The Metaverse
The Merging of the Physical and Digital World
This is my personal outlook on the Metaverse as of December, 2021, and it will evolve as things become more clear. This is a HUGE topic to cover, and is bigger than just Crypto, so the writeup here is quite long. But, given how important this topic will be in the coming decade, and how much confusion, hype, and nonsense there currently is in the Metaverse space (especially in the Crypto world)… I figured it deserved a thorough approach. 🙂
Since this is all still so early stage that we can’t even agree on a single definition of the Metaverse, I’d recommend you don’t get too attached to any one perspective, or any one person’s worldview (including my own).
If you’d like some different perspectives on what this world could be, I’d recommend checking out Scott Galloway, Packy McCormick (or his newsletter), Coin Bureau’s take, or any number of different Metaverse interviews with Raoul Pal on Real Vision.
Above all else, stay flexible, and don’t be too proud to change your mind! If nature teaches us anything, it’s that it isn’t the strongest or the smartest that are the most successful, but those who are most adaptable to change.
Ahhh the Metaverse. The buzzword of all buzzwords these days. A new digital frontier that will transform the way we live, work, play, make money, and experience reality. So, what exactly is the Metaverse, and is this something we should be taking seriously? Absolutely.
But, to get to the actual substance here, we’ll have to get through about 10 layers of hype and nonsense first. Transitions like these are colossal and take time. While this transition is happening remarkably quickly — it isn’t happening tomorrow, and it isn’t happening all at once. There will be hype cycles, bubbles, and crashes along the way.
What we want to do is separate the truth from the noise, to see things as clearly as we possibly can, and then invest accordingly.
So, let’s get started.
What is the Metaverse?
The Metaverse is not a “thing”, but an idea. It’s actually incredibly useful as a concept in your own mind, to tie together so many new technologies: Virtual Reality (VR), Augmented Reality (AR), NFTs, crypto, DeFi, satellite internet, global connectivity, immersive gaming, etc. It’s pretty overwhelming to try and imagine a world with all these technologies if you go one at a time, but the Metaverse offers an easy mental picture that can encompass all these technologies and more.
Now, there is no unified definition of the Metaverse, but let’s take a shot at it. Let’s think of it as “the merging of the physical and digital world”. That could take many forms. There’s the Virtual Reality Metaverse: An immersive digital world that you experience fully virtually with a VR headset (like a 3D internet, Ready Player One or Futurama style), and the Augmented Reality Metaverse: one that exists as an overlay on top of your real world experience (picture a Heads Up Display through some fancy glasses that overlays data on anything you look at).
Most definitions in popular culture today are closer to the Ready Player One VR version, with you having a digital avatar that is experiencing a digital world. While this will certainly be part of how people will be able to experience this new world, that definition by itself is extremely limited and incomplete. We aren’t just going into the digital world, the digital world is coming outward to us. That’s important, as the second part isn’t as commonly discussed, and it’s a big part of seeing the future of what’s being built (even if we have to squint a little bit to see it 😉).
So, to summarize: When we talk about the Metaverse, we mean the blending of the physical and the digital world. We primarily mean either pulling more of our senses and experiences into the digital world, or bringing more of the digital world into our physical lives.
To the people reading this skeptically, or thinking “I just don’t get it”
I totally understand the skepticism, and there is much about this new world I’m personally not crazy about either. I love the physical world (as evidenced by the images on this site), and while I find the Metaverse idea to be fascinating, I’m not looking forward to our day-to-day life even being more disconnected from the actual world around us.
However, this is happening, whether we like it or not. To deny this because we may not want certain parts of it is no different than denying the internet in ‘95 because you didn’t like how it was changing how people lived. If you don’t personally see enough evidence to convince you this is real yet, let me just point out a few things:
Facebook, one of the largest companies in the world just changed their name to “Meta” and is betting the entire company’s future on this idea.
VCs have invested over $10B across over 600 deals just in 2021.
Gemini raised $400M for Metaverse investments to compete with Facebook Meta.
Almost all of the major tech giants have some kind of stated strategy or product in development (Apple, Microsoft, Facebook, Google, Amazon, etc).
