such as Deep Space and Cryptovoxels have reached a level of interoperability where you can play one world in another. These are both games and platforms that seem to resonate with asynchronous operating teams spread across the globe. Tribes, corporations, and even large companies are starting to develop virtual headquarters where employees and fans can meet.

When NFT meets Metaverse, everything will change

Axie Infinity is a Pokemon inspired digital pet game that allows users to trade, breed, battle, and even develop virtual real estate (statement of interest: my company is involved in their token building and investment). Driven by a solid economic backbone and enthusiastic users, it seems to be entering a parabolic growth spurt

Axie is probably our best example of a game that demonstrates the help cryptoeconomics can bring in terms of user popularity (11.6x user base growth in 2020), increasing loyalty, and providing a sound incentive structure. The game adheres to the spirit of blockchain gaming, with all data and game assets accessible by third parties, allowing others to build tools and experiences for the Axie universe. In addition, the team is committed to making Axie Infinity the first game that is truly owned and operated by players. As such, the ultimate goal is to shift to a decentralized structure over time.

To help make this happen, the game has (and will continue to) issue something called a management token to players in the ecosystem, with the amount issued being proportional to their participation. The token gives the holder the right to vote in key decisions to allocate community funds, which sit on a chain of smart contracts. Narrow it down a bit and think about the idea that players could vote on resource allocation, such as new maps, weapon tweaks, cross-game partnerships, and maybe even ultimately which development team to sign up to build the next season’s content.

When NFT meets Metaverse, everything will change

Axie Infinity represents a “play-to-earn (P2E)” environment that, unlike existing games that rely on gold swiping, has actually allowed many people in the Philippines to earn more than their family job pays during the COVID epidemic, and one of the most fascinating aspects of these technologies is recognition that virtual gaming worlds can actually level the economic playing field on a global scale.

It cannot be ignored that as more and more people discover these opportunities, word of mouth will spread quickly in the community. For years we have heard the hollow phrase “bank on the unbanked” in the crypto space, but what if this is what it looks like? What if the game that is leading the virtual economy is a Trojan horse brought to life with blockchain and crypto?

In his book “The Virtual Economy”, L Atelier mentions that “the anonymity offered by the virtual economy eliminates the traditional features that would deny vulnerable people access to the opportunities presented by huge industrial change. The remarkable uniqueness of the virtual economy is that almost anyone, young or old, rich or poor, regardless of gender, race, religion, geographic location, heritage or social status, has the potential to succeed if they have the intellectual, decisive and technical ability to see the opportunities that arise therein”.

When NFT meets Metaverse, everything will change

A documentary that tracks the early evolution of the virtual economy, Play Money, left me with the interesting impression that gold swipers have a high stickiness as players themselves. Of course, one would think that after 10 hours of playing gold on someone’s account in the West, people in remote Eastern communities might have lost interest in the endeavor. Interestingly, this is not the case. Once the gold playing job is over, they log into their personal accounts and continue to swipe gold in the game.

I’ve often heard that once a game becomes a for-profit game, it loses its meaning because the core of the game is fun, but there’s not good evidence of this yet. I know firsthand that many players involved in high-stakes PvP battles at the high end of MMORPGs use it as supplemental income. Good FPS players also regularly participate in tournaments with prizes through third-party platforms. While I’ve never experienced a situation where income is entirely dependent on playing a certain game, I think that the monetary element actually tends to enhance the fun of the game, and these attributes are already present in the ecosystem of games like Axie Infinity.

When NFT meets Metaverse, everything will change

Finally, I think it would be disqualifying not to focus on the core early players in the ecosystem. For example, Dapper Labs, developer of the famous game CryptoKitties, closed another $12 million round of funding in 2020. They now have a total funding round of $50.9 million, with backers including large traditional companies such as USV, Samsung Ventures, a16z, Venrock and Warner Music Group. They are currently developing the largest crypto game to date based on experience and the expansion limits of networks like Ether, working on building the previously mentioned Flow blockchain.

In addition to the large amount of capital on the table, its backers cover multiple areas where synergies can be made. For example, as far as I know, they are already working with well-known brands such as Dr. Seuss, NBA, UFC, and Ubisoft. It’s also encouraging that Spencer Dinwiddie invested in Dapper and André Schürle invested in Sorare, a global fantasy soccer game backed by a limited edition NFT, like the already sold out Mbappe.

