METAVERSE: A POLICY PERSPECTIVE

IS IT WORTH TAKING SERIOUSLY?

The hype around the metaverse really started when Facebook rebranded its corporate identity to Meta in October 2021 and announced plans to invest at least $10 billion in that year alone. Many other tech firms followed suit with a range of announcements of billions they were to invest in the technology.

There was a significant amount of hype around the metaverse in the year 2022. That hype appears to have receded in 2023. Whether that is because of concerns around the technology maturity or business opportunities metaverse presents or correlates with the broader economic downturn in the economy is an important question for consumers, businesses, as well as policy makers.

In order to try and answer that question, we need to understand the term ‘metaverse’ more precisely, if that is at all possible. In this article I attempt to do this, as well as assess the maturity of the various components needed for the metaverse to develop into something that is not just niche uses cases, as is the case today.

Blue sky thinking

At a conceptual level, the metaverse can be thought of as any 3D virtual space powered by technologies where billions of people live, work, shop, learn and interact with each other, all from the comfort of their couches in the physical world. In an ideal metaverse, each person’s digital avatar will be able to move freely from one virtual experience to another virtual experience, where they can take their identities and their money with them from one virtual realm to another, seamlessly.

We are far from such reality today. Selling products and providing services in the metaverse requires a change of business models, the tokenization of products, artworks, digitalization, and the virtualization of services, which needs new a new economic mindset by all involved – we are far from even understanding what needs to be done today. The reality is that the metaverse today operates in many virtual silos, each with their walled gardens which are impossible to climb over. The metaverse today is not much more than a rapidly evolving idea. Discussing the metaverse in the year 2023 is a bit like discussing the Internet in the 1960s/1970s.

Nevertheless, the metaverse is not a new concept. Efforts have been afoot for decades:

• In 1992, writer Neal Stephenson published the novel 'Snow Crash', a dystopian story featuring a Metaverse urban environment complete with virtual real estate accessible through VR goggles.
• In 2003, San Francisco-based firm Linden Lab released 'Second Life', an online multimedia platform in which users create an avatar and build a second life in an online world.
• In the 2018 film (and book of the same name), 'Ready Player One', much of humanity interacts using the fictional OASIS virtual reality simulation.

Many people also view the development of the metaverse as the natural evolution of the Internet from Web 2.0 to Web 3.0, which in my view is frankly incorrect. Web 3.0 is about decentralization of the Internet, taking power from a few data monoliths and giving it to the people. Metaverse is about delivery an immersive experience. One may support the other, but they are not the same thing.

If the metaverse is likely to follow the trajectory as the Internet has done, it should produce the same diversity of opportunities as we saw with web 2.0: new companies, products and services will emerge to manage everything from payment processing to identity verification, hiring, advertisement delivery, content creation, security, and many forms of labor. This, in turn, may mean many present-day companies are likely to fall.

More broadly, the metaverse stands to alter how we allocate and monetize modern resources. With virtual labor, virtual goods, services and experiences, we’ll also see further shifts in where we live, the infrastructure that’s built, and who performs which tasks. If the metaverse develops into something truly reflecting its potential, it will alter how individuals live their lives, how businesses compete and how today’s governments and states receive taxation revenues, deliver public services and how they ultimately govern.

Back to the definition

There is no agreed upon definition of the metaverse. Each consultancy, each institution is making up their own definitions. Here is mine: the metaverse can be considered an evolution of the internet into a more spatially immersive, compelling, and frictionless 3D web, viewable by extended reality (AR, VR, MR), along with traditional devices (mobiles and laptops). The metaverse will build on today’s internet. Whilst the internet is something that people ‘browse’, people will be able to ‘live’ in the metaverse to a degree.

Whilst that evolution from today’s internet to the metaverse will take a lot of time and effort, when we reach the utopia that is the metaverse, we should experience a metaverse that:

• Is persistent – which is to say, it never 'resets' or 'pauses' or 'ends', it just continues indefinitely;
• Is synchronous and live – even though pre-scheduled and self-contained events will happen, just as they do in 'real life', the metaverse will be a living experience that exists consistently for everyone and in real-time;
• Is without any cap to concurrent users, while also providing each user with an individual sense of 'presence', whereby everyone can be a part of the metaverse and participate in a specific event/place/activity together, at the same time and with individual agency;
• Represents a functioning economy where individuals and businesses will be able to create, own, invest, sell, and be rewarded for an incredibly wide range of 'work' that produces 'value' that is recognized by others;
• Delivers an experience that spans both the digital and physical worlds, with private and public networks/experiences, and open and closed platforms;
• Offers unprecedented interoperability of data, digital items/assets, content, and so on across each of these experiences. This will mean your wedding outfit worn at a scheduled (virtual) wedding organized by your friend (which you bought from a metaverse market place through some cryptocurrency for example, could be used as a dress to a different (virtual) party you attend, or it could be gifted to a friend on/through Facebook or resold on a different metaverse marketplace with a different cryptocurrency. Today, the digital world basically acts as though it were a mall where every store used its own currency, requiring proprietary ID cards, with proprietary units of measurement – this will end;
• Is populated by 'content' and 'experiences' created and operated by an incredibly wide range of contributors, some of whom are independent individuals, while others might be informally organized groups or commercially focused enterprises, or the government or public entities;
• Will accept various forms of currency/payments to earn, transfer and spend on various product, services and experiences in the metaverse as we do in the physical world.

