The Need for a Virtual Asset Exchange

A virtual ship floats in front of a workstation.

Virtual Reality (VR) headsets will cause an explosion in the creation, distribution and trading of blockchain-enabled virtual objects in digital worlds. The recent release of Magic Leap One, a fast and immersive VR headset, to great fanfare signals rapid progress toward unlocking the next generation of VR use cases.

VR / AR / MR

Virtual Reality (VR) is an immersive reality which can be experienced when wearing a headset. VR can simulate the real world or be entirely computer-generated. Someone experiencing VR using a 360-degree video camera could feel physically present in a location in the real world or elsewhere.

President Obama tries on a VR headset in the Oval Office.

Augmented Reality (AR) is when a virtual object is imposed on the real world. AR is generally experienced via smartphones. For example, Snapchat AR objects appear to float around in your room or walk on the ground next to you. AR virtual objects are currently not very responsive to real world stimuli.

Mixed Reality (MR) is the merging of real and virtual worlds to produce new environments. In MR, virtual and real world objects can co-exist and interact in real time. Despite MR’s potential usefulness in fields including education, military training and healthcare, there are currently no widespread MR platforms or tools.

Augmented Reality Objects displayed in a room, viewed through smart phones and tablets.

Computer Generated VR

Computer Generated VR uses purely computer-generated content to create virtual reality experiences. Computer Generated VR can be a pre-created environment which the user can explore or can be rendered in real time as in-game play (and therefore be reactive to the user). To conceptualize Computer Generated VR, imagine playing a first-person shooter game like Fortnite or Call of Duty with a VR headset in an immersive 3D environment.

Computer generated game play from the game Absolver.

Blockchain Platforms

Blockchain technology now enables secure, direct transactions between parties who don’t know each other. The proliferation of blockchains and their platforms will allow people to easily track asset ownership and history. Additionally, many efforts are underway to make these platforms interoperable, so that an asset purchased on one platform can seamlessly be sold or transacted with on a separate but compatible blockchain platform. Cryptocurrencies and cryptographic tokens are built on top of these platforms.

Non-Fungible Tokens

A class of blockchain tokens known as Non-Fungible Tokens (NFTs) is gaining popularity. NFTs can be unique or rare, creating digital scarcity that can boost their value. A creator can now build and deploy a virtual object on a blockchain platform or in a virtual environment using an NFT, which contains the object’s ownership and use rights. These rights can then be bought and sold, together or separately, with the purchaser gaining access to ownership or use of the virtual asset.

The popular game Crypto-Kitties was built using Non Fungible Tokens.

The game crypto-kitties was built on Ethereum’s ERC-721 token standard (a type of NFT). Recently, I proposed a potential NFT standard (the ERC-1190) that enables additional functionality (Github, YouTube, Blog).

Games

Virtual objects are a crucial component of game worlds. For example, Pokemon Go uses cell phone GPS systems to locate, capture, battle and train virtual creatures, which seem to appear in the player’s real world location. In-game items, properties, resources and characters are already being valued and traded for real money.

Many popular game environments enable the production and commercialization of virtual objects created by users. Currently, most game-based virtual assets are traded on unofficial auction sites. Some game designers have realized that massive markets to trade virtual objects have developed outside of their game environments.

The Raider’s Revenge was an item from the game Fortnite’s first season, that you could unlock at level 35 with 1,500 V-Bucks. Due to how early on it was available in the game, plus the high level a player had to be to obtain it, the amount of people wielding it is limited. It’s a proud badge for the veteran Fortnite fans out there. Source: DBLTap.

Applications

VR Headset producers such as Magic Leap One and Hololens understand that their success depends on the range and utility of applications available on their platforms. That is why they are trying to entice developers to build applications for their products. This is why the Magic Leap One headset was initially released only to developers and reporters.

VR will allow developers to create numerous applications in fields as diverse as archeology, engineering, robotics, entertainment, social science, therapy, psychology, healthcare, training, education, engineering, fine arts, architecture and marketing. Entertainment and marketing applications will most likely lead the way.

I recently learned of a blockchain startup that creates unique virtual objects for clients (such as major soda manufacturers) and places them in interesting locations across a city. A consumer can go to the location of the virtual token and capture it on their phone using the startup’s application. They can then redeem the token for a soda at any compliant convenience store.

Entertainment, gaming and marketing applications will increasingly place virtual objects in our cities, like Pokemon-Go did in 2016. Many of these virtual objects will be powered by NFT tokens and users will be able to capture, redeem and resell these tokens for real value.

A soldier trains using an Augmented Reality headset.

The Virtual Asset Exchange Opportunity

Though virtual assets have been around for a while, enormous valuations and large trading volumes on auction sites are a fairly new phenomenon. The coming boom in virtual assets creates a novel opportunity: a virtual asset exchange.

As discussed earlier, most game-related virtual assets today are traded on unofficial auction sites.

Call of Duty’s game developers decided to call their in-game market ‘Black Market’.

Game developers can create their own (real money) auction sites, but most haven’t done so. This reluctance may be because of failures to do so in the past. In 2011, a game called Diablo III created its own auction house after observing the game’s objects being traded on unofficial sites. Bad actors and hackers started using the official auction house to make money. Some eager users were more active in the official auction house than in the game itself. Potential legal liability surrounding online auction houses was also a risk. The official auction house was shut down within a couple of years. Many successful game developers are conservative and focus on their core capability of game creation rather than managing related markets. Still, virtual assets are traded regularly and will continue to be.

Cryptocurrency exchanges are usually focused on enabling trading in a limited number of currency pairs. Some of these exchanges enable fiat to cryptocurrency transactions, while others only enable transactions in crypto to crypto pairs. Cryptocurrency exchanges should be able to process NFT transactions with relative ease. However, the successful exchanges may choose to focus on expand their crypto offerings rather than adding a new asset class.

The interface of a cryptocurrency exchange.

Therefore, no major blockchain-enabled trading platform for a wide array of virtual assets used in gaming, entertainment, promotions and marketing currently exists. Many developers have explored game-specific exchanges, but a virtual asset that can be used for gaming as well as for other purposes could boost user engagement in new and exciting ways. Such assets may soon flood the virtual space. When they do, people will want to buy and sell them on a trusted platform, for other virtual assets, cryptocurrencies or even real money. The question is: who will create the first such exchange to gain critical mass?

Conclusion

VR and AR are finally coming of age. VR Headsets (from Magic Leap, Oculus and Sony, among others) are introducing VR and AR to global audiences. This trend will interact with the rise of blockchain-enabled NFTs, resulting in virtual worlds full of unique and rare digital objects, overlaid on the real world. The next set of unicorns could well be platforms designed to facilitate easy, secure exchanges of these virtual assets.