The Metaverse and Value
Take any and every announcement, speech or presentation made on the metaverse over the last months whether from Meta, Epic, Oculus or any other company. The metaverse is presented as a communication tool between different multiverses. The examples given are meetings between Wii-like avatars for META, the Second Life “avatoons” for Microsoft Teams or the Ariana Grande concerts and the Rock skins for Epic.
All of these presentations showcase the basic building blocks of the metaverse, i.e., identity and access. Basically, Bob from Accounting in a Zoom meeting and the cross-overs from different multiverses.
What none of these announcements answers is the basic question: how do you acquire the avatar/toon/skin you want for that meeting or concert? What and how did you exchange them for?
The metaverse can only achieve the seamless transfer of items between multiverses by setting a common digital exchange value system.
To transfer a The Rock Fortnite Armor suit into your digital meeting or walk on the street with it as an augmented reality overlay, you need to buy them. In both examples you exchange two values: an item for x number of currencies.
1. Value exchange today and what it means for the metaverse exchange system
In today’s world, exchanging and purchasing happens with a whole lot of assumptions and guarantees.
To start with, all our current currencies have a currency unit name, a logo and a design. We know how to acquire these currency units e.g., via remunerations, receiving grants, getting a loan or buying on the stock market. There is a whole system of “proof of ownership” for each of these values. Finally, we know where to store them with a certain degree of certainty as to their safety.
We take all of these assumptions of currency value, acquisition and ownership as a given.
Our exchange system is based on more than face value
A currency is more than a nominal value, a face value, a quantity. At its most basic, a currency can be simply an instrument for more or less sophisticated bartering. It is also the root of advanced financial transactions.
The further away you go from items purchase, the more immaterial the transaction becomes. The more immaterial the transaction, the more the currency is much more than a price tag. The value you hold factors also in such elements as trust, security, safety and potential future value. That is one of the reasons why the Euro is more stable than the former Italian Lira.
The value you hold is more than a nominal value.
Here is a striking example.
What is the value of a dollar in, say, Nigeria? Well, a couple of years back, you had a theoretical value and a real value, a street value. The street value was 400 NGN for 1 USD. 400 NGN is what you would physically get on the street for a green note. The official legal international exchange rate was 200 NGN per dollar. Your company would be operating on an exchange rate that had absolutely nothing to do with the cost reality. The reason for this difference was the following: the physical attractiveness of the dollar in Nigeria had outgrown its virtual theoretical value. Currencies are more than nominal values.
Values can vary with their environment.
The difference between nominal and actual price can also happen in a digital economy
It actually already does.
Take gaming as a spectacular example of these relative values.
Do you want to know the price of an ultra-rare skin or armour in Fortnite? Websites such as Player Auctions will let you know how many hard cash dollars it will cost you. This phenomenon is not a novelty per se. You might wonder where the movie Ready Player One got its ideas from? The baddies are the company Innovative Online Industries, which has hundreds of employees online to try to solve the riddles. This Ready Player One idea of real-world miners in a digital reality did actually exist at the dawn of the MMOs. You literally had “gamers” organised in gangs, in companies grinding quests online to gather virtual gold. They would then resell it.
A few years back, someone bought a character for 475 thousand USD in World of Warcraft. Add inflation to these prices, and we are talking about a whole lot of real cash.
The metaverse has already value mechanisms. We are playing catch up.
The exchange system is already immaterial. It needs belief
We already pay in the metaverse. We may see it differently or call it another name, but we already live in a dematerialised financial reality.
The US abandoned the Gold Standard in 1971. Since then, we operate in a world where currencies are not linked anymore to gold or precious metal reserves. They are all “fiat currencies”. Agreements, jurisprudences and negotiations define the financial system. For example, setting the exchange values of materials (e.g., oil). This complex system allows us to buy, sell, store and consume.
Whenever we pay, we exchange more often digital values and digital currencies against goods or services than we actually do exchange “physical” currencies. The only difference is, that it still shows on our bank statements as dollars, euros, rupees, RMB… depending of the currency we used. The process still feels very much like a physical exchange, regardless of the means of payment we use. It is not. In truth, everywhere in the world, cash payments are more and more the exception rather than the rule.
