How to Lose a Billion Dollars in the Metaverse and Other Mysteries of Web3

·16-min read

We’ll get into all the ways the metaverse is supposed to change the world in just a moment. How its decentralized, blockchain-based algorithms are going to revolutionize online commerce. How its virtual meeting spaces are going to pave the way for the workplaces of tomorrow. How its breakthroughs in 3D immersive technology are going to allow us all to travel seamlessly and instantly from one mind-blowing VR realm to another.

But first, a few words about 17th-century Dutch horticulture.

Back in the early 1600s, for reasons nobody to this day fully understands, the Dutch went nuts over tulips. In fact, demand for the blossom grew so irrationally exuberant, flower merchants began trading them at outrageously inflated prices, triggering the world’s first speculative bubble. At Tulip Mania’s height, a single bulb was worth more than the average Dutch house.

But then, in 1637, as was inevitable, the bottom fell out of the market. Fortunes were lost. Lives ruined. Some tulip investors even committed suicide, throwing themselves into Amsterdam’s canals.

Of course, there’s no comparison between what happened in Holland nearly 400 years ago and the current mania over the metaverse. After all, one involves mob hysteria driving speculators to invest insane amounts of money on something of no discernible economic value. The other had to do with tulips.

“Nobody knows what the metaverse is,” one tech executive confessed to TheWrap. “But nobody wants to be the person who admits that they don’t know.”

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Nobody could know. Because the metaverse hasn’t been invented yet. Right now, it’s mostly a mix of marketing hype and wishful thinking, not so much a thing as an idea — or, rather, a haze of ideas floating in a cloud of aspirations. Nobody even knows if it will even end up getting built, at least in the way it’s being advertised.

And yet, Hollywood and Silicon Valley are scrambling to get in on the ground floor of this brave new internet, or Web3, as some are calling it. Companies like Disney, Microsoft, Snap and Nike, along with scores of smaller startups as well as moguls like Bob Iger (who earlier this year joined the board of a virtual avatar startup called Genies), are shoveling tens of millions of dollars into its development. Facebook is so gung-ho on the metaverse, it changed its name to Meta last year and is pumping more than $10 billion into building the infrastructure for what it’s claiming will be the next evolutionary leap for the internet.

Wall Street is saddling up for the gold rush, too, with one financial analysis group — Citi Global Insights, affiliated with Citibank — projecting that the metaverse could be worth as much as $13 trillion by 2030. “Gaming and social media companies are at the vanguard of metaverse development, but enterprises will lead the charge in the next three years,” the bullish report predicts, offering only the vaguest definition — “a convergence of several tech themes” — of what the darn thing might actually be.

One of the most anticipated tech books of this summer also predicts a transformed world once it all kicks in. Venture capitalist and metaverse champion Matthew Ball’s new tome, “The Metaverse: And How it Will Revolutionize Everything,” promises “trillions of dollars in new value―and the radical reshaping of society,” according to his Amazon page.

We’d like to believe him. Really, we would. But a tulip is a tulip is a tulip, even when it’s virtual.

mark zuckerberg facebook meta
Mark Zuckerberg, introducing his Meta avatar (Meta)

“A digital twin of the real world”

“I’ll ask 75 people what the metaverse is, and I’ll get 75 different answers,” said Kim Renard Nazel, the hip-hop pioneer and N.W.A. member known as Arabian Prince, who in recent years has branched out into internet technology. He’s currently building a medical platform he hopes will someday connect doctors and patients in Web3. Still, his own 76th answer to that question sounds like it has more to do with metaphysics than the metaverse.

“The metaverse is everything,” he said cryptically. “It’s a digital twin of the real world.”

Of course, there are other, more practical, if no less murky, definitions.

Microsoft founder Bill Gates, for instance, thinks the metaverse will be a platform that allows workers of the near-future to communicate, a sort of souped-up 3D Zoom meeting where officemates can mingle in virtual reality conference rooms (and where the possibilities of Jeffrey Toobin-like mishaps are all but eliminated, unless you forget to put pants on your avatar).

