The growth of NFTs in the last year has been unprecedented, with new real-world applications appearing almost every minute it feels like. The response to, and transaction volume on NFTs in NFT marketplaces, has been nothing short of spectacular. NFTs have been integrated into many significant industries over the last two years, including sports, gaming, arts, and music.
NBA Topshot, the NFT marketplace for the US National Basketball Association (NBA), the world’s largest basketball league, is striking one example. As one of the biggest NFT marketplaces, in March NBA Top Shot secured $305m in funding from celebrity investors including actor Will Smith and ex-NBA all-star Michael Jordan. And now it’s expanding its direct offering to fans, selling highlights from the upcoming basketball competition, creating NFTs of great plays of games that fans have seen in person.
NFTs have taken the world by storm for such a relatively new technology. Now many industry leaders in the digital space believe we may have finally found the missing piece to creating a fully functional metaverse, thanks to NFTs. But to comprehend NFT technology’s role in this concept of a functional metaverse, we must first better understand what NFTs are and their significance in a metaverse.
Non-fungible tokens are referred to as NFTs. According to my understanding of economics, the term fungible relates to anything that can be exchanged for something of equal value. A $100 bill, for example, can be divided into two $50 bills while retaining the same value. In contrast, NFTs are not interchangeable and cannot be split or exchanged for something of equal value.
The entire concept of NFTs is based on their uniqueness and the digital proof of authentication that they provide to their owners. Before the advent of NFTs, determining the rightful owner of an artwork, painting, or an antique relic was a complicated and lengthy process due to a large amount of reproduction and piracy experienced by original artwork owners.
Because blockchain is public, transparent, and cannot be altered as long as the record of the transaction is on it, NFTs solved this by leaving a digital imprint of whoever buys a specific artwork or collectable, providing proof of ownership. For example, you could tokenize the famous ‘Mona Lisa’ painting, and auction it as an NFT on any NFT marketplace. Even if there are multiple copies worldwide, you have the digital proof of ownership recorded on the blockchain, allowing people to know you are the certified owner of the painting.
Speaking at the recent Paris ETH event EthCC Ben Lakoff, co-founder of NFT-protocol Charged Particles, discussed the common misconception that NFTs are just about art. “The reality is, NFTs are unique tokens, and they’re so much more than just art,” Lakoff said. He also highlighted NFTs as in-game items and in the metaverse as examples: “There’s actually a new publicly traded exchange-traded fund, META. In your brokerage account, you can now get exposure to the metaverse plays that are publicly traded. And then Epic [Games] has raised US$1bn to support their long-term vision of the metaverse. These are big, big numbers,” Lakoff said.
There is undoubtedly demand for permissionless, trustless financial services with a high transaction rate for a metaverse to function optimally. However, the metaverse would also necessitate a large amount of data to be stored and unaltered, where blockchain technology comes into play. Lakoff also underlined this point, connected to DeFi and identity in his presentation: “NFTs as identity, as a DeFi passport, this on-chain credit scoring — all of these things kind of mixed together. We can start to see how these things play together in a very, very unique way that paved the way for Web 3.0.”
In layman’s terms, a metaverse is a virtual world that exists alongside the real world. It was first used in Neil Stephenson’s 1992 novel ‘Snow Crush’. Wikipedia defines metaverse as a 3D virtual space including the sum of all virtual worlds and the internet; “a future iteration of the internet, made up of persistent, shared, 3D virtual spaces linked into a perceived virtual universe” to quote the IEEE VW Standard Working Group.
The popularity of the metaverse concept is taking serious shape in recent years, with tech titans such as Facebook, Google, Microsoft, Samsung, and Sony joining forces to form the XR Association, which is aimed at bringing this concept of an ‘experiential reality’ to life. At the end of June Facebook CEO Mark Zuckerberg made a big bold play, basically laying out the future for Facebook in the metaverse. In an interview in The Verge Zuckerberg lays out the reasons why, with the metaverse bringing, “enormous opportunity to individual creators and artists; to individuals who want to work and own homes far from today’s urban centers; and to people who live in places where opportunities for education or recreation are more limited. You can think about the metaverse as an embodied internet, where instead of just viewing content – you are in it. And you feel present with other people as if you were in other places, having different experiences that you couldn’t necessarily do on a 2D app or webpage, like dancing, for example, or different types of fitness.”
Of course, anyone who’s watched The Social Network, or has seen how Facebook can do harm through manipulating its online users’ behavior, is certainly going to wonder if the metaverse is going to be in safe hands with Facebook. As Tim Sweeney contentiously remarks: “This Metaverse is going to be far more pervasive and powerful than anything else. If one central company gains control of this, they will become more powerful than any government, and be a god on Earth.” In a recent report from UK-based blockchain VC company Outlier Ventures the need to have a crypto decentralized core is therefore paramount: “The defining characteristic of a true Metaverse is that it needs its own economy and currencies native to it, where value can be earnt, spent, lent, borrowed or invested interchangeably in both a physical or virtual sense and most importantly without the need for a government.”