What does digitalisation need for the exchange system to exist and remain sustainable? Belief!
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The credibility of the exchange system in general is a fundamental element in its existence, as much as its survival
As an individual investor, you certainly have to believe hard. Much of the financial world today would simply not exist without computers, so fast and complex it has become. Order executions could not be managed manually. The financial world is a multiverse on its own, living by fractions of seconds.
It is fascinating how much of our understanding of it remains actually psychological. Fort Knox’s legendary Gold Reserves reassure us. We keep buried some belief that all currencies have some stash hidden away! It is a virtual symbol if there is any! The Gold Reserve is a mythological symbol of currency stability. The Federal Reserve of the USA is less material guarantee of the value of the dollar through precious metals, than a safeguard and guarantor of financial transactions. Yet, we keep the name “reserves”, even though they are purely “digital” i.e., immaterial reserves.
In fact, exchanges are already quite disembodied.
Pay with a contactless card and it is a direct exchange, ledger to ledger. Even before uttering the words blockchain, crypto-currency, digital currency and NFTs, we are already over there in the financial multiverse.
2. What are the basic value exchange building blocks needed in the metaverse?
Still keen on buying that AR suit in Fortnite to wear it in your next Zoom meeting? What do you need to do that?
Whether mundane or futuristic, value exchange can only happen if the metaverse sets the rules and conditions.
To summarize, let’s unbundle the minimum conditions needed for sustainable value exchange in the metaverse:
The metaverse exchange system and currency(s) has to be neutral, universal, persistent, scalable, credible and accepted by the user.
The metaverse exchange system has to be neutral
This means that it cannot favour one side of the exchange equation. The metaverse exchange system cannot be based on one source of supply, one resource, one system or one country.
So, yes, we will need neutrality at the root of the financial metaverse.
The financial metaverse leaks into a reality today.
The US Dollar is still dominating the terms of exchange in today’s financial reality. The US is enjoying the role of global arbitrator. It is very unlikely that one single entity will be allowed as the global arbitrator in the metaverse. If so, it will likely lead to the existence of many regional independent metaverses. And that is something that defeats the very opportunity that the metaverse presents.
We have to agree on a common exchange unit.
The metaverse needs a universal clearance system allowing fluid value exchange across the worlds
It is not very well-known that any game used and accessed in China must find an approved distributor locally. This is in place to ensure legal compliance of the game, as well as of the gamers themselves. The local giant in this is Tencent. You know them for WeChat. To use The Rock skin of Fortnite in China, there needs to be a common agreement between parties on what this skin is worth.
A currency is not as universal a system as we often thought. Take again the example of the Nigeria Naira we used previously. Values can vary with their environment. As a business, as an individual, you need reassurance that what you own has some universal value.
This is where digital currencies are coming to the fore. Digital currencies are an underlying layer of proto-metaverse currencies for this future financial infrastructure. There will be a need for a global exchange mechanism, a global clearance mechanism.
A persistent exchange value does not mean a fixed or even stable value
A persistent exchange value means it has to be predictable and secure enough to allow access when needed. When in the metaverse, I need instant and secure access to my bank account. And on my avatar account.
In the physical world today, banks or currencies do not always guarantee 100% persistence. However, the terms of the exchange vary generally within acceptable parameters. To travel through all the different multiverses, the exchange value rules do not need to change too much.
During the 2016 demonetisation in India, I literally got on the train at 16h00 with 20,000 rupees in 2000 rupees banknotes in my pocket, and arrived in Delhi at 23h00 with… nothing. The federal government of India banned the 2000 rupees banknotes. I would not want to be left in a lurch like that somewhere in the digital world.
To ensure that the values travel safely across platforms, multiverses and regions, the metaverse must have a system to ensure the stability of the value, of its persistence. A guaranteed system.
Scalability of the metaverse currency
Scalability means defining who can produce currency when it is needed. To put it differently, who can “print” money in the metaverse?
We hear a lot about crypto-currency. One of the fundamental principles of crypto is mining. Mining is the production of new coins. The volume of currency produced defines its value through a direct offer and demand model. This in turn defines the crypto currency future value – beyond pure speculation of course. Controlling production is the basis of currency. It is the basis of value. Without that insurance mechanism no exchange is possible.
