Metaverse

The metaverse is a broad, loosely defined term for persistent, shared virtual spaces where people meet, work, play and trade through digital avatars. There is no single metaverse and no agreed technical standard; the word covers online games with large economies, virtual-reality social platforms, and blockchain-based worlds in which land, items and currencies are recorded as tokens. What these share is the idea of an online place that keeps existing when a user logs off.

The word comes from Neal Stephenson's 1992 science-fiction novel Snow Crash. It became mainstream in October 2021 when Facebook renamed its parent company Meta Platforms to signal a focus on virtual and augmented reality. In crypto, the metaverse is closely tied to NFTs, Web3 and native tokens such as Decentraland's MANA, although large parts of the wider industry use no blockchain at all.

Picture a theme park that is open all day, every day, and that you visit as a cartoon version of yourself. You can walk around, meet friends, watch a concert, buy a hat for your character or rent a stall to sell your own goods. When you go home, the park keeps running and your stall stays where you left it.

The metaverse is that park built from software. Different companies run different parks with their own rules and currencies. Crypto-based parks add one twist: some of what you buy, like the land under your stall, is recorded on a public ledger, so you can sell it to someone else without asking the park owner.

In Snow Crash, the Metaverse is a virtual city that users enter through goggles and avatars. Later online worlds put parts of the idea into practice. Second Life, launched by Linden Lab in 2003, let users buy virtual land and trade items using an in-world currency, the Linden dollar, which could be exchanged for real money. Massively multiplayer games such as World of Warcraft and platforms such as Roblox and Fortnite built large virtual economies and in-game events.

Interest surged in 2021. Pandemic lockdowns moved social life online, NFT sales boomed, and Facebook announced its name change to Meta on 28 October 2021. Other technology firms and brands announced metaverse projects. By 2023 attention in the technology industry had shifted largely to artificial intelligence, and several companies scaled back metaverse plans, although virtual worlds and gaming economies continued to operate.

Crypto metaverse platforms use a blockchain to record ownership of digital property. Common features include:

• Virtual land. A fixed map is divided into parcels sold as NFTs, typically under the ERC-721 standard. Owners can build on, rent out or resell their parcels. Decentraland's LAND parcels are a well-known example.
• Native tokens. Platforms issue a fungible token, often a utility token, used to pay for land, items and services and sometimes to vote on platform rules through a DAO.
• Wearables and avatars. Clothing, accessories and characters are issued as NFTs; profile-picture NFT characters are sometimes usable as avatars.
• Play-to-earn games. Players earn tokens through gameplay; see NFTs in gaming and gaming payments.

Users connect with a Web3 wallet, pay gas fees for on-chain actions, and trade assets on NFT marketplaces or decentralised exchanges. Brands have used these worlds for virtual shops and fashion events; see NFTs in high-end fashion.

Virtual economies raise familiar financial questions. In-game currencies that can be bought but not cashed out are usually treated as closed-loop stored value, while currencies that can be exchanged back into money may fall under rules for virtual currency and money transmission. FinCEN's 2013 guidance on virtual currencies, for example, distinguished between users and exchangers of convertible virtual currency. Where crypto tokens are involved, platforms and marketplaces may need to consider KYC, anti-money laundering and sanctions duties, and token sales may face securities analysis under tests such as the Howey Test.

The metaverse has been criticised as a marketing term with little substance, and many projects have struggled to keep active users. Specific concerns include:

• Speculation. Virtual land and tokens rose sharply in 2021 and fell steeply in 2022, part of a wider crypto bubble. The value of a parcel depends on the platform staying popular.
• Low usage. Independent trackers reported low daily user numbers for some heavily funded blockchain worlds.
• Platform risk. If a company shuts down or changes rules, items may lose their use, even if the tokens remain on-chain.
• Fraud and abuse. Scams, phishing and rug pulls have targeted metaverse projects, and virtual spaces raise privacy and child-safety concerns.
• Hardware barriers. Virtual-reality headsets remain costly, and most users still visit virtual worlds on ordinary screens.

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• Decentraland