Building The Metaverse

Big Tech, banks, telecoms–and even Hollywood–are all scrambling to own a piece of the infrastructure of the future.


Science fiction writers always lead the way, imagining impossible possibilities. Then Hollywood comes along to raise expectations. Slap on some gloves and a headset and suddenly you’re in a richly detailed imaginary world—with potential real-world implications.

That’s the promise of the “metaverse,” a word credited to author Neal Stephenson in his 1992 novel, Snow Crash. Stephen Spielberg presented a vision of what it might look like in his 2018 adaptation of the Ernest Cline novel Ready Player One. Also called Web 3.0, the metaverse will be the internet on steroids: like the real world, in three dimensions and real time. On today’s internet, you cannot interact with other customers at an online store; the metaverse is supposed to make that possible.

But there’s one thing digital insiders agree on: We’re not there yet. Despite the hype of recent months, driven in part by Facebook’s high-profile attempt to rebrand itself as “Meta,” the technology has a long way to go. “‘Metaverse,’ the way most people use it, is an aspirational term,” says Philip Rosedale, founder of Second Life, one of the earliest virtual social World’s. “Nobody has built it exactly yet.”

The metaverse should not be confused with the virtual World’s that will populate it. Much as the web is a medium for sites as diverse as CNN, Reddit and Pokemon GO, so too the metaverse will be a medium for multiple types of virtual World’s like Decentraland, Roblox and Minecraft. In the most advanced visions, the physical world could be populated everywhere with cameras and scanners that would generate data to create parallel virtual World’s. Virtual visitors would then be able to stroll through the Ginza without going to Tokyo and see the same things as someone standing there in real time. “It’s about a seamless convergence of physical and digital lives,” says Cathy Hackl, CEO and chief metaverse officer of the Futures Intelligence Group consultancy (FIG). “We’re building toward that greater vision.”

From computing power to networking bandwidth to payment systems, many problems must be solved. “It is very nascent,” says Hackl, a virtual reality (VR) expert who has worked with companies such as the producers of virtual reality platform and headset brand HTC Vive; and Magic Leap, producer of the Magic Leap One system and the Magicverse. “There are what I call glimpses of the metaverse.”

Still, the enormous potential seen in those glimpses powers real hopes. Consider the masses of people gathering online in virtual World’s. Popular online games, such as Fortnite and Roblox, notch the biggest numbers—more than 20 million daily active users on Fortnite, for example. But there are people congregating to socialize, attend concerts, view digital art and more. Rapper Travis Scott performed for 12 million fans in a virtual concert on Fortnite that ultimately grabbed more than 25 million unique views.

And people are already spending billions for virtual goods—approximately $54 billion annually, according to research from JPMorgan Chase, twice the annual spending on music. Second Life, with roughly a million active users, quietly earns more per user from fees than Facebook does from Instagram via advertising. Anshe Chung, the avatar identity of Ailin Graef, became the first virtual real estate millionaire, in Second Life, way back in 2006. She has since built a real-world empire, playing a significant role in the development of IMVU, a leading virtual social world, and other metaverse projects. Overall, the metaverse was estimated to be a $500 billion revenue opportunity in 2020 that could approach $800 billion by 2024, Bloomberg reported. Global consultancy PwC estimates that metaverse revenue could hit $1.5 trillion by 2030.

The Big Barriers

Technology aside, two central problems remain. First, who really needs it? Virtual World’s as they exist appeal mostly to gamers, mostly under-20-year-olds. So far, they show appeal to a limited group of adults. As Rosedale discovered with Second Life, getting comfortable with an avatar takes a significant investment of time, which makes it easier to sign up young gamers keen to play than corporate executives seeking efficiency. “People still tend to use virtual World’s when for one of a variety of reasons they must. If they don’t have to, they won’t,” Rosedale explains. “And successful executives in New York or wherever, don’t.”