The production of metaverse currency could be decentralised or centralised. That is not the issue. What is critical is to make sure that there is enough available to play its role as blood of the economy. Not enough currency, and you slow everything down. Too much of it and you literally jeopardise your financial system.
Credibility, the most underrated element of a value exchange
In my experience, the most underestimated element of a value exchange (a sale, for example) is trust and belief. There must be trust and belief between the two parties, seller and buyer, of course. But there must be also trust and belief in the exchange system itself. No x-pages long contracts and clauses replaces the parties’ agreement to the process itself.
If you don’t trust the currency of your buyer, it is very unlikely that the sale will happen at all.
The metaverse will have to reassure the economic participants beyond the material and factual realities, and make them believe in its credibility. Like Fort Knox.
3. What is the solution for tomorrow?
Defining the exchange system and the exchange value has far-reaching implications.
Much of what we discuss here is generally negotiated, designed, guaranteed and controlled by governments through complex multilateral summits. With Bretton Woods, WTO, IMF, OECD, we established ground exchange rules acceptable to most countries. What about tomorrow? Who will organise the discussions about value in the metaverse?
Governments must perceive where these discussions leads, and take back control. They are starting. However, the existing mechanisms only cover a part of what is required. More is needed. But, it does not mean that the whole blockchain concept has to be halted or scrapped. The current blockchain concept actually has the kernel of a universally agreed value system. The example is NFTs, although that concept needs to be refined as well.
Discussing and creating an exchange system for the metaverse will in itself lead to the creation of new resource and values.
Governments are taking back control in the creation of value through the metaverse
Mark Z was “convinced” not to roll out Libra. My hunch, your guess? It was not so much because the Libra association members dropped the idea… Governments around the world just balked at the idea of having a non-state entity getting their own currency. What was OK for individual currency holders of Bitcoins or Dogecoins, was another matter in the hands of a mega-corporation. These governments in turn must have put pressure on the other companies in the Libra alliance.
When Jack Ma, at the ANT pre-launch, says “We cannot use yesterday’s rules for tomorrow.”, he makes a direct dig against traditional banking. That is, against the traditional system of guarantees. He simply stakes a claim on what will define value itself tomorrow. As a recognition of his efforts, he was encouraged to enjoy a well-earned retirement. That actually happened rather abruptly.
It may not be a great idea to give to a single individual or company the keys to the kingdom, and even less to the banking system – neither in the US, Europe or China.
Crypto currencies, as they are, are probably not the solution we look for
You read about it in your favourite newspaper as a success story, or a new frightening online scam. We do have a solution today that distributes ownership and valuation enough for the process to be secure. It is called blockchain-based cryptocurrencies. The whole 10,000 of them.
Could cryptos do the trick, as is often written about?
Let’s use our 5 criteria
Neutrality? Probably. Although it may depend on your computing capacities.
Persistence or value stability? That is not what cryptos do best. So much so that China and India banned cryptos all together. The risk was the speculation or naked “gambling”. You may think that speculation is legit. Then, most cryptos would qualify as investment currency, not exchange currencies. So, no to persistence.
Scalability? We could say “check” as computing power increases over time. We can expect organic growth of crypto-mining over time. Increasing computer power is easily done with the organic growth in processing power (Moore’s Law). But that basic fact is highly debatable. Also, running crypto blockchains comes at a hefty energy bill. It does already take a toll on the power grids. That was the official reason why the Iranian government banned cryptos and crypto mining.
Credibility? Not just yet! Donald Trump branded cryptos “scam coins”. Probably speculation at best. A Ponzi scheme at worst. Recent events do not reassure me. Between the tactical disappearance of the Crypto Queen, to the Squid. The Squid crypto – like the TV show – was created in a matter of days and ran with the till before the weekend was over. Squid crypto became an overall heist of 2.8 million!
Because of the above reasons, it is very likely that we will see alongside the Digital RMB, a Digital Euro and multiple pure digital currencies guaranteed by governments.
A core blockchain system and NFTs offer a potential kernel
None of the reasons described above does invalidate the entire crypto currency idea. After all, they are called crypto currencies because they are supposedly un-forgeable. Their identity certificate is shared across servers. That is the principle of NFTs, or non-fungible tokens.
