What Is the Metaverse? Why Is it Important?

Investing
Updated: 10th Oct 2021
Written by Andrew
Share this article
Vanguard Information Technology ETF (VGT) Analysis: Price History, Holdings, & Forecast
What is TQQQ? Definition & How to Use It
Investing
October 10, 2021
Written by Andrew

Disclaimer: This post contains references to products from one or more of our advertisers. We may receive compensation (at no cost to you) when you click on links to those products. Read our Disclaimer Policy for more information.

Through all the various faces the internet has worn, its core purpose has remained the same: to bring more information to more people in more ways.

But as we advance in our technological evolution, the tech world is no longer talking about sitting in front of big boxes or reaching into our pockets for little ones.

Instead, the next stage of innovation is immersion – to dive headfirst into 360-degree information, making it accessible and manipulatable.

Building this new internet, what tech experts call the “metaverse,” will take work. Work like tearing down the borders between segments of the internet and creating tools to layer this new reality over the real world.

But what does the metaverse look like? Who will it benefit? What are the risks inherent in such a multi-layered system?

Thinking about the future is always speculative – but we’ll try to give you the tools to guess for yourself.

What is the Metaverse?

In short, the metaverse is the name given to the expected next iteration of the internet. It’s the product of the physical and digital worlds converging and interacting.

Most of what you’ll read about the metaverse focuses on what you can do with it. Because it’s one of the more novel and interesting aspects, that often involves AR and VR technology.

But it’s important to remember that this isn’t what the metaverse is – at least, not exactly.

The reason VR gets mentioned so often is the same reason that you’d explain the internet to someone by describing a website, rather than HTML, fiber optics, or a series of tubes.

The real metaverse is much like the internet in that way. It’s the foundation on which a new world, intertwining the digital and physical, will be built.

How Does the Metaverse Work?

The metaverse works by bridging the gap between the real world and its digital counterpart, one that virtual reality technology would let you see and interact with.

There are many opinions on the actual construction of the metaverse.

For it to have the value and impact that futurists hope for, it can’t be the metaverse as brought to you by Google, Facebook, or Microsoft, but its own independent structure.

Sure, tech giants like FAAMG will have a significant presence in the metaverse, but an actualized version cannot start and end with them.

If individuals can’t control their experience, their property, their presentation, then the metaverse will be nothing but personalized billboards displayed on expensive glasses.

>> More: Best Metaverse Stocks

Metaverse: Foundation and Infrastructure

Another way to clarify the idea of the metaverse is using two names for the same idea: the spatial web and Web3.

The internet experience has already gone from flickering text on an immobile blocky display to what we know today. It’s fast, versatile, visually rich, and accessible in myriad ways everywhere you go.

But the real value of the internet is bound inside little boxes, only usable when we put aside the real world long enough to access it – which remains the biggest hindrance to its potential.

In other words, you still have to choose between which of the two worlds you want to access in a given moment.

The internet can remind you of a name you’re forgetting, apply a coupon to your purchase, or even turn on a light. But so far, that still means reaching into your pocket and taking time out of your day to access this “convenience.”

The spatial web, or metaverse proposes breaking down that barrier between worlds completely, and linking real-world objects with the digital world directly.

Why is Blockchain Technology Important for the Metaverse?

Even if you’ve never understood the buzz over blockchain and cryptocurrency, each will be vital to the next generation of the internet.

Blockchains and crypto enable decentralization ground up to remove centralized, third-party governance.

Instead, data is created and stored immutably and collaboratively, with complex tools to ensure there is no manipulation.

The metaverse envisions a world where everything, including objects, is online. In such a world, not having to rely on a central authority goes from an interesting project to an absolute necessity.

Blockchains are the best means to accomplish that.

The Internet

The fundamental necessity for the metaverse is not just access to the internet, but ubiquitous and faster access.

More data than ever before will be uploaded, downloaded, and used in more places by more people. For this evolution to succeed, the internet itself needs a substantial upgrade.

Virtual Reality

It’s true that the metaverse can exist without virtual reality, and that there’s a great deal more transpiring in the background.

But you also can’t dismiss its role in the metaverse – fundamentally, it’s what makes the metaverse a goal worth pursuing.

Cheap, effective, accessible VR and AR systems are necessities for the metaverse to be anything more than an expensive curiosity.

NFTs

Non-fungible tokens (NFTs) have risen to prominence in the last several years. For some, hearing that someone paid millions for digital art without receiving a physical object may seem bafflingly absurd.

But NFTs will be essential to the metaverse.

For instance, imagine looking through VR glasses and seeing a digital outfit, tattoo, or hairstyle you like.

You could buy it and apply it to your avatar with ease. But what if the company you bought it from decided to take it back, alter it, or discriminate against certain buyers?

NFTs put the power of ownership in your digital hands in much the same way that buying an item in-store does: by proving that you own that particular version of it, no matter what the creator, original owner, or anyone else might say.

Extending that logic one step further, NFTs currently provide the backbone for people to control their space within the digital world.

That makes them core to self-expression and property rights in a hybrid reality.

Open Standards

If we’re going to create and live in the new reality promised by the metaverse, we need ways to code and share that aren’t kept and controlled by either corporations or governments.

If the metaverse itself functions perfectly, but every decision you make costs you in royalties or requires third-party approval, that alone is enough to transform the metaverse into a dystopia.

But creating open standards – means to share and communicate outside controls and costs – will go a long way toward providing the freedom that the metaverse promises.