The pandemic started to change the equation. “Covid is one of the drivers of why Facebook would rename itself and why everybody is getting excited about the metaverse now,” Rosedale says, “because, of course, we’re thinking, what happens if live events or school have to go online forever? What would that mean?”

Formerly uncomfortable ideas—like a virtual doctor visit—suddenly became popular. In February, virtual-clinic provider XRHealth raised $10 million in funding to expand its treatment via VR and augmented reality (AR). “You’ll be able to put a headset on and enter the metaverse, and you just have a full variety of different types of treatment rooms operated by certified clinicians,” says Eran Orr, CEO of XRHealth. “Today, we are already conducting virtual treatment in the US, Australia and Israel.” Last year, the company conducted over 100,000 physical therapy treatments virtually. The average age of patients is 62. These are neither gamers nor early adopters, Orr noted. Of course, limitations are apparent, too: Prescriptions can be dispensed, and surgery done remotely, but not virtually. Still, virtual health care could become a $250 billion market, according to a McKinsey report.

Prior to Covid, the focus was on “gamification”—making useful activities gamelike—to spur adoption. “I am a firm believer that gaming is going to be the adoption curve for the metaverse,” says Brian Wilneff, who took the helm as CEO at Alpha Metaverse Technologies after the Canadian company bought his e-sports firm GamerzArena in 2020. “Gamification will be a leading part of our world, especially as the metaverse continues to expand.”

Indeed, a goodly portion of today’s pre-metaverse economy can be traced to blockchain-based play-to-earn (P2E) games in which users earn nonfungible tokens (NFTs) that they can convert into sovereign currencies. Axie Infinity, “a virtual world full of fierce, adorable pets called Axies” that “can be battled, collected and even used to earn cryptocurrencies with real value,” per the company, was the first crypto metaverse game to surpass $4 billion in NFTs, according to an all-time ranking by NFT tracker CryptoSlam.

The second set of big problems, in addition to the challenge of enticing users, is made up of security issues, particularly around storage and use of virtual assets. Most of the Web 3.0 executives interviewed by Global Finance say they do not own a cryptowallet.

Jason Desimone, founder of virtual world Rove and head of blockchain at software developer Ubik Group, does have a cryptowallet—and he uses six different laptops when he moves between different blockchains. “You must be extremely careful about the sites you go on, about what you connect your wallet to, about how you lock it after you store it,” he explains. “If you make a mistake at any of these steps along the way, you’re at risk to lose everything.”

Hypervolatility is also at play, Desimone adds: “I try to warn people away from getting into the space unless they give their money to someone who knows what they’re doing or unless they really take the time to learn.”

Nevertheless, corporate actors are increasingly diving in. Luxury brands Gucci and Balenciaga are making virtual fashion, as are more-prosaic brands such as Nike.

Chick’nCone, an American restaurant chain that specializes in fried chicken served in a waffle cone, issued NFTs in February to fund expansion. Each “Chick’nCoin” token (cost: $14,500) gives its owner rights to some franchise fees and royalties for six years if any new restaurants open in a specific geographic area. But they are not investors and make no money if no new restaurants open. Still, “the response has been good,” explains Jonathan Almanzar, CEO and co-founder. “I think we’ve only begun to tap the potential of smart contracts.”

 Global financial institutions are eager players: JPMorgan Chase and HSBC have staked out virtual real estate claims on the Decentraland and Sandbox blockchain-based platforms respectively, for example. JPMorgan is no stranger to digital ledger technologies and launched its JPM Coin for cross-border payments in 2019. The bank’s metaverse presence in Decentraland, Onyx, relies on JPM Coins to handle metaverse-related transactions.

“They want to be the bank of the metaverse,” explains Brad Oberwager, executive chairman of Linden Lab. “They want to show that they are on board with the future. They believe money is a major part of that future, and that the blockchain is going to be a major part of money.”