Let’s look past the hype.
The blockchain system in itself is promising for the metaverse. What you need in the metaverse is unique proof of identity and of ownership.
NFTs are essentially a blockchain sequence allocated to pretty much anything you want to prove ownership of. It makes the item unique. Be it a digital art work, a meme or a viral. Yes, you can make beaucoup money on it. The Nyan Cat earworm sold for 600 thousand USD. You can even buy NFTs for empty space! It will only set you back some 16 thousand USD. Just like Yves Klein empty “spaces” in the 1960s. Again, nothing new here, but the metaverse is quite on another scale. As long as the value, sorry, beauty, is in the eye of the beholder…
The NFT blockchain does cover pretty much all the set expectations for establishing some of the aspects of value in the metaverse
However, persistence could be built in through an exchange system. This exchange system in turn will deliver scalability, but especially credibility.
Some libertarians may claim that the system could self-regulate. I am rather sure that it would end up – like the internet today – in a Free Fox in Free Coop situation.
A solution would be a real WTO forum, a new Bretton Woods.
“Time” as the universal new base unit
The core unit of exchange in a virtual world is time.
How much time and efforts you spent working defines your added value, in Marxist terms. In the phygital world enabled by the metaverse, your online presence is intricately defined by how much time you are allowed to see, do, play, etc.
Time is neutral, universal, persistent, scalable, and, to be sure, credible.
The block-chain itself is based on computing time to solve mathematical problems. Crypto currencies are ultimately based on time. Therefore, time would be usable across the entire metaverse as a base unit.
Time is infinitely sliceable and tradeable
Time taken, time given, time used, etc… defines tasks, items and services. It is therefore very possible to find a value that would cross straight through all the physical and digital realities. It can even be defined in individual or collective time.
For example, my team took 1 month to produce this research. It took me 6 working days to publish this article.
The political systems themselves are nothing else except specific subscription models: vote for me and this is the service I will perform for you for 4 years. In the case of national politics, it took us years to define and refine checks and balances. To this day, we cannot yet agree on the best perfect solution. Yet, it works.
It could be the same for the metaverse.
Time is the most valuable metaverse resource, transcending physical and digital realities
We do exchange today individual time and actions. The consumer. The employee. The voter. The citizen. Call it what you want.
What is the value of a voluntarily captive audience?
In social media we voluntarily become a captive audience. We do that more often than we realise. While on the bus, we go through our Facebook feed, pre-selected for us. We watch TV and stare at our computer screens. The exposure is already in place. We voluntarily dive in.
Social media companies, VOD and apps companies sell our time as a captive audience. I can buy today the exact audience I want for my product.
What is the value of time?
What is the value of a performance in front of an exclusive audience for an online concert? According to sources, 20 million dollars upwards for Ariana Grande online. For a non-exclusive audience such as spectators during the Super Bowl ad slots: 5.5 million USD for a 30 seconds spot, i.e. 30 seconds of the spectator time.
Whether physical time in a digital environment or digital time in a physical environment, the metaverse enables value overlaps and exchanges. It means cash, today.
Defining value in the metaverse… An exchange unit to carry across the digital and physical boundaries will pretty much round up our future reality. It will be critical to have a clear value system and control mechanisms to ensure that the merged reality created is at least transparent. After all, the last thing you want in your metaverse is the option to “pay to win”. Only this time, it would be Pay to Win at Life!
Seamlessly switching between separate multiverses will require core agreements on exchange values that go beyond what instruments we have today.
The way I look at it?
It cannot be anything less than a global financial conference, make possibly a tech and financial conference, setting the necessary basis for exchange instruments. Essentially, a present-day Bretton Woods conference to agree the basic principles and mechanisms of the metaverse in its financial aspects.
It will literally re-define value.
Going through this is unavoidable if we want to optimise the opportunity that is the metaverse. It is the only way to optimise the concurrent usage of the multiverses, making access visually and physically seamless. A seamless experience is the condition to optimise the potential revenues.
After all, we remain at heart a curious public, metaverse or real life. We understand that usage itself will drive adoption and adoption generates habits.
The metaverse is not some remote science-fiction setting. It will define what we call reality.
You understand why so many want to be at the table when it will be discussed.