It has been a very long week. It has been a long week in markets with the expectation of recession reaching a new high. It has certainly been a long week in crypto. First, the implosion and seeming insolvency of Celsius, then the drama surrounding Three Arrows Capital (3AC). We are seeing more and more 3AC creditors come out and acknowledge that they had dealings with 3AC and were in the midst of resolving some issues, including BlockFi, Bitmex, Deribit, and more. There was also that long thread from a market maker @Danny8BC who accused 3AC of spending a million dollars of theirs held in trust with 3AC to try to pay back loans. Aside from a quick tweet from Zhu saying that they were in touch with all their counterparties, we have not yet heard from 3AC.
There are copious numbers of threads out there talking about the insolvency of Three Arrows Capital and the downfall, what they did wrong, and the mistakes that they made. This article has no interest in being an apologist for any of that and we are going to get more and better information daily to see the full picture of the case. This is a private institution whose potential failure could have bigger ripple effects, but not ones that any of us can do anything about right now. In case it wasn't clear, this is going to be the beginning of a period of a lot of reflection for the industry. Entire categories of concepts will be thrown out with the baby bathwater, while other hot trends, especially those Ponzi projects will be eradicated and lies and loopholes will be revealed after the retreat of the “tsunami”. It's going to be important to do those reflective exercises, to understand what the point was and is, and should be going forward.
One of the areas that we will have to do a lot of exploring is the NFT space and the nascent metaverse space. When the ICO market boomed a huge amount of energy was just flushed down the toilet all at once. Similar to what is happening currently, a big part of the GameFi and Metaverse has lost momentum and many projects are halted due to a lack of funding and participants. Significant efforts in the next couple of years will be sorting out who would be interested in changing social interactions and social applications and who was just there for some quick cash. The scammers were rampant in the industry, and some known long-term grifters were able to become a part of it. The space needs someone who thinks that NFTs are a likely long-term shift, have a lot more story to be written, and will create interesting opportunities and challenge expectations around things like how experiences are met out and how creators engage with their fans and art appreciation.
It is critically important that the ownership layer of the metaverse ends up on public blockchains, not in private databases, let's dig into the first topic. What is the metaverse? Is it Facebook? Is it Apple? Is it the Other Side? Is it the Sandbox? In my previous article, I mentioned that metaverse is bridging our existing real-world and digital world beyond your imagination in previous article and showcasing it with the VR x Metaverse project - Solice. This project has great possibilities yet it is a visualization of a completely virtual world, similar to Sandbox which is always being mentioned as Minecraft under the blockchain. We believe the metaverse is much more than that.
The metaverse at the most conceptual layer is the internet, and the visualization layer of the internet will get progressively better. Today. We have free global video conferencing and 4k movies on the internet, which we did not possess before. The world is going to embrace a mixed, extended, and functional reality. Imagine something like a pair of sunglasses in size, weight, and style. These glasses will be able to switch between normal reality, augmented reality, which is digital objects overlaid on your field of vision, and virtual reality. We will spend most of our time in augmented reality, not virtual reality. Augmented reality technology will be breaking the limitation of your laptop and phone screen. People can see the notification in the corner of their eye while not picking up the phone. A colleague can teleport into his office for a chat or brainstorming session and they more or less look like they are right there. This sounds like something only fictional in movies or comics yet the outbreak of COVID has pushed such technology development at a more rapid speed. Most of your time people will be in augmented reality for the type of knowledge workers who spend all day looking at screens.
This should be an improvement in quality of life, not a reduction. Less time on a screen, more time in a more natural user interface. And it is going to start making physical location close to irrelevant for business purposes. Basically, except for the social part of eating and drinking, everything will be close to real life without travel. In the meantime, we will have progressively better 3D spaces on our computers. Walking around and looking at an NFT gallery does not require special gear and is better than seeing the NFTs on Opensea and 2D. We can of course conduct the same experience with virtual reality goggles as well, yet in practice today, VR headsets are still annoying, heavy, bulky, short battery life, you name it. There will be an incremental progression where browser-based worlds will get better and the augmented reality devices will improve gradually. The visualization layer of the internet will keep enhancing until it is unrecognizably better and everyone will adopt such technologies in our usual day practice like smartphones. As the visualization layer of the internet is a few steps ahead of the current circumstance, digital objects like avatars will become more useful and more important. Not only will the objects themselves become more important, but they will also lead to different emergent behaviors. We see this already with avatars in mixed autonomous, pseudonymous, and anonymous communities. Although someone will still criticize that it is the internet plumbing underneath, just like social media changed human behavior on the internet, metaverse-type experiences will further change it. NFT Twitter plus discord plus various virtual worlds is a form of the early metaverse.