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“Within the next two or three years, I predict most virtual meetings will move from 2D camera image grids — which I call the ‘Hollywood Squares’ model, although I know that probably dates me — to the metaverse, a 3D space with digital avatars,” Gates wrote on his blog last December. “The idea is that you will eventually use your avatar to meet with people in a virtual space that replicates the feeling of being in an actual room with them.”

Gates doesn’t elaborate on what the possible advantages of virtual offices might be, possibly because it’s hard to think of any. Zoom meetings are already awkward enough without co-workers popping up as 3D avatars of Jar-Jar Binks.

Facebook founder Mark Zuckerberg has a similar, even more expansive — some would say fantastical — vision for the metaverse. “The next platform and medium will be even more immersive, an embodied internet where you’re in the experience, not just looking at it,” he said during his company’s rebranding presentation last October. “You’re going to be able to do almost anything you can imagine, get together with friends and family, work, learn, play, shop, create, as well as entirely new categories that don’t really fit how we think about computers or phones today.”

Of course, all of the above will require lots of futuristic tech — VR goggles, motion-capture gloves, massive processing power — some of which either already exists in primitive form (like Oculus headsets) or is in the process of being created (Meta is spending that $10 billion on constructing its own virtual-reality platform and equipment), or still remains firmly in the realm of fantasy land (that hologram in the promotional video that Zuckerberg played at Meta’s unveiling is still likely decades away).

ready player one
Steven Spielberg’s 2018 film “Ready Player One” imagined a near-future where much of humanity escaped from the real world into a virtual-reality simulation called OASIS (Warner Bros.)

But even if Zuckerberg could create the “Ready Player One”-style online alternate universe he’s proposing, it’s still an open question whether people would actually visit it — let alone spend significant time there. For one thing, will anyone want to wear virtual headsets for hours on end? Will it even be safe to do so? Anybody who’s slipped into a pair of Oculus’ goggles for more than a few minutes can tell you that the technology still hasn’t licked the nausea problem. And the Wall Street Journal recently reported a rash of more serious Oculus-related medical issues, with early adapters turning up in emergency rooms with dislocated shoulders, sore necks and falling injuries, as well as a condition called “gorilla arm syndrome,” caused by keeping your arms raised for prolonged periods of time.

“Sure, you can put a TV on your nose [but] I’m not sure that makes you ‘in the metaverse,’” a skeptical Elon Musk said in an interview a few months after Zuckerberg announced Facebook’s Meta pivot. To be fair, the Tesla mogul, who sniffs at the idea of people “strapping a frigging screen to their face all day and not wanting to ever leave,” is not an unbiased observer. He’s working on his own sort of metaverse, through his brain-computer interface startup Neuralink. But whether people will be any more inclined to have a chip surgically implanted in their heads just to surf the net is also a pretty iffy proposition.

More to the point, how does any of this fulfill the promise of an evolutionary leap forward for the internet? Much of what Gates and Zuckerberg are envisioning already exists online, albeit in a much more rudimentary, 2D format. “Roblox,” “Minecraft” and “Fortnite” all offer virtual worlds to explore without the need for special equipment beyond a laptop or an iPad. And hardly anybody throws up playing those games.

“I think everyone’s got a short-term memory, because this has already been done with Second Life,” said crypto marketing entrepreneur Mark Fidelman, referring to the internet’s very first virtual world, launched way back in 2003, in which players whiled away hours mingling together as avatars in what was then called cyberspace. “I haven’t seen anything that makes me feel like anything that’s coming out — including from Facebook — isn’t just a better Second Life. And maybe not even a better Second life. I have yet to see something I think is going to stick.”

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Crypto, Parcels and Blockchain, oh my!