The Metaverse will primarily be about communities around the world interacting with each other, and Satellite internet via SpaceX & Amazon will soon bring the entire world online.
Gaming will likely be the first use case that brings people into the VR Metaverse, and gamers are growing at an extraordinary rate, with estimates now putting the total gamers around the world at around 2.5 Billion.
Younger people and kids are already living like this world is a reality, and you can just look at the growth of platforms like early “Metaverse Platforms” like Roblox as an example. It’s not just about games either, it’s about socializing and having online experiences. For example, Fortnite’s Travis Scott concert drew over 27M people.
We all just spent 12-18 months locked inside for COVID… Any kids or young people that weren’t gamers before, damn sure are now.
Crypto is integrally tied to the idea of the Metaverse, and crypto users are growing at over 100% per year. Crypto users will be among the first to adopt and invest in the Metaverse and the many innovations that come from it.
If you’re still skeptical or still on the fence, hopefully that list at least gives you enough evidence to suspend your judgement for the rest of the page. 🙂
Hardware: Gateways to the Future
Now, before we go any further, Hardware is a very important thing to call out here. The folks who keep acting like the “Ready Player One” Metaverse is going to change our lives in the next few months seem to be completely forgetting this part.
You can’t experience a digital world without a gateway to it. Our phones and laptops offer a kind of gateway, but aren’t very immersive. Headphones take care of audio, and there could be some other cool wearable devices that get built, but humans are very visual creatures, and an immersive visual experience will be very important for any true Metaverse to come to life.
So far, the VR Headsets and AR Glasses that have been produced have mostly underwhelmed:
Oculus has promise, but it still gives plenty of people motion sickness, looks ridiculous, and it’s also owned by Facebook Meta, who most of the world hates and many refuse to purchase from (myself included).
Microsoft’s Mixed Reality Headset is cool… but also $3500. Not exactly affordable for mass adoption.
There are a few others by Playstation, Samsung and others as well. While anyone who has used or tested a quality VR headset knows the technology at its core is incredible… They are mostly niche products now, without much to do with them once you get them, and they’re too expensive for most people to afford.
That’s an issue. Hardware improvements are slow, and much, much harder than software improvements. Hardware is one of the biggest limiting factors to how quickly this new world can be developed.
To get this right, a company will have to make a physical device that is functional, immersive, affordable, comfortable, relatively-stylish (to where people won’t hate wearing it), and then they will have to mass produce it and get millions of people to buy it. That is hard! Someone will do it, probably in the next few years, but it hasn’t happened yet, and we shouldn’t pretend like it has. Whatever piece of technology ends up being adopted here will also have a massive impact on the software that gets built for the Metaverse (i.e. if AR glasses get adopted before someone builds a great VR headset, that will strongly influence what developers build).
Now, once someone does figure out the hardware piece (again, some company almost certainly will, and my money is on Apple figuring it out first), future Metaverse technologies will be able to be adopted much more quickly (just like how once you bought an iPhone, you could then get instant access to any new Apps people built immediately). But, let me reiterate: it isn’t happening tomorrow or all at once. There will be hype cycles where people act like it’s all happening tomorrow, but in reality it will happen in phases until it just becomes normal, just like everything else has.
Remember that when you are investing in high-hype environments! Just like getting directions on your phone, ordering DoorDash, ordering an Uber, same-day delivery from Amazon, making video calls, electric cars, satellite internet, etc. The future never happened “all at once”, but rather one thing after the next.
A few pieces of Hardware being developed to watch in the coming years:
Apple’s AR Headset + Glasses (These are the ones I’ll be watching most closely)
Microsoft’s HoloLens VR & Mixed Reality product line
Facebook Meta’s Oculus product line (Let’s all hope literally anyone else builds something better…)
Miscellaneous other related projects from similar companies that are also in the works.
Software: Who owns & controls the world?
So far, we’ve covered a bit of what the Metaverse is (the VR and AR versions), and the kind of hardware that would be required to experience it (i.e. an iPhone for your face 😉).
Now, once we have our gateway to this new digital world, what could this world look like? And if this new world is so important and valuable, who gets to own and control it?