The most important question for the health of the internet metaverse and human society in the future will be decided now. And that question is who stores the definitive ownership records of those digital objects. There are two answers, a company's database or a blockchain. If they are owned by a company's database, we will end up with Web2 dysfunctions, but worse. SMTP is an open protocol that anyone can use do not have societal-level fights on who is allowed to use email. Twitter is currently the busiest hub for blockchains users, politicians, and traditional business people to spread their views and promote projects to attract users and investors. Nonetheless, Twitter is also frequently accused of a place being monitored and controlled by the company, in which your account could be suspended or restricted simply because you have said something which is not politically correct or harmful in the view of the CEO of Twitter. This is in no way, the correct architecture for our progressively more digital economy and this is a no-win situation for everyone, including Twitter. Twitter cannot rank-order all 8 billion people in the world daily and decide each day who's been sufficiently naughty or nice to be allowed to have short messaging.
Provided that the metaverse ends up becoming something like today's social networks with all your important digital assets behind an API key, and in terms of service agreement, it will be much worse on multiple dimensions.
The first reason is fear. The metaverse will be your persistent ambient digital reality, and a person could be banned, cast into the darkness based on the context they build and create, and users could lose everything for no good reason.
The second concern is rent-seeking. Facebook, also renamed itself Meta, is proposing taking as much as 47.5% of the revenue from each object building on its metaverse. Why should anyone, especially any non-American economy, want to give nearly 50% of its digital GDP to Facebook and that is even higher than the most socialist tax rate.
The third issue is regarding political security. The election was a significantly controversial topic on both Twitter and Facebook and it is not hard to witness tons of pro certain parties' information flooding the social media during the election period. There are accuses saying a great deal of Democratic propaganda was conducted there to make public solely receiving one side information while the Republic was being demonized, let alone Donald Trump's Twitter blog was permanently suspended. It is bizarre enough that social media companies are in the strange position of having to decide who won the election.
The fourth is global national security. Augmented reality works by pointing a camera into your field of vision which you would need to set cameras or wear the devices so the metaverse could work inside your home as well. This could be a significant hidden risk to security as the company that developed the headset or system could monitor and record what you are doing. This is what will happen in the coming years from tech giants and the security honeypot of live streaming views of everyone in the world will be compromised by hackers and security services.
NFTs is a standardized interoperable, portable decentralized self-sovereign user-controlled cross-application method to store any digital object in the simplest terms. This is a vastly superior way to support innovation and interoperability. Your Web2 digital objects are trapped. Getting an API key, seeing if your service is allowable, and integrating with programmers, every service with every other one is impossible. Whereas with an open protocol, all these issues go away. It's like hyperlinking or HTM and people could integrate their digital assets, like tokens and NFTs easily with the ERC 721 or ERC 1155 standard. Today. We have dozens of applications and we will have hundreds of thousands in the future. Whenever someone complains, saying the security issue of the crypto industry and reckon NFTs are not the right place or right way to store assets should be asked back “In which company's database do you believe they should be stored and why is that better?”
It is funny, sad, and frustrating to watch politicians in the USA and EU more or less vaguely identify the problems with Web2 and at the same time, harass the solution, and hit it on the head with strict regulation. All of such forced interoperability rules and criticisms are staring everyone in the face. It is foreseeable that the digital economy will be massive in the coming decades, thus countries should be promoting users' data for innovation reasons and doing so for both innovation and national and economic, digital sovereignty reasons. It will absorb most of the white-collar economy and even take some market share from the physical economy. Frankly, we will still have houses and restaurants and hotels and power plants, but progressively a larger and larger percentage of work, social, and education will be digitalized. There is an urge to encourage the development of public blockchain-based systems for digital assets and economies and provide sufficient resources for open-source visualization hardware. Eventually, public blockchains will be the place where all user-owned assets and identities lay and people will freely enjoy their lives in Open Metaverses.
There will certainly be more and more reflections during the bear market and questions regarding which collections are more profitable, as well as the nature of PFPs, will bring no value to the development as a whole. We need more elemental discussions on the underlying issues and work together with every party to fight for a better future.
SBF has shown the perfect attitude that we should learn of and this resonates with Enzac Research’s goal “We raise the bar for what blockchain start-up founders should expect from venture investors, we get our hands dirty to support start-ups to achieve their goals. We also believe that creating something of true significance takes time to inflect, that is why we committed to back you up for a long time.”