The Metaverse Economy: Opportunities and Challenges in Virtual Realities

Ready or not, the metaverse is here. Although still in its infancy, its potential for growth is unprecedented.

With some analysts predicting that it has the potential to overtake the global gross domestic product (GDP), it’s worth paying attention to.

If this is a new field for you and you’d like to understand the metaverse, its economic impacts, and what opportunities and challenges it poses, this post is for you.

Understanding the Metaverse

The metaverse is explained in a variety of different ways. Some call it the broad term for “online 3D virtual worlds” that are immersive. Others have described it as “a shared virtual experience where users can interact in real-time experiences and transactions”. It’s also been called the “interactive interchange between the physical and virtual worlds, creating a new universe for digital consumers and businesses”. All this is thanks to the rapid advancements in virtual reality (VR) and 5G technology.

To understand the metaverse better, it’s worth noting that its structure is formed by four layers. These are the Hardware, Delivery, Ownership, and Sensory layers.

• Hardware: This relates to the gear we use to access virtual, 3D worlds.
• Delivery: Delivery refers to the access points where the real and virtual worlds connect. It’s essentially a mixture of both hardware and software.
• Sensory: This layer focuses on the user experience by creating a captivating environment and experience, primarily through our visual and auditory senses.
• Ownership: This layer requires an infrastructure that enables users to demonstrate ownership in the virtual economy. Essentially, this is achieved through blockchain.

There are two main groups of metaverse contenders: walled gardens (closed platforms enabling one company to exercise full control) and decentralized autonomous organizations (DAOs). The latter, as the name suggests, are open and decentralized.

The metaverse will impact various functional elements within enterprise and industrial segments: sales, marketing and advertising, high-performance computing (HPC), artificial intelligence (AI), software development, the rise in AR/VR technology, and business operations are expected to be affected. Examples of businesses already making use of the metaverse include banks such as JP Morgan and HSBC, which have opened customer lounges for users to socialize and consult with experts.

As with real-world economics, the concept of scarcity is present in the metaverse. This is what allows prices to fluctuate according to the laws of supply and demand. NFTs are the foundation of purchasing power, driven by blockchain technology, which will facilitate trade through the availability of three factors: currency, goods, and services.

However, despite the metaverse still being considered in the “Iron age”, the business model can promise “immense economics of magnitude”. This is because infinite growth is possible in this world, even though there may be limited resources, despite the fact that people continue to interact with the two-dimensional internet using images, text, and videos. Where the metaverse comes in is that it adds value through the rearrangement of resources from a less effective configuration to a more beneficial configuration.

A great example of this is software. Although it may be based on 1s and 0s, software creates a lot of value, with the global digital economy accounting for 15%+ of the world’s GDP. But that’s not to say that it doesn’t use resources. Custom software development requires cable construction, satellite launches, the creation of chips, operating servers, etc. So, just because it’s in cyberspace does not mean no resources are used.

Metaverse Economics or “Metanomics”: Current Status and Future Implications

Wondering where the metaverse stands right now and where it’s headed? We explore these questions in more detail below.

Where we are now

Around 2.5 billion people (with some indicating that these figures go as high as 5 billion) are interacting through their phones, consoles, laptops, desktops, and VR headsets in virtual environments, living, gaming, shopping (books, clothes, furniture, art, etc.), working, and trading money online.

Trading and purchases are usually done through non-fungible tokens (NFTs) using blockchain technology. Meanwhile, the current value of the metaverse economy is $48 billion. HPC might just become one of the fastest-growing segments of the metaverse market. It is expected to expand at an annual rate of over 200%.

Where we’re headed

By 2030, the value of the metaverse economy is expected to reach $400 billion, with some projecting this value to reach between $10 and $30 trillion over the next 10 years. According to Bloomberg’s calculations, the metaverse design software segment could expand by between 40% and 45% a year.

There are even more astounding figures, according to the “Metaverse Market by Technologies, Platforms, Solutions and Applications in Industry Verticals 2023 - 2028” report. For example, it’s projected that digital asset marketplaces will reach a value of $298.6 billion by 2028. Meanwhile, blockchain solutions that support metaverse apps are expected to grow to $161.9 billion by the same period.

The opportunities presented by VR can create value in the region of $315.3 billion and user-generated content and social media activities in the 3D metaverse are forecast to reach $95.7 billion by 2028. As for financial services that facilitate commerce within this space, their value could reach an astounding $58 billion by 2028.

Challenges and Opportunities

Of course, with such profound growth come many opportunities. But there are serious challenges that need to be addressed as well. Below, we explore what opportunities the future of the metaverse may hold and what challenges we should be prepared to face.

Opportunities

• Some industry verticals are expected to be revolutionized, such as software for manufacturing, ecommerce, retail, entertainment, art, travel, real estate, interior design, recruitment, healthcare, etc. as the metaverse enables some companies to reach out into new markets and access new audiences, while new business models could emerge
• The metaverse economy provides a strong foundation for the growth of crypto assets. These can be used for virtual transactions, investments, and as a medium of exchange
• Social media experiences will be enhanced
• Productivity will be optimized
• Customer journeys will be improved
• Online education will be transformed, with education and training facilities being more accessible and immersive
• New employment opportunities will be created for new positions that currently do not exist
• Blockchain applications will be facilitated
• The future of the internet as a whole will be reshaped
• Employment will change with multiple opportunities to work from anywhere within a virtual organization
• Concerts and events will become more immersive and interactive

Challenges

• Translating AR, VR, and cybersecurity into user-friendly interfaces and avoiding AR-related motion sickness. Current “clunky functionalities” can “melt the ice” by adding value to users
• The future of work, digital identity, specialized industries, infrastructure
• There is a lack of utility and a lack of connected economies
• No real connected exchange of value or assets into other realms
• We need to consider consumption, destruction and scarcity of resources
• Laws and regulations around accessibility, contracts, property ownership, marriage, user protection, data privacy, intellectual property protection, etc.
• Monopolization of the space by a few service providers
• Cyberbullying, scams, hate speech, impersonation, attempts to steal credentials, social engineering, nation-state espionage, personal safety, impacts on mental health, and other vulnerabilities
• The environmental impact of energy consumption

Conclusion

Wrapping up, it’s clear that the metaverse could become a global economy all on its own.

However, it needs serious rules and regulations if it is to become a more equitable and fair marketplace.

Although the challenges aren’t few, the opportunities posed by a metaverse economy are profound and shouldn’t be ignored.