As mentioned earlier, it’s unclear whether these purpose-built blockchains have a better chance than Ether as new scale-up solutions emerge, but attracting big brands to this nascent world is a win for the entire ecosystem.

In the medium term, we can expect the business model brought by the early winners (perhaps Axie) to further attract large studios, brands and creatives. For now, most consumers are convinced by their ingrained trading habits and people still don’t know or care about any alternatives. I think to change this, the crypto industry has to make a compelling experience and show us all the new features available. In the process, it will highlight the stark contrast between the old model and the new, open and collaborative model. If we can do that, I believe these technologies will automatically expand.

People can use tokens to incentivize and reward certain fan behavior. While not technically using NFT, projects like Socios are using soccer fan tokens that empower users and make them feel like stakeholders in the brand, a recent example being Juventus fans being able to decide their home goal song. All of this is done while securing additional revenue streams in ways that are digital, secure, transparent, and directly driven by the value-added experience of their user base.

Ultimately, these types of programs can become platforms where brands can coordinate their audiences. For example, Pokemon Go-style AR using gamified positioning could inspire users to complete certain real-world tasks. Perhaps collecting a location proof NFT while standing in line outside a new fashion boutique could give you access to a limited edition discount in the future. The only limit to these technologies at the moment is our imagination. As the world becomes more familiar with this new tool, I can be excited to see how it enhances consumer behavior and leads us to a more interactive and engaging digital scene.

Another area of interest is the rise of social tokens, a close neighbor of NFTs, which help enable similar functions related to user building, coordination and interaction. They are traded in a way we have never seen before and in an interesting way based on personal brand assets. More importantly, they can be used to incentivize behaviors such as publisher subscriptions to news, participation in product testing or engagement with creative content that may need to be tested.

Once a token community is formed, these new tools could become a force to be reckoned with in the overall creator economy. They allow the most ardent fans to look favorably on creators early on, often before the artist has become famous. While the line between it and securities law may be a bit blurred, I believe that the structure of these tokens and their associated laws will eventually be harmonized.

On a longer time scale, it is clear that the world is becoming more digital and COVID has become a huge catalyst for many potential trends. The viability of telecommuting has been proven on a large scale: it has shaken up our perception of and relationship to the “workplace”, which in turn is driving people to spend more time in the digital realm. Combine this huge investment in network infrastructure with the advanced satellite Internet network being rolled out by Starlink, and we can begin to speculate on what the future might look like.

Do people end up living in densely populated cities, and are we seeing a geographic shift as infrastructure from drone delivery to advanced solar technology provides a greater range of options for population expansion? I’m betting on the latter. As people become more dispersed in a local sense and more connected in a global sense, viable alternatives must emerge to replace the previously dominant modes of interaction. With dynamic technologies like real-time audio translation breaking down barriers to international commerce, blended with virtual reality simulations of key social cues like eye contact, body language and shared spatial awareness, we’re not far from disrupting reality. Many people are still skeptical about the practicality of VR as a replacement for real interaction, but I am confident that they will eventually be blown away by the features mentioned above.

Tim Sweeney: All the VR skeptics I’ve met have never tried this technology.

More broadly, the age of augmented reality is coming our way as well. A virtual film will soon be all around us, enhancing our perception of the natural world. Shabby billboards will one day emit dazzling pulses of light as fractured paint interviews compete with the dazzling neon pixels above them, the same world but a different space. Over time, our digital presence will be as important, if not more important, than our real presence, and people will equip their digital presence with digital products. Thus, the shift from direct-to-consumer (D2C) to direct-to-virtual-image (D2A) business models will show us that virtual images are already important forms of self-expression.

The infrastructure of this beautiful new world is evolving, and we will one day reach a point where everyone can choose to live, work and play entirely within the metaverse. In this world, the value of native digital, decentralized mechanisms for distributing and managing scarce and unique digital “stuff” cannot be overstated.

Balaji Srinivasan: “Anything that is scarce will eventually be symbolized because the benefits of digitization and increased liquidity are so great”.