This is one of the most important questions in the world right now, as long term foundations are being built by a variety of companies and platforms that could result in either very utopian, or very dystopian futures.
One of the biggest dividing lines around control and ownership here is either:
Centralized: Company owned and controlled, probably by the Web 2.0 giants of today.
I.E. They own the new world, and you only get to visit it.Decentralized: Blockchain based, community owned, developed, and controlled.
I.E. You get to be a part owner in the new world.
So let’s break down a few different versions of what the Metaverse could be, and what life in each of these versions might look like:
VR & Centralized: This is what Facebook Meta is attempting to build. An immersive VR World that we would visit, and they would control. You could think of it like a 3D Metaverse version of Apple’s App Store. Everything that happens there is ultimately benefiting the company, they get a cut of everything, and if they don’t like something… it’s gone. Especially given Facebook’s track record with… pretty much everything, this is a pretty terrifying prospect. Imagine them not only knowing and also selling your beliefs, psychological profile, fears, and how to best manipulate you… but also granular biometric data down to your eye movements and bodily reactions in their Metaverse. This is quite a scary and dystopian prospect, that unfortunately is probably going to be a reality to some degree.
Now, they aren’t the only ones attempting to build something like this. There are other companies like Roblox that have a platform for building digital worlds, and plenty of individual games like Minecraft or Fortnite that could be considered to be examples of early Metaverse worlds. In fact, if you go back to games like Second Life, they have evolved to a point where some people already make their livings entirely within the in-game economies (being “land barons”, designing houses, selling stuff, etc). Most of these worlds may be geared towards gaming today, but that would only be part of the appeal if you could fully experience hanging out with friends, movies, shopping, travel, school, work and other elements of your life easily in this way.
VR & Decentralized: This is similar to the experience you would have in the Centralized VR world, but more open, (hopefully) more egalitarian, and with much more freedom. There would by definition be more “risks” in this world, since there would be content and applications available to you that no one could take down. But, risk is always the price of freedom, and this is far preferable to the centralized walled gardens that would own and collect your personal data in my opinion. While the centralized worlds may or may not need to use blockchain technology (or they could use centralized versions of popular blockchain tech), the Decentralized worlds would almost certainly be built around Crypto and Web3, and we could all truly share in the ownership of this new ecosystem, leverage DeFi for banking needs, and much more.
This tech could even transform what we think of as a “website” today. If there was an easy and immersive way to visit a 3D digital storefront, that might ultimately replace the 2D website experience we use today. For an early look (and I mean VERY early stage…), you can check out pioneering digital worlds like Decentraland and explore a bit for yourself. Keep in mind how software and the internet looked in 1995 when you’re exploring. Don’t judge the aesthetics, just try to grasp how a perfected version of this could change and impact our human experience. What if you were experiencing and seeing what your avatar was seeing? As a side note, this kind of experience would also be available in the Centralized VR world as well, it would just be owned by someone else.
AR & Centralized: This would leverage something like Google Glass or Apple’s upcoming AR headset. This world could be quite useful, like wearing an iPhone on your face that is able to interact with the world around you. It’s easy to think about how just taking many of the services we use on our phones today (GPS, Maps, Yelp, Facetime, etc), and making those available in our normal field of vision, making them adaptable to the environment around us, and letting us use them without using our hands could open up an entirely new world of innovation and helpful tools in our lives.
For example: Google Glass, after being largely rejected by the public initially, has found use in the medical field for doctors needing to view complex patient information quickly and easily without leaving the room or having to occupy their hands during a procedure.
There are plenty of dystopian fears with a Centralized AR world as well (just like any centralized power). However, it is easier to picture this as an “evolutionary” step from the tech we’re already using in the physical world, rather than the more “revolutionary” step of creating an entirely new digital world, and then letting a handful of corporations control and own all of it. In short, since this is just augmenting our experience in the physical world to a further degree, the Centralized AR option here doesn’t scare me nearly as much as the Centralized VR world above.
