Metaverse series #1: Why should we care about the metaverse? Because it is the next iteration of the internet...

The "metaverse" is one of the hottest buzzwords in tech and is essentially the vision of a massive, interconnected network of virtual spaces, that uses technologies such as virtual reality and augmented reality to fully immerse users in a 3D virtual world. While the metaverse is at an early stage of its evolution and the hype is undeniable, we are seeing increasing commentator agreement that the metaverse will be the next iteration of the internet: and as such it is a key topic to explore. In the coming months our tech sector team will be examining specific areas of opportunity and risk in this Tech Insights metaverse series.

Early engagement is key

An increasing number of serious players across various industries are focusing on the metaverse, many of whom are considering a specific metaverse strategy. Microsoft’s chief executive Satya Nadella says the metaverse has the potential to “not only transform how we see the world but how we participate in it, from the factory floor to the meeting room”. Facebook is so confident in the future of the metaverse that it has renamed itself Meta and intends to spend $10bn per year on its metaverse division.

As we see examples of established financial institutions buying up metaverse real estate (such as JP Morgan's virtual lounge Onyx), it seems clear that there will be opportunities for those that engage early. Simply understanding what the metaverse means now and what it could mean for businesses in the future is an important first step in any organisation’s metaverse journey.

The vision of a mass online realm

We already have virtual worlds created by online games such as Roblox and Fortnite featuring live concerts and online shops where some people already spend hundreds of hours. Indeed, games can be considered the “on-ramp” to the metaverse given the great developments that have been made in tech design and graphics in the games space. But enthusiasts see a future way beyond games where entire societies thrive in an online realm inhabited by avatars of real people.

The vision is not just for users to create avatars that represent themselves in virtual worlds and interact with others, but also to engage in a wide range of activities including shopping, banking, healthcare, education, media and many other forms of social experiences and ecommerce.

Metaverse tech

While some games require you to use a virtual reality headset (such as Meta’s new Oculus headset and hand tech), tech commentators are expecting that most of the metaverse will be accessible as the internet is now, on phones, tablets or PCs.

We now have what many consider to be metaverse prototypes (virtual worlds that move beyond games), most notably user-created virtual worlds Decentraland and The Sandbox – and their virtual real estate is proving valuable. The Sandbox, which has reached 2m registered users, saw 65,000 transactions in 2021 totaling $350mn. According to the FT, during 2021, ‘Land’ values rose considerably, from $100 per Land in January to $15,000 in December.

The metaverse looks likely to build on the idea of Web3: a decentralised internet where blockchain technology makes it possible for users to control their own internet identity without the involvement of third parties. Blockchains also enable smart contracts which open a whole new world of ecommerce – from virtual to virtual, virtual to physical and physical to virtual. According to a report from the Investors Chronical Into the metaverse “The goal for tech companies is to wrap this marketplace in immersive augmented and virtual reality worlds”.

Given the blockchain basis of Web3, DeFi and crypto are expected to be a key component of the financial infrastructure, products and services in the metaverse (which can be neatly coined “MetaFi”). For the same reason NFTs are also expected to play a vital role in providing proof of ownership for metaverse-based property and digital identity in metaverse ecommerce.

It’s not here yet….the metaverse still needs to be built

In 2021 the metaverse arrived as a concept with the IPO of Roblox and Facebook rebranding to Meta and investing heavily in metaverse development. However while many of the building blocks of the metaverse already exist, a future where all these virtual worlds not only interconnect but stretch into pretty much every realm of activity is still some way off. In a sense, it would involve rebranding the world of games to encompass almost every aspect of daily life.

In a recent report on Metaverse and Money, Citi GPS coined the phrase the “Open Metaverse” –  a would be community-owned, community-governed, and freely interoperable version of the metaverse that ensures privacy by design. But we simply don’t yet have all the tech solutions to make this possible. 

The far-reaching vision of a next-gen internet will rely upon an entire ecosystem of players to come together and make it a reality. Achieving the level of interoperability envisaged by the Open Metaverse within that ecosystem will be a huge technical and commercial challenge. Perhaps most crucially tech companies are going to need to work together in a way they haven't before – and way beyond the current walled gardens of virtual experience.  

The recently launched Metaverse Standards Forum is now leading the conversation between standards organisations and companies, with the aim of fostering the development and accelerating the deployment of interoperability standards for the Open Metaverse.

The legal challenges

The Open Metaverse will also present a number of novel and interesting legal challenges that will need to be considered, including in relation to intellectual property, theories of harm, jurisdiction and employment. These will need to be addressed by lawmakers and regulators and skillfully navigated by participants as the digital economy continues to expand and diversify. We will be considering some of the key legal issues presented by the metaverse in more detail throughout this Tech Insights metaverse series.

In the meantime, read more on the opportunities and risks in the metaverse in the lead article of our Tech Legal Outlook 2022 - Mid-Year Update.

Read the full Metaverse blog series here Contemplating the metaverse: Opportunities and risks (linklaters.com)