One interesting project I’ve invested in is Crucible, which is a pioneer of the aforementioned incarnation business model. The company is building a software called Emerging SDK that aims to provide game engine developers with a convenient portal to access new decentralized Web 3 technologies (NFT + DAO’s + DeFi) and player networks and marketplaces where players can invest billions of dollars. These users are given the tools to maintain and protect the same identity in the virtual world and prove ownership of their accumulated value in the form of skins, digital collectibles and other in-game assets, which appear to be the most solid foundation for the incarnation economy system. crucble also leads the blueprint for Open Metaverse, a cross-industry consortium focused on advocating for open standards built on a metaverse.

While still in its early stages, cleverly embedding these technologies into the game engines themselves could accelerate their popularity as it becomes easier than ever for developers to experiment with them and players to expand their horizons.

New business models

I think it may be necessary to mention the larger issue that the main barrier to the use of crypto by large game publishers still exists. It’s hard to think differently when they’ve spent years refining their cash-generating systems around user lock-in, platform-specific spending and near-predatory psychological practices. This is especially true when there are concerns about shareholder liability and the possibility that strange changes to a functional business model could be undone. There are many new ways of approaching the topics I’ve talked about, all the way down to game design itself, that need to be adapted to the new economic status quo. There is no denying that the idea that handing over economic control to your users will fundamentally open up new and potentially larger revenue streams is counterintuitive at first.

Nevertheless, the power of innovation will eventually trump the element of self-preservation. So far, one only has to glance at the broader impact of crypto on the world to see this. Remember, crypto as a whole is open, not closed. As communities form around blockchain games, players feel like they have actual ownership, whether it’s the virtual goods tradable within them or the stewardship of their surroundings, which can easily spread to more people. We are starting to see the ultimate form of user acquisition, driven in large part by early adopters. Not only that, but ARPU in these new virtual goods ecosystems is significantly higher than user ARPU in non-crypto-economy games.

Thanks to this new era of interoperability, partnerships between games allow you to use another set of virtual assets in one virtual environment (possibly for limited-time events), opening up new dimensions of growth in a way that benefits both. This more expansive and outward-looking shape seems infectious, and I think it will eventually disrupt the entire industry structure of forming tribes around individual games. The opportunity is there, it’s just waiting for people to embrace it. If I’m going to develop an indie game, I know what to look for. Instead of competing with existing rivals, why not work together to make the market pie bigger? It’s no different than Tim Sweeney’s approach at Epic Games and their approach to the meta-universe strategy.

Speaking of which, Fortnite provides an interesting example of a company surrendering control, not financially, but of their IP. as Matthew Ball points out, it is highly unusual for brands to choose to do this when they have no control over the editorial experience. For brands like Marvel Comics, DC Comics, and the NFL, I’m sure there would be endless discussions and plenty of indecision before licensing such a partnership. This game may be the only place where Star-Lord can meet Batman and Batman meet be able to meet John Wick Imperial Puncher, and these two brands have no say in how they interact.

He mentioned that “this is partly a reflection of the fact that Hollywood still lacks a clear strategy and ability to play the game”. As a result, they have no choice but to seize the opportunity. So, such cross-IP experiences are likely to become more common in the coming years. Reflecting again on the concept of increased IP mobility, what might happen in the future as a whole new dimension of realizing such things opens up?

When NFT meets Metaverse, everything will change

As an example, the day after I logged into Fortnite, I spent some of my hard-earned V-Buck (game coins) on God of War Qui-Gon. This linkage could draw the attention of fans of both games. In the world of crypto, maybe I’ll be able to get a special style of Master Qui-Gon imagined for having the God of War Platinum Trophy. Imagine how huge the demand would be if these skins were limited edition and could be traded through a secondary marketplace operated by Fortnite. Through this secondary marketplace, they could charge a commission. Maybe in order to qualify for the airdrop, I need to complete a feature in another game, or better yet, in another type of media, and maybe I can’t get the Mandalorian Legend skin until I watch everything on my Disney+ account.

We can actually make this happen elegantly without having to sacrifice Fortnite/Disney+ user data validation. The point is, there are a lot of exciting ways to spur interaction and cash in through it, and it doesn’t have to take the form of opening treasure chests, cashing in on ads, etc., and it doesn’t ignore the fact that people’s time in the game and in-game purchases are also a form of investment.

Tim Sweeney: I have an aversion to business models that are antagonistic to the consumer, where you make money by doing something that hurts the consumer experience. A sincere business model makes money by selling consumers what they want, or by providing a great experience to the user and making money from the economic activity surrounding the entire experience.