Clearly the development of a fully functional metaverse has the potential to fundamentally alter how people interact with the digital world. A collective virtual experience would reimagine the creative industry and open new doors for creators, gamers, and artists.
The metaverse would become a portal to digital experiences, potentially becoming its trillion-dollar industry. The possibilities with a metaverse are limitless, as evidenced by the gaming industry. Fortnite players entered the metaverse at last year’s virtual Travis Scott concert, which allowed 12 million people to experience a virtual concert all within a self-contained digital world.
In all this it’s worth remembering that Fortnite started off as a regular zombie game, but due to its popularity morphed into something now marked as part of the metaverse. And a lot of this was driven by player demand, as more and more people got involved in Fortnite Battle Royale, Epic the company behind Fortnite added social features such costumes, voice chatting and dance parties.
For Epic it’s also a battle against the established tech giants, itself reflective of its court battles with Apple. Interviewed in The New York Times, Tim Sweeney, the chief executive of Epic, admitted that defining the metaverse was difficult, he said, but he knew what it was not: “The metaverse is not an App Store with a catalog of titles,” Mr. Sweeney said. “In the metaverse, you and your friends and your appearance and cosmetics can go from place to place and have different experiences while remaining connected to each other socially.” Could it be possible one day to have a tunnel from Roblox to Fortnite and other games, connecting them all in some sort of futuristic world? Mr. Sweeney said yes.
Matthew Ball, a venture capitalist who wrote a key article about the metaverse in early 2020, sees the metaverse not as a virtual world or a space, but rather “a sort of successor state to the mobile internet” – a framework for an extremely connected life. Indeed, despite the novelty factor of the ‘metaverse’ it’s a concept that, as he explains, has been decades in the making: “Since the late 1970s and early 1980s, many of those in the technology community have imagined a future state of, if not quasi-successor to, the Internet – called the ‘Metaverse’..it would revolutionize not just the digital world, but also much of the physical one, as well as all the services and platforms atop them, how they work, and what they sell.” And it’s that last point, the pivotal role of decentralized finance (DeFi) in the metaverse economy, that is most intriguing.
Because despite the frictionless use of crypto, with low fees and decentralized P2P structures, the reality is that the commercial first movers in the metaverse space from gaming have their own proprietary currencies. What makes DeFi so attractive to the metaverse community is that it can be automated, without any centralized intervention. It also means that DeFi has long term attractions, allowing game developers and players to invest time and money knowing the underlying blockchain platform won’t change without community consensus. “Today, only a tiny fraction of online users and gamers even have a crypto wallet, and almost no brands and games issue NFTs. But irrespective of multi-month dips in the blockchain/crypto/NFT economy, we see more of these groups embrace blockchain-based experiences each month. This produces a virtual cycle that drives more users to register a wallet, mint an NFT, or integrate crypto assets”, concludes Ball. The future of metaverse as an inter-connected world is bound up with DeFi it seems.
Cryptocurrencies have already been successfully integrated recently into virtual worlds created by companies such as Decentraland and Sandbox. For example, users in Decentraland can purchase virtual real estate such as theme parks and monetize them using cryptocurrencies. Coca Cola plans to launch its own NFTs on the platform, including a ‘wearable’ jacket for avatars in the Decentraland metaverse. “We are excited to share our first NFTs with the metaverse where new friendships are being forged in new ways in new worlds,” said a Coca Cola’s Selman Careaga, President, Global Coca-Cola Trademark. While the involvement of global consumer brands rather than video gaming is not universally welcomed in the metaverse community, it’s also testament to its rapid growth, supported by NFTs, supported by wider societal trends from the expansion of gaming to the accelerated shift to online work and play driven by the COVID-19 pandemic.
The development of the metaverse concept may still be in its early stages, but the example of Facebook’s backing show it’s here to stay, as people’s activities and technologies converge online. To quote Zuckerberg: “I think that this is a persistent, synchronous environment where we can be together, which I think is probably going to resemble some kind of a hybrid between the social platforms that we see today, but an environment where you’re embodied in it.”
Clearly DeFi needs to play a key role in the development of the metaverse, to avoid two versions emerging: one dominated by the likes of Facebook, and the other built on open interoperable platforms. Together with NFTs the role of DeFi is to provide the essential infrastructure for the vision of an open metaverse which liberates us to explore our online identifies in both work and play. While we do not yet know what it will look like or can say when a metaverse is finally created, the key role of cryptocurrencies and NFTs to making it a reality is already apparent. With the combined involvement of tech giants, the advancement of cryptocurrencies, and the NFT sector, it appears to be a matter of when, not if, the metaverse will become mainstream.