It’s easy to see how Zuckerberg got sucked into the metaverse. Competition from younger-skewing sites like TikTok have been eroding time spent on Facebook. And ever since Apple changed its iPhone privacy policies last year, making it harder for Facebook to ad-track users online, the social media company has seen its revenues plummet and its stock price tumble. Last February, it lost $230 billion in value in a single day.

Zuckerberg desperately needs a new source of revenue, and he sees the metaverse as a potential gold mine. After all, all those future 3D avatars running around Horizon World — as he’s named Meta’s in-the-works virtual platform — are going to need a change of digital clothing and other upgrades, all of which Zuckerberg will be peddling at Horizon World’s virtual marketplace. Think in-app purchases on a cosmic scale.

Of course, Zuckerberg isn’t the only one who sees bitcoin in them thar hills. A slew of companies, big and small, are busy constructing their own competing virtual world platforms where vendors can hawk digital goods or establish digital outposts. Planet Hollywood, for instance, just announced a partnership with Sandbox, one of the metaverse startups, to create Meta Hollywood, a virtual world that will offer users a “first-of-its-kind Hollywood backlot experience where they can interact and own assets in a dynamic virtual environment made possible by Web3 technology,” as its press release gushes. There’s been talk that Disney is considering buying up “parcels” — as virtual real estate in the metaverse is called — on one of the new platforms, presumably to build digital versions of theme parks where Disney can sell tickets for virtual rides.

In a perfect virtual world — the kind that so far only exists in the minds of metaverse boosters — people would “own” their avatars and be able to bop from one platform to another, sliding seamlessly through a “decentralized” internet without boundaries or corporate middlemen. In the current online universe, most traffic flows through just six giant companies — Google, Amazon, Meta, Netflix, Microsoft and Apple — but metaverse evangelicals believe Web3 would blow up that model, shepherding in a new open-sourced era in which “communities” would run the net, not big tech, and the walls around the web would come tumbling down.

“We are very early in this transition,” Ball noted last year in an interview on CNBC. “Late in the 1990s and mid-2000s, many of the companies in the forefront of industry came from the last generation but very quickly they were turned out. We expect a similar transformation.”

Still, given how difficult it is right now simply to use a Windows program on a Mac operating system, that kumbaya vision of an interoperable, community-run metaverse may take some time to realize. Also, it’s hard to fathom what sort of economic incentive even the most utopian Web3 platform — let alone ones run by last generation corporate behemoths like Meta — would have in allowing alien avatars into their proprietary realms.

But put such questions aside for a minute. The bigger issue is the whole idea of “ownership” in the virtual world.

bitcoin atm
(Getty Images)

All these digital goods and services that people will supposedly be purchasing at Horizon’s marketplace and other digital dealerships will be made out of ones and zeroes. They won’t actually exist. Even more problematic, unless the evangelicals really are able to tear down the internet’s walls, these digital assets would be locked within the platform that generated them. Nobody outside that platform would recognize your property. You could buy a digital dress for your avatar in Horizon World but end up naked once you entered Meta Hollywood.

For the metaverse to work the way its true believers are pitching it — as a borderless, decentralized, interoperable marketplace where anything that can be imagined can be rendered and sold — it would need a universally recognized and fully transparent system that kept track of who owns what throughout the virtual world, no matter where they bought it from. Essentially, a giant ledger in the cloud.

As it happens, something like that already exists: blockchain, a computer system that records all transactions made in cryptocurrency. Blockchain could theoretically provide you with a receipt for that dress you purchased in Horizon World that would be recognized by all other competing virtual universes, allowing you to lug your digital belongings — as well as your singular avatar — with you as you ventured from platform to platform.

