- Published on 24 May 2022
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The metaverse race accelerates
Several organisations have jumped on the metaverse bandwagon with alacrity, investing in technology and digital assets to gain from its potential, but developments are still highly experimental and hindered by complexities.
The metaverse refers to an immersive virtual world experience that is based on convergence of technologies like virtual reality (VR), augmented reality (AR), artificial intelligence (AI) and blockchain. It is conceptualised as a parallel digital world or economy where one can visit, shop, buy, interact and perform several other things one does in real life.
Key enabling technologies include VR and AR for immersive experience. The underlying framework is based on web 3.0, decentralised finance and blockchain. AI with computer graphics interface, speech recognition and deep learning can enable improved personalised experience. Cloud technology is required for processing power and storage needs. AR and digital identification are now being developed through three-dimension (3D) environment enabling devices like headsets, glasses, watches and other wearables.
Once developed, the metaverse has the potential to create innumerable growth opportunities across gaming, immersive learning, entertainment, shopping, virtual workspaces, social media, advertising, data, and many more. Gaming offers some of the earliest metaverse experiences. However, it is challenging to envision the final shape of the metaverse given its early development stage.
The early movers
In 2021, Meta (rebranded from Facebook) announced plans to invest $10 billion in the metaverse. Since then, there have been a slew of investments by businesses in this space. Meta’s social VR application Horizon World reached 300,000 users. Meta’s Oculus Quest 2 leads in the AR/VR headset space and the company is also opening its first physical store for VR headsets and gadgets.
Microsoft plans to transform virtual workspaces with mixed reality and announced acquisition of video game developer Activision Blizzard for $68.7 billion. Google that had experimented with AR glasses in 2014 without much success, recently acquired Raxium, the micro light emitting diode (microLED) display company to develop future AR gadgets. In China, Alibaba made an investment in a reality glasses company Nreal, while Tencent increased investment in its gaming and engagement platforms.
Several businesses invested in digital land, a concept that baffles some yet excites others. Virtual land purchases may be motivated by different reasons- potential monetisation of digital asset for services, future appreciation, digital marketing, digital experience of products etc. The digital real estate prices skyrocketed with the growing rush, but it remains a highly risky and speculative investment. Popular decentralised metaverse platforms include Decentraland and Sandbox, among others.
JP Morgan became the first bank to launch a digital lounge on Decentraland. The bank shared crypto asset manager Grayscale’s estimate that the metaverse will potentially offer over $1 trillion in yearly revenues. HSBC purchased digital land in Sandbox and launched a metaverse investment product for its private banking customers in Singapore and Hong Kong.
Dubai’s Virtual Assets Regulatory Authority became the world’s first regulator to announce its virtual headquarters in the Sandbox platform. It hopes to facilitate greater collaborative engagement between global virtual asset service providers, industry thought-leaders, and international regulators.
Other notable business investors include PWC Hong Kong, Portion, an NFT auction house and marketplace, while Samsung opened its metaverse store 837X and celebrity brands like Gucci, Snoop Dogg, Warner Music Group.
The sale of digital assets is completed using cryptocurrencies and recorded through non-fungible tokens (NFTs) on a blockchain. NFTs have infiltrated multiple industries and grown exponentially recently. DappRadar tracker reports that NFT sales increased to $24.9 billion in 2021 from $94.9 million in 2020.
The growth of the industry is also riding on increasing investor funds to the blockchain sector, despite drop in cryptocurrency prices. According to Pitchbook data, in the first quarter (Q1) of 2022, venture capitalists (VCs) invested $10 billion in blockchain and crypto, 160% rise from $3.8 billion in Q1 2021. Total VC investment in this space in 2021 was $28 billion, compared to $5.5 billion in 2020.
Hurdles to mainstream adoption
The metaverse has a long road ahead strewn with hurdles. First is the technology development. The underlying web 3.0 technology, platforms interoperability, and portability standards need to develop as virtual world players lack technology standard coherence and integrations. Experience development technologies and hardware capabilities, AI, big data, platform scalability will all need to be significantly advanced. The compute power requirement will be much higher and a whole range of new technical skillsets will be required.
Secondly, there is an urgent need to address the challenges of cybersecurity, digital identity, and fraud such as counterfeits, phishing and rug pull (disappearance of a crypto company after promising hefty returns). These will require evolved regulatory guidelines.
Thirdly, regulatory standards to be developed to protect the interests of retail investors given the high risks and volatility of digital assets and crypto. There is ambiguity in crypto regulations. Now, the metaverse and NFT will add several layers of complexities around taxation, data privacy, virtual property ownership, safety, and other legal issues. It will create a virtual world beyond geographical borders, requiring a need to review laws and jurisdiction.
The opportunities are plenty but so are the challenges. It is time that business leaders in financial sector start to think about their future business strategies for the metaverse, including development of financial ecosystem, payment and commercial infrastructure and technical capabilities to monetise new business models and services.
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