AR & Decentralized: I’ve only seen a handful of projects working on Decentralized AR projects so far (likely because of the hardware restraints), but this would be similar to the Centralized AR option above, but with more choice, freedom, and less of the “App Store” style control for end users. Control checkpoints like Apple’s App Store do reduce risk for end users (by removing many fraudulent options), but they also restrict countless useful applications that knowledgeable users might want. For a crypto example, Apple forced Metamask to remove their initial Dapp/Web3 Browser (which was pretty amazing), and have restricted all kinds of similar functionality on other applications.
Now, reality is rarely only one extreme or the other. The reality that ends up being created will almost certainly have elements of all of the options above, with many competing worlds, technologies, and philosophies vying for our attention. However, the mix of which elements are most dominant will be highly significant for whether the future leans more utopian or dystopian.
Side note: While much of the software and experiences that we have in the Metaverse might be decentralized, the hardware we use to experience them will almost certainly not be. Hardware is hard. Much harder than software, and you can’t have a 10 person team get together and create hardware for millions of people, the same way they can with software. The hardware will probably come from giants like Apple, Google, Amazon, Facebook, Samsung, Microsoft, and others. It’s unclear now how friendly these giants will be to letting their hardware be used in decentralized digital worlds that they don’t control.
Investing in the Metaverse
Ok, so all that is interesting… but if we see this as the future… how the hell do we actually invest in this?
Since this is primarily a crypto site, I’ll stick with a crypto assessment. Though a reasonable person could come up with plenty of solid Stock ideas to play the Centralized routes as well, assuming you don’t mind the record high valuations across the board. 😉
Let’s first check out some of the leading Crypto Metaverse projects today:
Now… even if you were heavily involved in crypto before, had you ever heard of these projects a year ago? Probably not, and many other popular projects today didn’t even exist a year or two ago. So, if we’re being honest… How many of these do you think will still be around (or at least still popular) in 5 years? Probably not many. I’m not being critical of these projects, in fact, I genuinely hope for as many as possible to be successful, since I believe the Decentralized Metaverse is our best future here. However… The reality is, while the Metaverse is a near-certainty for humanity’s future in my assessment (barring a global catastrophe like an asteroid or solar flare), that doesn’t mean that Metaverse-specific projects today are clear enough to be really investable, yet.
You could have seen Second Life or World of Warcraft years ago, saw that they created a new ecosystem for millions of players, an early virtual world, and even their own economies… but if you invested in them as the “one that would rule them all”, you would have been pretty bummed when Minecraft, Fortnight, or countless others overtook them.
My point is, no matter how bullish you are on the Metaverse, unless you are truly an expert in this specific field (meaning you have put your 10,000 hours into blockchain gaming and meta-worlds specifically), the odds of you being able to identify the handful (if any) of the current projects that will stand the test of time is quite low.
If you are knowledgeable here, and want to play the hype cycle with shorter term bets as games become popular and then fall out of favor, then by all means go for it. But, if you’re planning to hold for the long term, it’s a very unclear space right now.
How to Invest in the Metaverse Intelligently
If you do choose to invest in Metaverse-specific projects, I would highly recommend looking for infrastructure plays rather than individual worlds/games. This might be something like Flow’s Blockchain for NFTs & gaming, or Enjin’s ENJ coin and platform for building different games & NFTs that all share the same base currency/ecosystem. I don’t personally own either project at the time of writing this, but plays like these are certainly ones I’m watching. These kind of infrastructure plays also have far more likelihood of having a real economic reason for their coin or token to be valuable. While time will tell what kind of economic rights these Metaverse tokens will have long term, many of the game-specific tokens right now have “hazy” value props at best in terms of what actually makes a token valuable, beyond just speculation or buying something in the game (i.e. Long term, why couldn’t you just use Bitcoin or Ether to buy things in-game? Why do you need a separate token at all to make purchases in the game?).
The way I’m personally invested in the Metaverse is the same way I’m primarily invested in every part of crypto right now… Layer 1 Proof of Stake Blockchains. Why? Because they’re the clearest long term bet out of anything in the space. They will benefit from anything and everything that gets built on top of them or significantly interacts with them.
The whole banking system that Metaverse worlds will use, what will that be? Oh yeah, DeFi. Where will that be primarily built? Layer 1s. What about property ownership & NFTs? Layer 1s. What about the countless brilliant ideas and sectors that don’t even exist yet? Yep, significant parts of all of them will almost certainly either interact with, or directly settle to Layer 1 blockchains.
