Building A Sustainable Economy In The Metaverse

At the moment metaverses appear to be à la mode and you can find many start-ups across the digital world. With both the tech behemoths of?Microsoft and Facebook?determined to make their mark within this virtual space as quickly as possible, many are questioning how these new metaverse spaces will work from an economic perspective. Hence the term “metanomics” which is used to describe the economics of a virtual world.

Many fans of the metaverse will quickly point out that some serious sums of money have been made buying and selling land, properties, art works and digital assets across various platforms. For example, in the game Second Life, the equivalent of Amsterdam was sold for $50,000 in 2007. Within the virtual game Entropia Universe, a nightclub went for $635,000. Also in 2007 an elf called Zeuzo, who appeared in World of Warcraft, was sold for $9,500. Finally fans will point out that $3 million was won in prize money by a 16-year old through playing the Fortnite World Cup. At the other end of the scale we have Beeple’s artwork selling for an astounding $69.3 million.

Though these examples let it be known that large sums of money can change hands through buying and selling assets on a metaverse, they don't fully point to a self-sustaining virtual economy that works. At some point in the process, people are hoping to cash out their winnings in good old fashioned fiat currency. In fact, we would suggest it's this dream of increasing fiat-based wealth that drives investors and chancers towards the metaverse. After all, it represents the latest possibility for millennials and zoomers to become wealthy overnight.

In 2009, within the game EVE Online, some very clever big brains created a bank which they called the E-Bank. This was essentially a Vostro account system, which is pretty much the same as you would find in any Central Bank around the world. With this, they were able to issue loans as well as pay interest. We must confess that the bank was very well put together, with a CEO and a board of trustees. Unfortunately everything fell apart when the CEO decided to rob his own bank of 200 billion ISK (which is the currency of Eve). This was swapped for a mere $6,300 Australian. Yet in spite of the bank's sticky end, for a short period it was a trailblazer in helping to create a real functioning economy within a virtual world.

Some might argue that with so many people interacting with portable devices, laptops and desktops, we are already living in a virtual environment where there are real economies. For example, it's quite possible to trade cryptocurrencies online. In fact there are many examples where the lines between the virtual world and the real world have become blurred. We can see this on an almost daily basis, that millionaires can be minted and then bankrupt whilst playing with virtual assets. Many see metanomics as a hedge against real-world events in the same way that many hodl Bitcoin as a hedge against inflation in the real world. Of course, both the virtual and real world mirror each other in that when we see the real world economy taking a dip, then this has a direct effect on the virtual one.

Today there's a huge buzz surrounding NFTs and the idea of having a ledger-based exchange allowing people to trade. It’s bonkers just how quickly the NFT marketplace has grown to over $43 billion. For many this is a sign that Ethereum blockchain-based virtual economies are already here to stay. In some ways, it's almost shocking to think that the NFT marketplace, OpenSea, is valued at almost $1.5 billion. And though a coterie of investors might be making some amazing profits, there’s a fly in the ointment that needs to be addressed. Especially if the virtual economy is to keep growing and not just slowly peter out with a whimper.

In many ways buying an NFT for many people is for the same reasons that they would purchase physical goods. These can range from peer recognition, status or being able to belong to a certain group or community. Hence we have an NFT marketplace for excludables, which confers status on the ownership of branded NFTs. In this respect, NFTs and the metaverse represent the possibilities of creating new and diverse communities.

NFTs and metaverse in one spot — Next Earth

But there is a basic problem. This is the glaring lack of utility that comes with ownership. In other words, in a real economy, you're able to do something with purchased assets. So if you buy a new car in the real world, then you’re able to make use of it to travel or take the kids to school. But if you purchase an NFT on OpenSea, sure you can tell everyone that you own it, but there is nothing you can actually do with it. Add to this that all metaverses are in the process of forming their own platform standards and protocols. Because these marketplaces are so new, they are like the Wild West, without laws, codes of conduct or regulation. Unless this process happens quickly, then any delay could cause a lack of integrity leading to the failure of virtual economies across all metaverse platforms.

Another huge problem comes from the many different metaverse platforms being developed. By nature, the idea of the metaverse is not singular, but should include many different metaverses whereby the user or player can instantly jump between one or any other. But being able to transfer digital assets between different platforms, be they a pair of virtual Nike training shoes or Ray-Ban sunglasses for your cool avatar is still a process far ahead over the horizon. The fact that each metaverse platform makes use of its own token only adds to the idea that to connect all these diverse economies is going to be a Herculean task.

One of the major obstacles to entering into the metaverse is the fact that it requires a certain savvy understanding of how cryptocurrencies function. In many of today's metaverse platforms you will need to convert your fiat into Ethereum, or another recognised cryptocurrency, and then use these with Metamask in order to make your purchase. Once done you'll need to mint your new asset as an NFT. Each one of these convoluted processes will incur a fee. Unfortunately, the sheer number of hoops necessary to jump through in order to secure a virtual asset, ensures that the general public, who might want to participate in a metaverse project, simply can't because of a basic lack of understanding.

Right now there are any number of metaverse platforms that are built around the purchase of land assets. Some of these metaverses will focus on developing a game. Others like Next Earth have plans to construct an economy based around business rather than gameplay. We can see from the metaverse platform Decentraland, that a functional virtual economy is possible providing both users and investors can find utility within the assets they are purchasing. As governments look to regulate and control the whole cryptocurrency space, there are certainly going to be interesting times ahead.

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