NFT mania is sign of a land grab for the online ‘metaverse’

Virtual and Augmented Reality updates

It’s been another big week for NFTs, the digital collectibles that have captured the imagination of crypto enthusiasts and are now quickly becoming mainstream.

Dolce & Gabbana revealed collection of dresses, suits, jackets, tiaras and crowns that can be worn by digital avatars and said it would sell them as NFTs, or “non-fungible tokens” later this month.

Cryptopunks, a collection of 10,000 pixel art photos of punks, passed $1 billion in revenue, with a sale last Saturday that caught the eye after someone made $1.23 million in profit by flip a Cryptopunk in a few hours.

In Russia, the State Hermitage Museum has raised more than $400,000 by selling NFTs of six works in its collection, including Madonna and Child by Leonardo da Vinci and Composition VI by Wassily Kandinsky. However, the museum noted that it would receive all proceeds in cash rather than cryptocurrencies under “Russian rules”.

New NFT marketplaces are popping up, both from established crypto firms like FTX, as well as companies like Rakuten and Alibaba, which dominate online shopping in Japan and China.

It is difficult to pinpoint the exact cause of NFT mania, although the broader boom in cryptocurrencies has created a cohort of crypto millionaires and billionaires who believe in the promise of the blockchain and have money to bet on it.

They speculate that NFTs, which are often works of art (such as a destroyed diamond, or a virtual perfume), but which also range from slices of Manhattan virtual real estate, to sports club season tickets, to any number of real world assets, are a crossover product that will attract millions of ordinary people to the crypto world.

But the rise of NFTs, largely on the Ethereum blockchain, also strengthens the case for Ethereum to become the plumbing of the “metaverse”, the parallel digital world that is the trendiest tech idea this year.

The metaverse, a mirrored reality in cyberspace, has been interpreted in various ways. Many office workers, who have largely been connected to their colleagues via the internet since the start of the pandemic, could argue that it has already arrived.

In July, Mark Zuckerberg presented his plans for the metaverse, defining it as a 3D internet “where instead of viewing content, you are in it”. He promised that Facebook would become a “metaverse company” through its virtual and augmented reality projects and has already launched a virtual office simulation.

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But the idea that Big Tech would colonize the metaverse and build the kind of lucrative walled gardens that currently dominate the internet caused an immediate backlash.

Crypto enthusiasts define the metaverse as a collection of shared online worlds that are interoperable, allowing users to move through them while carrying their digital identity, money, and property. You could use the same avatar in multiple games, or even in Facebook’s virtual office.

The virtual slice of London or Seoul you bought on one platform will retain its value on another platform. No platform would have any control over the items you collect.

To realize this vision, there must be one ledger for all known items, a blockchain where everything can be recorded. And the blockchain that is clearly leading the way in its network effect is Ethereum.

Viewed from this perspective, the boom in NFTs is not only a speculative frenzy driven by memes or status, but also a digital land grab, a race to conquer the awe-inspiring heights of the new digital landscape.

Of course, the landscape is likely to evolve greatly. Today, many NFTs derive their value from linking to assets and services that are scarce in the real world, but the industry is evolving at lightning speed.

What are the risks? The first is an abundance of idealism. It’s not clear how real-world laws will interact with virtual worlds, how intellectual property and brands will be protected, and who will act against theft and fraud. Bad actors are already pumping and dumping the price of NFTs. How long will it take for regulators to intervene?

A second obstacle is capitalism itself. The worlds that make up the metaverse have little financial incentive to create a shared goods utopia, rather than promote their own offerings. Why would a platform that secured an exclusive virtual appearance by one pop star allow people on other platforms to see it? Technology may enable an open metaverse, but the allure of building mini-empires will be hard to resist.

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