Just like DeFi and many other incredible ideas in crypto, there will be specific bets here that become clearly investable at some point if you are paying attention, once winners and economic moats become more clear… but, as bullish as I am on the whole space, I have yet to hear anyone make a compelling case for why any specific “game/world” Metaverse project is a clearly investable long term project today.
Metaverse Investment Options I’m Skeptical Of
1) Betting on an individual project or game.
I already covered this above, and again… there will be many more “amazing worlds” coming in the future that will be far better than what exists today. Unless you have deep knowledge in the space on individual games and future worlds with real staying power, you’ll probably lose money long term (i.e. you’ll feel like a genius as the market goes up, until the bear market washes you out).
2) Buying “Land” in a Metaverse world.
I’m open to changing my mind here as things unfold, but this is my current view.
Virtual land speculating will certainly work out for some savvy people (especially the people creating the attractions), and some people have already been very successful speculating on what will be popular. This was the case even back with games like Second Life too. There are also some very interesting ideas here around being able to “Rent” out certain pieces of digital land or sell advertising space (i.e. if you own the piece of land next to Snoop Dogg’s place, you could probably sell Ad space there). But… While this is fascinating as an idea, it’s still extremely speculative at this stage, and I have a hard time seeing this working out well for most people.
While the location of some pieces of land will probably give them a premium, if they’re located next to something with real star power/attraction (i.e. a celebrity, etc), this is the textbook definition of speculation, and if you engage in any of this, please don’t confuse it with investing in things with fundamental, objective, economic value.
While things like “Renting” a piece of digital land, or anything that enables you to generate yield would by definition give it an economic value, that would completely depend on what/where is popular at a given moment of time, if it stays popular over time, and it’s highly debatable if this revenue opportunity will apply to most pieces of property in the digital world. (i.e. you can sell a billboard in Times Square for a lot of money… but go a few miles outside the city, or to a low-traffic area, and no one cares anymore).
While we’re on the subject, let’s think through the whole concept of “land and location” in a Metaverse world, as there will be much more hype around “virtual land” and its location in the future. Actual physical land is valuable because it is finite, and you can’t move it (i.e. “location, location, location” matters most).
Metaverse worlds don’t really have that constraint. They can have as much land as they want, can expand indefinitely, and you technically could reorganize where land is at any point if the Devs were to change the system. You could artificially limit how much land there could ever be (which doesn’t make a ton of sense if you want to bring billions of people in), but then you just get back to risky idea #1 of being tied to a single world or game that can’t grow or expand into new worlds… and people will eventually get bored with whatever world is popular at the time and will want to make new worlds or expand.
In addition, while we’ve covered how location will matter for some pieces of property (i.e. if you’re next to Snoop Dogg… as long as he doesn’t get bored, sell the place, and move to another world, you can probably sell ad space there to someone), from a practical standpoint, “land location” shouldn’t matter much in a digital world at all. If you can just click a button and go anywhere in this digital world, why do I care if your land is right next to anything else? With the exception of things I might only see if they are next to a main attraction, it takes the same amount of effort for me to jump over one street, as it does to jump to an entirely different continent.
Now, I fully expect this speculative bubble to go on for some time, but I personally think people will catch onto this eventually, and when they do… it’s probably going to make a lot of “virtual land investors” feel pretty silly if they didn’t realize this ahead of time.
Future Bubble Likelihood
In closing, I’ll also mention that I’m fully expecting some kind of “Metaverse bubble” at some point in the coming years, either in the near future, or closer to when companies like Apple announce their headset and people take this more seriously. This idea is too big to not have its own hype cycle.
I expect the narrative to be similar to the dot-com bubble or the 2017 crypto bubble, of “the future is here, right now, and none of the traditional logic matters!”... I wouldn’t be surprised if this follows a similar track where hype and prices go nuts, then we have a tough bear market, and in that bear market, we start to see the real winners emerge, and have the first truly clear investment opportunities in the space. But again, only time will tell, and it will be extremely interesting to watch how the landscape here changes in the coming months/years, and to adapt our outlook and investment thesis as needed.
