The metaverse has been a hot topic ever since Facebook rebranded to Meta and announced it would become its top priority, with significant company funds being directed toward the project. Since then, several other companies have also committed to metaverse-centered endeavors and forecasts predicting its massive potential have recurrently made news headlines. Despite all this attention, however, what the metaverse actually consists of and its impact on the economy and financial markets remain a mystery to many, who this article hopes to elucidate.
What is the Metaverse?
The tricky part about understanding the metaverse (“understanding the metaverse”) is that it does not yet exist; instead, it is currently just an idea that technology companies are hoping to bring to life. According to most experts, the metaverse will basically consist of a 3D version of the internet, an evolution in how we communicate online. People will be able to immerse themselves in virtual worlds via the use of virtual or augmented reality devices and seamlessly interact with one another across different platforms. To understand how this might be the next stage in digital connection, it is helpful to look at how virtual communication has evolved: when the internet first came about, people interacted with each other mainly by text-based methods such as emails and messages through the use of keyboards; audio, images and video then started getting more prevalent with the help of better peripherals such as mice, headsets and high-resolution screens, allowing for a more immersive and intuitive experience. The next step then, metaverse proponents argue, will be for interaction to be made through a 3D medium, which people are better adapted to.
The core characteristics of the metaverse are thus a sense of immersion, natural interfacing with the 3D environments, and interoperability – the ability of different platforms to connect and communicate in a coordinated way (e.g. being able to use items from a virtual world in a separate one). To achieve this, the following several leaps in computing infrastructure, interface hardware and network infrastructure are required:
First of all, computing infrastructure – today’s computing capability severely limits the number of users that can concurrently be present in a virtual world. Moreover, it is not yet powerful enough to provide the level of realism needed for immersion. In fact, Intel estimates that a 1000x increase will be needed to meet metaverse demands.
Additionally, network infrastructure – current issues consist mainly of high-latency and low-bandwidth – high-latency (“lagging”) can make video and audio seem slow, and low-bandwidth (“buffering”) delays or stops access to content.
On top of that, interface hardware – the VR and AR headsets available nowadays are too heavy for long sessions of usage and still need to improve the realism that they provide. Additionally, current market prices are too high for the average consumer seeking to join the metaverse.
Investment in the metaverse
Fortunately for metaverse development, large technology companies such as Meta, Microsoft and Apple are investing heavily in the space. Meta has now poured over $36 billion into their Reality Labs division which makes metaverse-related hardware and Microsoft’s planned $69 billion acquisition of Activision Blizzard would be the basis of its metaverse initiative. Apple is also rumored to have been silently developing augmented-reality headsets “augmented-reality headsets”: which could be available in the not-too-distant future.
Venture capital also has a big presence in the field, with examples such as the raising of $300 million by NFT marketplace OpenSea, $150 million by metaverse technology company Improbable and $450 million by Yuga Labs, which intends to build a virtual world.
Other non-tech corporations and brands are exploring which opportunities are available to them. For instance, Epic Games collaborated with luxury brand Balenciaga, which has created a dedicated metaverse division, and Disney has appointed a senior executive to guide its metaverse strategy.
All in all, the metaverse has attracted high levels of investment, with over $120 billion flowing in just last year. Although this doesn’t guarantee the success of the space, it does signal that companies and institutions have identified valuable opportunities in the metaverse which other investors should keep an eye on.
As a matter of fact, there are already multiple use cases for consumers, which are only sure to increase as the metaverse develops. In addition to gaming, which already attracts large numbers of users, remote learning, commerce, and even fitness could give rise to a large influx of people as the necessary technologies mature. Cryptocurrencies could also play a significant role in the metaverse; they could be used to create a digital economy within the metaverse, with cryptocurrency wallets such as Trust Wallet and MetaMask being used to facilitate transactions. Additionally, non-fungible tokens (NFTs) could serve to establish ownership of virtual assets further setting the basis for virtual commerce. On this note, virtual real estate could also become a major market, with people buying and selling virtual properties within the metaverse. For enterprises, the metaverse could enhance remote collaboration by making it more immersive and learning and training programs could become more captivating. Moreover, even adoption in the public sector has proved a possibility, with Dubai’s Virtual Assets Regulatory Authority having established a digital Metaverse HQ in early 2022.
Impact on the economy
Consequently, for the global economy, this could mean an impact of several trillions of dollars in the next decade. Different regions, however, could experience differing levels of metaverse adoption and development, based, for instance, on macroeconomic factors such as their sectoral structure and innovation environment, and on the existence of the necessary technology to operate the metaverse. Because of this, according to several reports, Asian economies are likely to see more metaverse-related economic growth, especially due to their expertise in the manufacturing of electronics and semiconductors. In fact, expectations are that its yearly contribution to Asia’s GDP could be between $800 billion and $1,4 trillion by 2035, making up 1,3% to 2,4% of the total gross domestic product in the region.
In conclusion, the metaverse is a new and rapidly growing market that has the potential to transform the way we live, work, and play. It could disrupt traditional industries, create new industries, and change the way we think about work. It could also have a significant impact on the financial markets, creating new investment opportunities and potentially higher returns, as well as fostering economic growth all around the globe.