More broadly, one of the most exciting aspects of the NFT space is the funding model that is still being explored. For developers and creatives, a whole new mechanism for realizing cash has been unlocked. For the first time, selling “land” or personal items in virtual worlds has become a viable way to cash in. As virtual worlds have become increasingly popular, projects like Cryptovoxels have been able to become self-sufficient by auctioning off scarce virtual real estate. In this particular example, we even see the stratification of different virtual communities as artists spontaneously band together in certain places (it has become increasingly popular for crypto art collectors to showcase their work in virtual galleries set up in blockchain-based virtual worlds).

Art platforms like SuperRare allow artists to cash in directly by selling tokenized digital art. They are now able to collect licensing fees in perpetuity on secondary market sales, something that would normally be impossible or very difficult in the traditional world. How long will it take for similar options to expand to designers of game assets, builders of UGC worlds, and other creative media? The global shift to a creator economy is underway, and as automation increases, the workforce will decrease, and recently COVID has accelerated our transition to digital. We are really only at the tip of the iceberg as crypto’s ability to move away from intermediaries proliferates across multiple verticals and dramatically breaks down the boundaries between creators and consumers.

When NFT meets Metaverse, everything will change

While gaming represents only one of these areas, I believe it is the most essential and rich area associated with the meta-universe. Over the past 20 years, the communities that have formed around games have evolved into a physical economy. Gamers assign value to virtual goods based on perceived status and function. In this way, these digital worlds provide a unique environment to study economics while being able to track (almost) all inputs and outputs. They allow us to glimpse how the emergent value of native digital goods is assigned, and how this value seeps into the real world, such as the Venezuelan gold-beating studios.

Games teach us that rarity and sought-after items are critical to driving competition and creating dynamic markets. They teach us about emerging cultures that transcend geographic boundaries, often with rich histories, knowledge, and traditions. They teach us about effective distributed organizational structures, governance, and decision-making. The large guilds that are gradually forming in top MMORPGs show us that such order can not only be achieved without imposition, but also teach us that community activity is a key driver of longevity in the digital world.

More importantly, they reveal the resulting outcome in the form of an endowment effect: even if a “better” world emerges that deserves equal or greater consideration, humans would prefer their own. With crypto, a large guild does not have to choose; instead, they can support cooperation between the two. In the eternal quest for continued participation, games have shown us the dangers of inflationary growth at all costs, and many gaming economies have ended in ruin. As more value is digitized in an infinite metaverse, some guarantee of scarcity will become important.

Video games show us the need for virtual labor realizations for almost everyone. In a global marketplace, we can predict that poorer countries will continue to export these services, and in the process provide the forces that shape the market. Most gaming economies do not really operate within an identifiable regulatory framework, and so can provide additional insight into how virtual economies are unregulated. Studying gaming communities gives us key insight into how new crypto technologies can be quietly integrated into the virtual communities of the future in a way that is synergistic with natural evolution.

Investable Areas

I want to talk about how this investable universe is expanding dramatically and breaking down barriers to entry. I’ve noticed that the uniqueness and tradability of content can play a huge role in the creator economy, but let’s talk about this now in the gaming space. Before crypto, there were very limited options for wondering about the economic risks of a game you thought was going to be successful. Perhaps, if you were lucky enough, the company behind the game was already publicly traded and focused primarily on that game. Or, some of the investors in an ideal private game company might be held by a public company like Tencent, through which you can seek proxy exposure. If you are more generalist, you may dabble in the gray market of account or item trading and face potential threats.

In crypto gaming, not only are there direct avenues of exposure, but you can also see a variety of options at the same time. As the financialization of games and other virtual products such as crypto artwork increases, we are likely to see the birth of a whole new generation of investors. As developers are able to raise money from a wider pool of funds, the variety of ideas to actually get funded is likely to increase rapidly, and perhaps we’ll finally see an increase in the total amount of capital available to the gaming industry.

Returning again to the case of Axie Infinity, users will see a number of options that can both invest and generate a return on their investment. Remember, they exist on a global liquid market where anyone can buy and sell. Importantly, there is also access to most of the following.