Decentralized Ledgers

Another key component of a free metaverse is knowing who tracks the activity within. Once again, blockchain provides the answer – this time, in the form of decentralized ledgers.

These open-source, publicly visible information chains are currently used by cryptocurrencies to encrypt, tokenize, and anonymously record transactions without tracking funds to a certain person or entity.

In other words, the only record is that money changed hands – not whose, how often, or what for.

Smart Contracts

A smart contract is an agreed-upon if/then code that tells a computer to carry out Y action when X condition occurs. Rather than writing a legal agreement, you can simply have a coder write that when X happens, Y follows.

If well-written, these contracts can automate transactions and even form the basis of entire organizations, such as DAOs.

And since they can be entered into a blockchain where they can’t be altered, they’re a likely foundation for a fast, efficient, and anonymous digital economy.

Does the Metaverse Need Cryptocurrencies, NFTs, and Open Standards?

For many, the current internet represents a nightmare of surveillance and shadowy powers that control everything behind the scenes.

But so far, there’s an easy out: you can simply refuse to participate. You might miss out on social media, the ease of online commerce, and pictures of cute cats, sure.

That said, you can still escape the feeling of being watched, recorded, and profited from by entities and individuals.

A metaverse future, however, isn’t the rough equivalent of going to different parties, and paying with cash instead of a card.

You’d be living in a different reality, unable to see and access the world everyone else inhabits.

And because the digital and physical worlds will be inevitably and inextricably linked, there will be more to track than ever before.

That’s what makes recent developments in space so important and encouraging.

It’s not just techno-utopians saying such and such privacy measures should be included. Many of the features that would make a metaverse worth buying into require open standards and NFTs so individuals can create and own their creations.

And smart contracts, cryptocurrencies, and decentralized ledgers would provide the tools to do business efficiently and effectively and untracked.

In fact, a metaverse controlled by any one power wouldn’t just negate freedom and privacy and increase censorship.

Ultimately, it would be much less functional. Of course, that doesn’t mean that an internet takeover is impossible – just that they’d strip the value for most users.

The Impact of the Metaverse: Economy, Entertainment, & Retail

When a new technology is developed, the first questions we ask concern how it changes people’s experience of the world.

When the given technology is important enough, we face a larger question: how will it change the world we experience?

The metaverse will be important enough to carry that kind of impact. In some places, it will intensify changes already happening. In others, the changes will profoundly transform how we live, think, and interact.

Economy

Trillion-dollar companies will be created as a result of the metaverse.

But many of those changes will also shift resources, as some companies will transition poorly and be replaced by others that harness Artificial Intelligence capabilities better and more efficiently.

It’s likely that the tech sector will benefit the most from such changes as it absorbs resources once invested elsewhere. But more profound changes are likely.

One of the more interesting impacts of a metaverse future is how it will change us into a more authentic image of economic theories’ rational actors.

In other words, it will remove the transaction frictions and information asymmetry that impacts how we behave, leading to more intelligent decisions.

The metaverse will lead to enormous efficiency improvements. If you’ve ever worked in an area that tech was supposed to revolutionize, you’ll know that integration takes time and comes with plenty of hiccups.

But how will that change when the world is constantly, ubiquitously scanned, digitized, organized, and tagged? When doing so is not only easy, but necessary for doing business?

When combined with smart contracts and digital currency, supply chains may finally reach their fully automated, highly efficient potential.

Entertainment

It’s important to disentangle VR from the metaverse when it comes to entertainment and streaming. Yes, high-quality 3D images will change movies and games – but those changes can come about without the metaverse.

Indeed, they’re already happening, and will happen more rapidly as VR and AR systems become widely adopted.

What the metaverse will change is the separation between entertainment and reality. It will embed entertainment experiences in a real city. Or superimpose a video game into the “real” world.

It also holds the potential to democratize entertainment, allowing individuals to create and embed possessions, avatars, games, music, and videos as they wish.

These immediate impacts are interesting and exciting. But the real changes will come as new tools integrate into what creators already do, shaping novel forms of entertainment.

Online Shopping

Online retail is still a very new service and makes up a small percentage of total retail sales.

But a global pandemic and lockdown orders gave society a crash course – and so far, we’ve yet to turn back.

Thanks to innovations in fintech, financialization is being built into new and existing products and services, like Twitter (TWTR), for example. These trends will only accelerate in the metaverse.

In a metaverse world, however, it might become unclear what “online shopping” means. Terms and definitions will change with the technology.

For instance, you might see someone with a painting on their wall or a nice backpack and buy it immediately, often directly from the maker.

Walking through a store, you might glance at a product and see prices and other versions at other stores.

You may be able to see its impact on the environment, recipes it can enhance, and reviews from trustworthy sources.

You could toss it in your cart and walk out the door with the cost automatically deducted from your account.

Or you could order it from another store on the other side of town for pickup or delivery.

How would this combination of tools and information change the relationships between consumers and companies?

Bottom Line: What is the Metaverse?

The metaverse is more than a dream for tech futurists: the working pieces that will form its foundation are already here or well underway.

While the metaverse itself isn’t inevitable, at least insofar as we can’t predict its exact form, the next iteration of the internet is already in the works.

The formation of the metaverse depends on myriad factors, but it will be far more transformative than we can currently imagine.

This article is for informational purposes only. It is not intended to be investment advice.

Andrew
Andrew
Andrew is an editor-writer living and working in Southern California. While he’s previously focused on editing for financial publications, he’s now dabbling in the writing pool as well. Hobbies include listening to podcasts, and learning about all things financial. (Just don't ask him about logarithms.)