Blockchain is already being used to record proof of ownership for NFTs — non-fungible tokens — when collectors buy stuff like digital artworks. Why anyone would spend good money to “own” a digital asset when an exact duplicate could be made by pressing a button is anybody’s guess. Bragging rights, perhaps? Too much money clogging their bank accounts? But people are definitely doing it. Singapore-based crypto investor Vignesh Sundaresan, also known as MetaKovan, purchased a digital artwork called “The First 5000 Days” for a staggering $69.3 million. He can prove he’s the owner of it with his blockchain “key” — a sort of digital bill of sale — but here, you can have a copy, too. This one is free.

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Beeple’s “The First 5,000 Days” (Christie’s)

Some experts remain adamantly bullish on the prospects of widespread adoption of blockchain technology by consumers. “In five years, everyone will own some form of digital goods,” predicted Jeff Hood, co-founder of Metacrurio, a creative studio for Web3 design. “This will become a reality much faster than most people imagine. Brands will all offer some type of digital good. Digital currency will start to replace physical currency in many governments. These are just realities.”

OK, but here on Earth, another reality appears to be taking shape. And in this one, using cryptocurrency as the foundation for the metaverse’s entire economic system makes about as much sense as building a house out of tulips. Because crypto is about as stable a unit of currency as flowers. Unlike old-fashioned paper dollars or yens or francs or even rubles, all of which are backed by actual real-world governments, crypto is supported by nothing but a decentralized, nonhuman and, as it turns out, wholly unreliable algorithm.

Just last month, the value of Bitcoin, one of the most circulated digital dollars, sank nearly 70% from its record highs. The cryptocurrency terra, dubbed a “stablecoin” because it was directly linked to the U.S. dollar, collapsed altogether in May, while last month the cryptocurrency lender Celsius was forced to halt all customer withdrawals. And that was just the latest in a series of dramatic downturns — or “crypto winters,” as aficionados call them — that have been wreaking havoc on cryptocurrency since it first started appearing on the scene in 2009.

“Bitcoin has no unique value at all,” no less a financial wizard as Warren Buffett opined not long ago, using words like “mirage” and “rat poison” and, yes, “tulips” to express his skepticism. “It’s a delusion, basically,” he said. “It attracts charlatans.”

Bill Gates feels much the same way, declaring just last month that the currency was “100% based on greater fool theory,” referring to an economic hypothesis first postulated by P.T. Barnum in the 1800s, although Barnum used somewhat blunter words: “There’s a sucker born every minute.”

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On the other hand…

Twenty-seven years ago, at the dawn of the digital age, Newsweek published a now-infamous article headlined, “Why the Web Won’t Be Nirvana.” “The truth is no online database will replace your daily newspaper, no CD-ROM can take the place of a competent teacher and no computer network will change the way government works,” the magazine assured readers. “How about electronic publishing? Try reading a book on a disc.”

Seventeen years later, in 2012, Newsweek ceased publishing its print magazine, becoming a digital-only publication.

The point here is, there’s a long history of journalists being terrible at prognosticating about the internet, so it’s entirely possible that the metaverse will prove its skeptics wrong. Nobody three decades ago had any inkling that message boards like BBS and search engines like Mosaic would one day bloom into the globe-transforming (and print magazine-destroying) phenomenon that is the world wide web. Just because nobody today has a clue what the metaverse may grow up to become doesn’t necessarily mean it won’t turn out to be something fabulous.

Even Musk is hedging his bets. “I don’t get it,” he said in that interview last year after Zuckerberg unveiled Meta. “But I don’t get it yet, let’s put it that way.”

This is part 1 of a WrapPRO special series: The Metaverse UnWrapped.

Monday: How to Lose a Billion Dollars in the Metaverse and Other Mysteries of the Web3 Gold Rush
Tuesday: Why Many Film Producers Are So Excited About the Metaverse: ‘Everybody’s Dream Can Come True’
Wednesday: Why VFX Companies Want to Craft Your Hyper-Real Avatar for the Metaverse
Thursday: Why Businesses Are Snatching Up Real Estate in the Metaverse
Friday: What to Know About Buying and Renting Real Estate in the Metaverse

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