For the above utopian view of the metaverse to materialize, it requires three fundamental features to be present: (i) a sense of presence, (ii) interoperability across the entire ecosystem and (iii) standardization so it all fits together wherever you live, wherever you participate and whatever you do in the metaverse.

The key vectors required to deliver these three fundamental features requires significant advancements in:

(a) Hardware including processing capabilities, graphically interfaces, wearable technologies such as glasses etc. We are likely a few years away before the hardware developments and their costs structures can be easily deployed.

(b) Infrastructure including high speed low latency fixed and mobile networks that covers the globe, edge computing capabilities enabled through data centers that sit closer to the network, and widespread adoption of blockchain technologies and digital IDs. Whilst many developed countries have progressed with the deployment of 5G networks and fiber, take up has been slow. Developing countries are far from deploying such networks and universal digital IDs are far from reality today. Blockchain deployments are still in their infancy.

(c) Greater content creation and availability, such as digital representations of the physical world, NFTs and the legal and regulatory frameworks that allows ownership and rights in NFTs to be controlled and transferred. Whilst there has been a flurry of activities around NFTs, the legal framework around them is still evolving, and their applications have been predominately in the gaming space.

(d) Development of communities, just as in the real world whereby economic incentives exist for the virtual world to develop and be governed. Given the internet evolution took several decades before real communities were developed and economic incentives matured to the extent required to spur widespread activity, we are likely a decade or two away from similar economic incentives being available in the metaverse space.

I have already mentioned two technologies which are considered vital to the development and growth of the metaverse, these being virtual reality and augmented reality (mixed reality combines these to a large extent):

• Virtual reality is a simulated 3D environment that enables users to interact with a virtual surrounding in a way that approximates reality as perceived through our senses. This approximation of reality is now typically accessed through a VR headset that takes over a user's field of vision. Haptics, including gloves, vests and even full-body tracking suits, enable more lifelike interaction with the virtual environment. Whilst there has been a lot of development in this space, a lot more work is required to make VR headsets and haptics comfortable to wear and within the price point for the average person.
• Augmented reality is less immersive than VR but can be a bridge between the virtual and physical worlds. It adds digital overlays on top of the real world via a lens of some type. Users can still interact with their real-world environment. The game Pokémon Go is an early example of AR. Google Glass and heads-up displays in car windshields are well-known consumer AR products. Whilst advances in Artificial Intelligence (AI) is helping the development of AR products, there are just not enough out there to have an impact.

The reality of the development of the metaverse today is that there are to many missing components for a true metaverse to be imminent. Certainly, over time these components will come to fruition but that could be many years (or decades) away. To fill the missing gaps requires significant advancements in the following technologies over the next decade:

• Wider development and use of Artificial Intelligence (AI) outside of the current use cases;
• Deployment and use of Internet of Things (IOT) more widely, including the wide spread use of digital twins;
• Extended Reality which includes AR and VR with significant improvements in form factor and price points;
• Brain-computer interfaces so that people can interact with the virtual worlds more easily and without the need for clumsy headsets or similar devices. Something that has just started and where much more R&D is required;
• 3D modeling and reconstruction which will allow the creation of content for the metaverse for the masses and at an appropriate price point (including representation of today’s physical world). That requires some form of economic ecosystem to be in place to incentivize people and organizations to put in the time and enough to create these ‘representations’;
• Spatial and edge computing required for the very low latency virtual experiences required by a large concurrent number of users. Something that has started as operators deploy 5G networks and hyperscalers deploy more and more datacenters;
• Blockchain deployment (which don’t consume vast amounts of energy on solving useless mathematical problems) and the appropriate regulation of their use cases, as a means of creating trust, a mechanism for enabling transactions and the virtual economy to develop, as well as create accountability and records of truth.

The metaverse as it stands today however, is shaping up to be a multiverse: a multitude of metaverses with limited interoperability as companies jockey for position. If there were to be a single metaverse that is controlled by a single entity or a consortium of entities, that presents a major policy conundrum. If the metaverse shapes and controls what people think, do and spend their money on, then surely that entity or entities become de facto a proxy for the state.

