Why the key to the future of the metaverse is not Facebook, but cryptocurrencies
Facebook's interest in the metaverse has put this word on everyone's lips, although it is such an abstract concept that, for many, it is the very idea of the Internet. Moreover, Mark Zuckerberg's proposal does not do with those advocating these platforms for a long time, who put decentralization as a 'sine qua non condition, advocate. Their future is unpredictable, but there will be a crucial element for their operation: the world of cryptocurrencies and NFTs (non-fungible tokens).
"This new concept is a technical word, but it is of something that existed previously, because we can talk about metaverse since the internet has existed," says José Antonio Bravo, an economist specializing in cryptocurrencies. As he points out, these platforms are spoken of "as if they were a metauniverse", but it is something that is far from what exists today: different platforms, generally related to the world of video games, and with little or no connectivity between them. "Today, it is a very fragmented world, and what Facebook proposes is one of many possible metaverses."
Be that as it may, these metaverses need an internal economy, and this must be provided with a cryptocurrency that allows them to operate in their markets. It is said in a sentence, but it is highly complex (especially if you want to do it decentralized).
Second Life, the platform that many think of when discussing metaverse, had the 'linden dollars,' a currency controlled and issued by the developer Linden Labs. That is to say, centralized, just as it happens in the case of FIFA, where the EA Sports studio also controls the currency, but the market does not even exist. But that would not be the case in these new metaverses, something that brings with it specific challenges for them to succeed.
"Now the concept of issuing decentralized currency, which created Bitcoin, has been introduced for its economies," explains Bravo, who points out that the key is its transcendence beyond the game itself. "First, it must be an exchangeable currency in the real world, and then it has to be stable or growing over time. Otherwise, it will have no value in the real world. Inflation cannot be higher than the growth of activity on that platform."
Bravo considers that this is where "the great difficulty of the metaverse economies" lies, since "it is complicated to maintain the price of a currency that grows continuously and without a clear revision." The opposite can also happen: there may be a more excellent supply than demand for these currencies, so "people would want to sell them, and they would lose their value and usefulness." This can be solved by increasing the demand for these coins to "people are made to spend them in the game with an internal economy that feeds it thanks to constant attention, but it is something very complicated, almost practically impossible."
How to design the 'tokenomics' of the metaverse
David Noya, computer engineer, and crypto disseminator is more optimistic and advocates "circular and feedback economies" for these projects, something for which they have to "meticulously design their 'tokenomics' [economies of tokens applied to the project], given that they are no longer merely an application or service, but generate a real economy in parallel, which, poorly designed, can sink it."
This specialist stresses that "nothing guarantees that an economy will work for a long time and in any situation," but it is possible to put the foundations in place to make them stable. So, for example, it is maintaining interest through the distribution of benefits among users to encourage greater involvement in the long term. This is called 'play to earn,' popularized by Axie Infinity, the world's best-known 'crypto' video game, which is now in its third year of Life, although 2021 was when it finished its sweep.
Noya, a user of this platform, believes several keys to its success. The first is that it does not depend on any central. "Sky Mavis, the company behind Axie Infinity, cannot generate or issue Smooth Love Potion (SLP), the game's currency, but it is the players themselves who generate it through their interaction, avoiding the centralization of the economy," he says. In addition, there is "a balance in the generation-destruction of SLP that prevents hyperinflation," since creating new creatures requires a certain amount of coins that disappear after this task is completed.
In this sense, he contrasts what happened with traditional video games, "developers create content and players pay for it." "Now, there are ways to generate economies controlled by everyone who uses it, not just the central entities. If the game works and goes well, everyone wins," he argues.
Miguel Rubio, cryptocurrency specialist and director of the Carbono consulting firm's newsletter, points out some risks for these metaverses, especially in a developing phase. "Volatility is inherent, and there can be an excessive demand. You have to keep in mind that all kinds of audiences can enter, people interested in the project, but also investors more focused on speculation, because these are pure and simple market laws," he warns. "The idea is to incentivize both those who create value and those who trade, but without them ruining the project because, for example, they make the token go up a lot and then sell it.
Video game studios can no longer just design game mechanics but also "have to establish a token engineering discipline with its rules, something that requires highly complex financial expertise."
The other great challenge of digital universes
A key point in these new platforms is the NFTs, which, Rubio says, "are building the foundations of a new digital identity and management of digital properties." "If you bought an authentic painting, an institution gave you that certification, but the NFTs attribute it to you in a decentralized way, with a community that congregates around the blockchain, which is public and transparent," he explains.
The first blockchain was Bitcoin, which allowed the exchange of the cryptocurrencies of the same name and recorded the different balance transactions. Later, more complex ones have been developed, moving from the so-called fungible tokens -as the currency above could be- to the non-fungible ones, better known as NFT. "Fungibility is the property that any asset that you want to use as a unit of exchange must have so that, for example, the euro I have in my pocket is worth the same as the one you have," explains engineer and disseminator Noya.
On the other hand, later blockchains, such as Ethereum, enable the so-called 'smart contracts, which add "programmable logic to these transactions" and enable the entry of NFTs. This specialist stresses that it is not just a matter of crypto-artists being able to sell their work, but that they have opened the door to "the tokenization of many other assets, digital or physical: from weapons in video games to renting an apartment." However, it is in the 'gamer' world where they seem to have the most significant impact for now.
"It has allowed us players to own the assets that we put so much time and effort into," celebrates Noya, who considers NFTs "the necessary key" to implementing the metaverse: "Without NFTs, the metaverse would be meaningless."
How to take NFT from one metaverse to another
Another of the main challenges for the future of these metaverses appears interoperability between platforms. In other words, if you have an asset on one platform, you can use it on another. Brands such as Adidas or Nike have already announced that they will enter fully into a sector and start selling digital clothing that avatars can wear. "Interoperability is a fundamental and unquestionable part, and the foundations are already in place, but there is still a lot of development to be done," says Rubio of the consulting firm Carbono.
NFTs work through two standards (ERC-721 and ERC-1155), although at first "many developers were creating NFTs in different ways at a technical level, which generated a lot of entropy," says Noya. "Now there are 'templates' that implement the 'skeleton' of an NFT, although you can later add certain specific details or metadata that you may need." In this sense, he stresses that "the challenge lies more in getting developers and their communities to agree than in the technical part," something that would be easier if everything is done within the identical blockchain.