They’re not alone. “We see great potential to create new experiences through emerging platforms, opening up a world of opportunity for our current and future customers and for the communities we serve,” writes Suresh Balaji, chief marketing officer for Asia-Pacific at HSBC, in a press statement. “Through our partnership with The Sandbox, we are making our foray into the metaverse.”

“Everyday brands are rushing into this space, trying to figure out how to get their market share,” says Desimone. “It’s like a modern-day Renaissance.”

Building Blocks

Right now, the biggest business opportunities aren’t in the metaverse—which doesn’t exist—but in building it. And there is plenty of work to do. On his website, The Metaverse Primer, venture capital investor and VR guru Matthew Ball breaks out eight areas needing development to attain the metaverse, including networking and computing power, a vast range of hardware (consumer and enterprise level) and a robust array of virtual platforms, content, services and assets. Ball also marks payment systems, asset custody and standard-setting as developmental necessities.

Meta, née Facebook, isn’t seeking to simply join the metaverse, but to own its core building blocks. The social media behemoth said last year that it would spend more than $10 billion this year on its VR headsets and Horizon World’s, a platform of its subsidiary Reality Labs. Global spending in VR/AR technologies is estimated to increase fivefold to $72.8 billion in 2024 from $12 billion in 2020, according to Morgan Stanley research. To date, VR headsets have been something of a disappointment, as they make many people nauseated.

Meta is not alone in seeking to own a piece of the metaverse. Microsoft’s $68.7 billion deal to buy videogame publishing giant Activision Blizzard was the Xbox maker’s largest acquisition move since acquiring LinkedIn for $26.2 billion in 2016. Alphabet, Google’s parent company, also plans to acquire Shape, a company that enables holograms, P2E games and 3D NFTs for technologies like Red Bull’s Rampage AR app and Nike’s RTFKT (pronounced artifact) virtual sneaker vendor.

Virtual World, Real Economy

One critical piece of the metaverse economy will be digital payments, which have drawn the interest of the financial sector. Although it’s easy to develop a digital economy if it stays in a single game or online platform, it’s harder to make one that crosses multiple games or environments. Linden Lab, the creator of Second Life, has some of the longest experience in this area.

Second Life’s digital items exist only within its platform. On the other hand, owners of NFTs can purchase, trade or sell their NFTs without being tied to a specific platform.

Over its 19-year life span, Second Life has increased the amount of its proprietary online currency as the platform usage has grown. The exchange rate of the Linden dollar, Second Life’s currency, has remained relatively steady between 240 and 270 Linden dollars to the dollar; and it has been used in 1.6 million transactions daily, far more than Decentraland, according to Oberwager.

The price of minting and trading NFTs on their respective blockchains could prove prohibitive due to their individual operating models, he adds. The metaverse needs to support small transactions. “You can’t move [just] a penny on the blockchain,” he says. “The price to move it is too expensive.”

Interest in such NFTs has surged over the past two years to approximately 500,000 all-time users with active wallets compared to 50,000 in 2020, according to digital-native asset manager Grayscale Investments, which had $55 billion of assets under management at end of October 2021.

The hyped valuations of NFTs raises concerns among regulators and investors alike. After Nike acquired RTFKT, the price of its digital shoes skyrocketed. A pair of Jeff Staple Metapigeon K-minus sneakers sold for more than $25,000 on the NFT marketplace OpenSea. “This is a bubble that is unsustainable,” warns Ubik Group’s Desimone. “Unfortunately, a lot of these NFT collections that are worth exorbitant amounts of money will go to zero.”

And many such experiments have flopped. McDonald’s issued a McRib NFT in November, but it didn’t take off. “Just because you can put something on the blockchain, it does not mean you should,” says Linden Lab’s Oberwager. NFTs are beloved of crypto enthusiasts but they have a shakier reputation among the general public as well as artists.

At this time of experimentation, “there’s just a lot of projects,” says FIG’s Hackl, “and not every project will retain its value.”

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