Payment in Metaverse

The concept of #payments within the #metaverse , a term used to describe virtual reality environments where people can interact with a computer-generated world. “the metaverse,” a term coined initially by author?Neal Stephenson?in 1992 to describe a future world of virtual reality environments where people can interact with a computer-generated world. While defying precise definitions, the metaverse, generally regarded as a network of 3-D virtual worlds, is still relatively new and evolving. However, the potential scope of payment systems within the Metaverse is vast, as virtual reality environments provide new opportunities for commerce, gaming, and social interaction.

One way payments could work within the Metaverse is through the use of digital currencies or cryptocurrencies, which are already being used in some virtual reality environments. For example, the virtual world Decentraland has its own cryptocurrency called MANA, which can be used to buy virtual real estate and other items within the game. Other virtual reality environments may use existing cryptocurrencies like Bitcoin or Ethereum, or even create their own.

Advantages of payment systems in the Metaverse include:

1. Increased security: Digital currencies are inherently more secure than traditional payment methods, as they use advanced encryption techniques and can be stored offline in secure hardware wallets.
2. Faster and cheaper transactions: Digital currencies can be transferred almost instantly and without intermediaries, reducing transaction fees and time.
3. New revenue streams: Payment systems within the Metaverse could open up new revenue streams for content creators, game developers, and virtual real estate owners.
4. Greater user engagement: The ability to buy and sell items within virtual reality environments could increase user engagement and make these environments more immersive.

There are several examples of payments through the Metaverse, such as the use of cryptocurrency wallets to purchase virtual goods, the integration of payment systems into virtual reality experiences, and the use of NFTs (Non-Fungible Tokens) as a form of payment. Some popular Metaverse platforms like Decentraland, Somnium Space, and The Sandbox are already experimenting with various payment systems to enable seamless and secure transactions within their virtual worlds.

The entertainment and gaming industry can be the most beneficial industry with Metaverse-based payments. Gaming companies can leverage Metaverse payments to provide users with a seamless and immersive experience by enabling them to purchase virtual goods and services using digital currencies. Additionally, the Metaverse can create new revenue streams for gaming companies by providing users with new ways to engage with their games, such as the creation and sale of in-game assets and experiences.

Roblox illustrates the closed nature of today’s video gaming worlds. As shown in Figure 1, Roblox, a leading online gaming platform, allows players to purchase upgrades for avatars (e.g., clothing, accessories) or buy experiences on its website. It has its own in-game currency (Robux) which users can purchase on their website using traditional payment rails (credit/debit cards, PayPal, gift cards). Roblox issued a statement on its blog in November 2021, re-emphasizing that it does not allow off-platform auctions: “When off-platform transactions occur that are tied to on-platform items or experiences, it is impossible for us to monitor the details of that event, and it blocks our ability to validate or mediate any claims.”

Traditional payments providers (card networks, mainstream wallets, PSPs, etc.) play little role in today’s Metaverse commerce and payments. There is rapid convergence of mainstream digital payments and cryptocurrency payments. This to change in the next two years when mainstream wallets, neobanks, and PSPs increase investment into establishing use cases and propositions in the Metaverse. In the long run, the Metaverse will become an alternative channel for customer acquisition and servicing for general financial services providers, including traditional banks.?The below two examples present a pictorial representation of P2P and B2C scenarios using wallets and payment rails. In a P2P use case, a user can transact by virtual handshake using an existing wallet, without creating an additional blockchain wallet. In scenarios 2, user can do transactions both physically and virtually using the same partner and PSP.

Disadvantages of payment systems in the Metaverse include:

1. Uncertainty and volatility: The value of digital currencies can be highly volatile, which could create uncertainty and risk for users.
2. Lack of regulation: Digital currencies are not regulated in the same way as traditional currencies, which could create legal and regulatory challenges for payment systems within the Metaverse.
3. Accessibility issues: Not all users may have access to digital currencies, which could create accessibility issues and limit the adoption of payment systems within the Metaverse.
4. Security risks: As with any payment system, there is always the risk of fraud, theft, and hacking.

The market adaptation rate for payment systems in the Metaverse is difficult to predict, as it will depend on a variety of factors such as the popularity of virtual reality environments, the adoption of digital currencies, and the emergence of new payment technologies. The Metaverse commerce will be vast as a broad array of use cases shift into the virtual worlds of the Metaverse. Commerce and payments within the Metaverse are not an extension of e-commerce or m-commerce; the Metaverse is the first commerce environment built natively for blockchain and cryptocurrency. However, as virtual reality becomes more mainstream and digital currencies become more widely adopted, the potential for payment systems within the Metaverse is likely to grow.