Purchase of individual Axies (which can be traded, fought or profited); Purchase of in-game land (which can be used to provide services for profit); Purchase of items (placed on land usually with features such as value increase); Purchase of SLP and in-game ERC-20 tokens for raising Axies; Purchase of AXS management tokens (which can be used both to gain additional income in the distribution of community wealth resources and to get voting rights)

Presenting all these opportunities to users also gives the opportunity for fair realizations for game maintenance and development. The following are corresponding examples of fee-based business models that earn a portion of the value flowing through the game’s economy.

Bond curve auctions for rare original Axies; primary auctions for rare virtual properties; primary auctions for rare game assets; token sales to early strategic investors and subsequent public sales; in-game spending fees for upgrading characters, developing territories, or manufacturing; in-game combat and tournament fees.

When NFT meets Metaverse, everything will change

As a reminder, starting in the first quarter of 2021, all fees and major sales within the Axie universe will go into a community vault managed by AXS token holders. Currently, the market share of revenue from raising Axies is 4.25% and the cost of raising each Axie is 0.005 Ether. In November 2020 alone, this represents $250,000 in revenue. This applies not only to Axie, but should give a sense of the evolution of generic investments on the network.

Another idea to consider is that while these technologies offer new opportunities for participation, they also offer opportunities to get out of the game. This leads to an excellent incentive mix, where players actually have the ability to effectively “fight back” if the game goes in a less-than-satisfactory direction. Literally, the user base can sell off their assets and exit the game, causing prices to plummet and affecting the operator’s primary source of revenue. These dynamics may keep game creators on their toes, rather than the blatant haphazardness and complacency we’ve seen in recent years at many 3A studios.

In fact, it is theoretically possible to “fork” an entire game, allowing third-party developers to build a parallel version of the game around NFT, with users free to transfer their assets to this new version of the game and continue playing. It remains to be seen how long it will take to develop a game that incorporates these features and is produced by a continuously rotating team of developers. Third-party developers will make suggestions on where they want the game to go in the next year or season, and the player base can vote on who they want to be the next official development team.

Another one we’ve invested in is Yield Guild, which runs one facet of the game I’ve described. It is a guild that accumulates and matches rare and irreplaceable tokens with skilled players who deploy them to generate revenue in the game and other virtual environments. Economic activity manifests itself as swiping resources, fighting, farming, developing virtual real estate, and trading the rarest virtual goods offered by the nascent metaverse.

The broader vision is to create the largest virtual world economy to date by becoming the dominant force in multiple worlds. All profits generated by meta-guilds are automatically distributed to guild members through the YGG agreement. Interestingly, there are already other companies like Blackpool that are starting to realize this idea, and perhaps we will soon see more users banding together and investing in a massive collection of virtual goods, each group with its own goals and reasons.

Key Takeaways

Investors

As an investor, you need to keep track of many things that are constantly changing as various opportunities arise. Within the industry, we see traditional equity investments in developer organizations, investments in project tokens (including NFTs), and investments in agreements that support their projects. Traditional investment considerations such as team strength, utility and product-market fit still apply, but they are often just the beginning. In the evaluation of crypto, long-term value capture is critical.

As investors, we typically look for projects with multiple compound moats, and these barriers combined mean that the bigger it becomes, the harder it is to replace. In traditional markets, investors typically don’t need to stress test this angle too much because proprietary technology can get you far. The crypto industry is different in that its open-source nature means that projects tend to get redirected if the cost of protocol rents is too high.

Therefore, the defensive effect can only be achieved through a strong network effect. Assuming that the traditional market test and its potential network effects are considered robust, the very unique question arises for token economics and value appreciation: does the value created by the project count as tokens? If there is no token, then where is the value captured and by whom?

Areas to watch: crypto mediums, games, sandboxes, collectibles and art; the synergy of creator economies as content is realized in new ways; protocols that support the above areas; marketplaces for trading virtual assets; key infrastructure such as secondary solutions; major brands and IP holders that work with these technologies; large companies and brands.

While gaming companies may be able to understand this evolving landscape most intuitively, big IP holders and companies with any content creation component can begin to participate in this technology. We’ve already seen companies like Atari and Square Enix start to take action. In Atari’s case, they purchased a sizable chunk of land in The Sandbox, a blockchain-based virtual world, where they are developing 3D versions of classic games like Asteroids, Pong, and RollerCoaster Tycoon.

