The metaverse?  It's like the Internet, but...

The metaverse? It’s like the Internet, but…

Earlier this year, management consultants McKinsey produced a report stating that the metaverse has the potential to generate up to $5 trillion in value by 2030 and is simply too big for businesses to ignore it. More recently, Bloomberg Intelligence said the Metaverse is the next big tech platform, enticing online game makers, social networks and other tech leaders to capture a slice of what they claim is already an opportunity. $800 billion market. The metaverse is said to be the next evolution of the internet and social media.

In other words, the “metaverse” is a big deal and the fintech world should formulate its own strategies to bring embedded finance into virtual worlds.

But why, exactly?

Deloitte say that “In the simplest terms, the Metaverse is the Internet, but in 3D” but I don’t think that explains why the Metaverse is so important and why it’s going to change the world of financial services. If the Metaverse is just going to be something like Fortnite but with players selling insurance, that doesn’t sound like much fun. Something more must be happening.

I’d like to suggest a different narrative for why everyone should develop a metaverse strategy: “In the simplest terms, the metaverse is the internet, but with security.”

While definitions of the metaverse can vary, and vary quite wildly from the more nebulous notions of online interaction to some more specific functional uses of immersive experiences, what is missing as far as I can tell is an overarching shared narrative which can help inform strategies (and some short-term tactics) for new products and services that will be the basis of new business in this new environment.

So how should we go about formulating this narrative? It seems to me that the question of security is at the heart of any useful narrative about the new virtual space in which companies can move. As has often been said about the Internet, the absence of security infrastructure and the consequent absence of what we might consider the layer of identity and value has led to the endless application of flawed (and in many ways dangerous) fixes without solving the underlying problem: the Internet is not safe.

(And I don’t just mean it’s dangerous in that you get penis extender emails and ransomware links masquerading as “Microsoft Help Desk” information. I mean dangerous because no one knows what’s real anymore, coordinated inauthentic behavior is the norm, and the network has toasters, automobiles, and remote pipeline monitoring apps in it and they’re all hacked.)

It’s the economy, stupid

of Deutsche Bank October report on the subject speaks of multiple metaverse ecosystems, which enable interoperability through standard digital identity and asset ownership solutions. I wholeheartedly agree and also agree with their view that the metaverse could usher in the next e-commerce revolution as it gains momentum and “financial services companies have a important role” in this evolution towards a post-post-industrial economy.

(By new convention, I will henceforth capitalize metaverse to mean the superset of metaverses that will serve many different global communities.)

This e-commerce revolution will come because these standard solutions for exchanging assets between digital identities will form the layer of security that the Internet has been missing because (as I wrote here in Forbes last month) security is an integral part of what what Metaverse actually is.

The specifics of whether it’s web3 or web5, verifiable credentials or soulbound tokens that provide security is a discussion best left for another day, but the The heart of the story is that the metaverse will have a security infrastructure from the start and that’s why the metaverse is both different from the internet we know and love and more attractive than the internet to a lot of players in the new economy.

It’s not an ideological question, it’s just that safe transactions are cheaper transactions and financial services will inevitably follow these transactions.

The opportunities, like my good friend Lisa Moyle written earlier this year, go far beyond simply offering conventional services in the new space. The token trade, to put it bluntly, is already booming with virtual commodities in the art and fashion sectors seeing strong investments and the transactions underlying these purchases potentially benefiting from the involvement of players in the financial industry.

If the metaverse is indeed an environment with a built-in security platform, and it is a security platform that can support asset exchange mechanisms and establish ownership of these assets, which we could roughly categorize as a digital value platform and a digital identity platform, it is not unreasonable to anticipate that individuals, organizations and businesses will regularly migrate their transactions from the dangerous badlands of the web1 and restrictive walled gardens of Web2 worms in order to take advantage of this fundamental property: security.

Identity and Institutions

It’s not unreasonable to be skeptical of the Metaverse. Jeffrey Funk, Lee Vinsel, and Patrick McConnell write in detail about what they call the metaverse “bubble” and then examine the economic effects of bubbles by comparing this tech bubble to previous ones. They say the biggest difference is that some goods emerged from the dot-com bubble, but “not much is likely to come out of the current bubble.” I am not convinced by this argument, because the goods here are not the metaverse itself (however interesting and entertaining) but because it will become a nexus for safer business interaction and the location of better financial services, less expensive and faster.

The bumper sticker version? The tokens are not tulips!

As I’ve written before, I think we can already see that a layer of digital value, with mechanisms for exchanging assets without clearing or settlement, is emerging via token technologies and decentralized finance. But for financial services we need identity and it seems less clear to me how the digital identity layer will come together, although I am optimistic that the relevant technologies will soon be deployed in institutional frameworks that will accelerate the move of businesses to the new space.

I say institutional because I am not convinced that the majority of consumers will want to manage their digital identities themselves, preferring that regulated institutions do it for them. That’s why I think, to take just one example, JP Morgan’s digital wallet that will allow people to select which credentials they share with their peers could be so important.

(They highlight five ways digital wallets are changing customer expectations: “Martini” usage, personalization, loyalty, integrated banking, and invisible payments. components of the digital identity will be more important than the payment elements.)

By bringing together new virtual worlds with digital objects that can be possessed, we can create this spectrum of metaverses with specific and desirable properties. These worlds will connect people as the Internet has done, but this time securely.

#metaverse #Internet #but..

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