The metaverse is a futuristic iteration of the internet, featuring a digital economy and an immersive virtual environment alongside other interactive
The metaverse is a futuristic iteration of the internet, featuring a digital economy and an immersive virtual environment alongside other interactive features. This relatively nascent space has gained so much traction in recent years that conservative estimates suggest that by 2024, its total valuation could top $800 billion. Meta (the parent body behind Facebook and Instagram), Google, Microsoft, Nvidia, Nike and others have made Fortune-100-sized metaverse splashes.
But with great valuations comes great scrutiny from increasingly tech-savvy financial regulators. Unlike traditional tech products, which often spend years putting growth over revenue, some metaverse projects push questionable monetization schemes on their users prior to launching a live experience. Metaverse real estate is a prime example of this practice, with platforms like Big Time games selling land in their metaverse before opening up access to the game.
Typically, the United States Securities and Exchange Commission doesn’t step in unless retail investors face predatory courting of their dollars without full disclosure of what they are investing in. The line for what classifies as a security is often blurry — but in the case of the metaverse, the practice of land sales should generally be considered a security under U.S. law.
GameFi platforms like Axie Infinity demonstrate the speed at which metaverse projects can birth multi-billion-dollar economies. Their sheer scale necessitates internal controls and monetary policies similar to multinational banks or even small countries. They should be required to staff compliance officers who coordinate with government regulators and even conduct Know Your Customer for large transactions.
The metaverse is intrinsically linked with financialization. While no bodily harm can be inflicted in the metaverse (yet), a lot of financial harm has already been caused. The company behind the Bored Apes Yacht Club nonfungible tokens (NFTs) saw a hack this year after a community manager’s Discord was compromised. Hackers walked away with NFTs worth 200 Ether (ETH).
A swath of Wall Street banks was recently fined $1.8 billion for using “banned” messaging apps. Metaverse projects like Yuga Labs should face similar proactive fines for not implementing secure monetary and technical controls.
Related: Throw your Bored Apes in the trash
A key first step for any metaverse project will be to classify what type of asset(s) they are issuing. For example, is it a security? A utility token? Or something else? This might seem like a daunting task, but the groundwork has already been laid by the initial coin offering era in 2017, and further efforts should be undertaken by regulators and protocols to provide clarity and protect consumers.
After the classification process is complete, the next step will be to develop a regulatory framework that can be applied to the metaverse. This will likely include rules and regulations around things like securities offerings, Anti-Money Laundering and consumer protection.
It’s crucial to strike the right balance. Too much regulation could stifle innovation and adoption, but too little could lead to widespread abuse. It will be up to policymakers to work with founders to find that sweet spot.
Despite concerns, the metaverse brings together a suite of emerging technologies: virtual reality (VR), augmented reality (AR) and NFTs. They all come together to drive the space forward with increasing momentum in the near-to-mid term.
Risks associated with operating in the metaverse
Cybercriminals are continually discovering new tactics to exploit users of the metaverse — i.e., through hacking schemes or identity theft. Because AR and VR wearables associated with these ecosystems generate massive volumes of personal data — including biometric info from eye-tracking and body-tracking technology — the metaverse is a tantalizing playground for bad actors.
Outside of financial theft, privacy concerns abound as three-dimensional data sets will reveal increasingly sensitive personal information. The General Data Protection Regulation in Europe and the California Consumer Protection Act are comprehensive pieces of privacy legislation that have forced tech platforms to hire data protection officers and data privacy compliance officers. Metaverse platforms will need to fill similar roles and could face even greater regulatory scrutiny, given the sensitivity of the data they might collect.
Related: Biden’s anemic crypto framework offered nothing new
As the demand for the metaverse continues to spike, so will the need for better internet services since the former requires a lot of bandwidth (estimated to be several orders of magnitude from internet traffic levels today). As a result, it is quite possible that many telecom networks and their existing data dissemination infrastructures may become overloaded.
One way to solve…
cointelegraph.com