Outside of crypto, we are already seeing some companies adapting to new distribution mechanisms. Gucci, for example, already sells clothing in its Roblox games, Fortnite has tried partnerships with IPs like Star Wars, and Snapchat Bitmojis have partnered with companies like Ralph Lauren. Matthew Ball points out that gaming as an entertainment sector is unique because each new format is almost always additive.

The typical disruption model doesn’t always apply to games, because each new form is so different. What makes the use of blockchain so interesting is its ability to penetrate all devices, platforms and content types. With the emergence of concepts such as direct incarnation commercialization, it is important for companies to stay focused and aware of new crypto tools that have the potential to intersect with these trends.

When NFT meets Metaverse, everything will change

Importantly, the success of these pro-encrypted content types does not necessarily require competition with other types of content. While we have noted that what it brings is often additive, this is the first time that a new content type itself has expanded the universe of investable content and therefore increased the pool of money available for that content area. More importantly, the content itself has unique characteristics that make it more popular, such as true ownership, apparent scarcity and provenance. For example, Muhammad Ali’s boxing gloves from the Battle of Fraser are worth a lot of money due to their historical significance.

Virtual goods currently have no such attributes; how would fans price the skins Bugha used in the Fortnite World Championship? Or the character costume The Weekend wore at a live Tik Tok concert? These are all new value drivers, and as such may attract new types of demand.

The key advantages of building virtual objects and experience strategies are (not limited to crypto): unlimited scalability; zero marginal cost of production; freedom from realistic laws; low-cost, high-velocity creative prototyping; community sharing for enhanced attention and promotion efficiency; ability to generate ongoing revenue through secondary sales fees for virtual objects; and expansion of user base at an unprecedented scale through collaboration (maximized through interoperability).

Entrepreneurs

The new tools available mean that there is now an incredible opportunity for entrepreneurs who want to build digital products and experiences. Thanks to composability, participants in the ecosystem are able to pick and choose the critical infrastructure to accumulate because they can stand on the shoulders of everyone ahead of them. Encryption technologies provide extremely fertile ground for experimentation, and the subtlety of these technologies is that they have incredibly tight iteration cycles that allow for faster integration of innovations that do not require a license. Small-scale experimentation allows developers to take advantage of real market environments and “test in product” with real-time user feedback.

Those interested should be familiar with the following areas: Bitcoin and Ether, crypto-economic models; DAOs, DeFi, NFT, social tokens, crypto-mediums; new business models unlocked by decentralized networks; new management models unlocked by decentralized networks; the intersection of crypto and new trends, such as personas.

Conclusion

Consumers’ entrenched behaviors are on the cusp of change as powerful alternatives proliferate. The virtual world is becoming increasingly financialized with the release of technologies that connect thousands of isolated virtual economies. Monitoring the changes in branding within the metaverse, and the strategies that existing brands are adopting to tap into this potential space, will pay dividends for those who follow it. Businesses, brands and creatives cannot stand idly by as the digital future beckons.

Understanding how to build and participate in digital communities, and the tokens and networks that may be tied to them, will bring advantages. Virtual goods are becoming an asset class in their own right, but most people still don’t notice it. While I have talked about some of the emerging business models, it is important to emphasize that we are still in the earliest stages of an explosion of innovation and experimentation. Whatever vision we have for the future will likely not emerge. Let a combination of a good understanding of the new tools available, a willingness to really explore them, and imagination be the main leaders. Don’t be afraid to improvise as necessary, and those who act quickly will be rewarded accordingly.

Being a “crab eater” is not a terrible thing as long as the consequences of mistakes are manageable.

When NFT meets Metaverse, everything will change

As each challenge is overcome and we inch closer to standardized, scalable processes, it will move the entire ecosystem into the mainstream. With trillions of dollars flowing through its economic system and enabled by decentralized Web 3 technologies, the metaverse will put users front and center; giving every member of our species access to new places of opportunity. A modern digital renaissance is happening on the grandest stage we have ever seen, and it will connect billions of people.

In the next few decades, a new era of virtual existence will open, marking the next great milestone for us as a networked species. Looking closer, it is clear where we are headed: that is into the void.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/when-nft-meets-metaverse-everything-will-change/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

Like (0)
Donate Buy me a coffee Buy me a coffee
Previous 2021-06-01 01:00
Next 2021-06-01 05:41

Related articles