How would present day governments have a grip in this virtual world? Today it may not be a concern given the limited size of the market and the actual number of people engaged with the metaverses, but as consumers migrate their physical worlds to the virtual world, it presents major challenges for governments as well as consumers (privacy concerns given users in the metaverse interact more deeply with their virtual environment – whereby users’ movements, bodily reactions and even brainwave patterns can be captured and processed leading to intrusive and extensive data collection); data rights and ownership; protecting minors; use of deep fakes; discriminatory treatments whether intentional or not, and so the list goes on.

Governments may have a vested interest in slowly down the development of the metaverse until they have a grasp of how they can control its development, how they can control the activities that may be conducted on the metaverse, how virtual activities that replace physical activities get taxed and how and what legal and regulatory framework can be relied upon to enforce the law and govern the metaverse where geographic boundaries disappear.

How forceful governments become will ultimately depend on how the metaverse evolves over the next few years. If the metaverse remains a domain of niche applications, used by consumers for entertainment and gaming but stopping well short of an all-encompassing virtual reality, governments may well view this as a fringe activity that does not warrant intervention. If the metaverse evolves to a situation whereby it is controlled by large competing ecosystems - for example, Apple , Google and Microsoft meta worlds, with limited interoperability, governments across the world may wish to impose quite strict regulatory conditions on such entities to protect their powers in the virtual worlds and protect consumers in their respective geographies. If the metaverse evolves to be a dynamic, open and interoperable space, much like the internet but in 3D then we are likely to see additional regulations introduced by each government. This scenario will also call upon much more collaborative efforts to develop a unified approach to regulation across the world, something that has eluded governments to date as they struggle to regulate the internet and global blockchain networks and cryptocurrencies that have emerged recently.

Whilst governments will attempt to control the evolution of the metaverse through the legal and regulatory system big tech will drive the efforts around standardization and interoperability, through defining technical standards and protocols. The risk is that some tech companies will attempt to shape the emerging metaverse standards so as to foster their business practices. Building the metaverse environment will give some companies unparalleled opportunities to monopolize digital markets. In June 2022, The Metaverse Standards Forum was announced which brought together 35 founding members to cooperate on interoperability standards needed to build the open metaverse. Its membership stands at over 2,400 as of July 2023 and includes many of the Big Tec firms See here .

So what next?

The metaverse, whilst has the potential to unleash many new opportunities and break down traditional barriers to social, economic, geographic mobility and create new ways to work, be educated and be entertained, will create major challenges for policy makers. How they react or don’t (as has been the case with crypto assets) will pave the pathway to how the metaverse evolves, irrespective of advancements on the technology front. Which governments take the initial lead will also determine how that pathway evolves.

The Chinese government recently published an Action Plan for developing the VR sector and integrating VR with industrial applications. The Ministry of Industry and Information Technology, the Ministry of Education, the Ministry of Culture and Tourism, the National Radio and Television Administration, and the General Administration of Sports of the People’s Republic of China collaborated to create the action plan.

The European Parliamentary Research Service published in 2022 a paper titled: ‘Metaverse: Opportunities, Risks and Policy Implications’. It noted that while the exact scope and the effects of the metaverse on society are still unknown, it can already be seen that it will open up a range of opportunities and risks in a variety of policy areas. The briefing highlighted possible effects of metaverse platforms on several policy concerns, including competition, data protection, liability, financial transactions, cybersecurity, health, accessibility, and inclusiveness. In its call for evidence, the commission suggested that preemptive regulatory steps may be needed to avoid the metaverse becoming “a more closed ecosystem with the prevalence of proprietary systems and gatekeepers".

Nevertheless, as the old saying goes – you need to measure something to control it – likewise, if the definition of the metaverse remains opaque (which technologies does it include and which are excluded) with no internationally agreed upon definition, it will create problems and delays in the policy making process within the respective countries.

One view tilt towards technology neutrality - since the metaverse must ensure users a range of guarantees equivalent to those provided by the legal system in the real environment, the technologies deployed are just a means to an end and thus regulations must remain relevant irrespective of how metaverse develops. The proponents of this argument, take the view that whilst existing regulations may not explicitly or exclusively target metaverse ecosystems, a vast regulatory apparatus already covers most aspects of business in virtual worlds. Of course, the application of existing laws to the metaverse will not be straightforward. There are some unique challenges and complexities that arise in this new space. The enforceability of some existing laws may, for example, be complicated in virtual worlds that rely on blockchain technology.

In its briefing, the European Parliament described the metaverse as “an immersive and constant virtual world where people interact by means of an avatar to carry out a wide range of activities”. That is all well and good – but practically speaking, which technologies and which business practices does this cover, so that policy makers can start thinking about what needs to be changed or adapted to the regulatory environment?

In a world where there are two diverging views evolving around the Internet, one around more openness and global integration and another around more censorship and control, it is highly unlikely we will see a happy unified view develop when it comes to the metaverse or its definition. That divergence is likely to get wider as trade and tech war escalates, supply chains “decouple,” and distrust between nations grows further.

One thing is for sure, the metaverse will be another tool wielded in the world of geopolitics.