NFTs in the Metaverse: Will NFTs become the main currency of the metaverse?

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  Quantumrun Foresight
• May 6, 2022

Insight summary

The metaverse, a shared digital space bridging the physical and digital worlds, is experiencing a surge in the use of non-fungible tokens (NFTs) which authenticate digital asset ownership, from art to avatars. This surge is creating vibrant economies where users can trade digital assets, companies can diversify revenue streams by selling digital versions of physical products, and new forms of art and music ownership are emerging. While the technology is still new, it harbors potential for exponential growth as it fosters unique opportunities in various industries including retail, music, and real estate.

NFT in the metaverse context

Sales of NFTs increased significantly in 2021 and 2022, fueled primarily by the digital art industry. However, NFTs may see their use case crystalized as a medium of exchange inside the metaverse, especially as NFTs could be applied to anything within this digital ecosystem–from avatars to digital clothes to online real estate.

According to venture capitalist Matthew Ball, the metaverse is essentially a shared digital space that bridges the physical world (through the use of virtual reality headsets) and with a digital world driven by online transactions and experiences. The metaverse's potential depends on its developers decentralizing their systems so that they can become a seamless digital world where users can jump between different platforms. Once users can transfer data or assets across a standardized digital ecosystem, the metaverse may be able to grow exponentially.

NFTs' potential contribution to the metaverse could be significant. NFTs are unique tokens that represent a digital asset. Using the Ethereum blockchain, an NFT contains digital identification data that authenticates a person's ownership of a particular digital art, avatar, or asset. When released in an equally limitless sphere such as the metaverse, NFTs can command high prices while giving developers and creators absolute freedom to customize digital assets.

The technology supporting the metaverse is still in its early stages, yet it is witnessing a surge in the adoption of NFTs, notably in the digital art industry. An example is the sale of a digital collage by the artist Beeple, facilitated by Christie's auction house in February 2021, which fetched a staggering USD $65.3 million, setting a record for NFT sales at that time. This development not only underscores the potential for artists to gain substantial recognition and compensation through the metaverse but also signals the readiness of traditional institutions to embrace this emerging ecosystem.

Disruptive impact

Beyond digital art, the metaverse is opening avenues for musicians and gaming companies to leverage the unique properties of NFTs. Artists like The Weeknd have ventured into selling music as NFTs, a move that could potentially reshape the music industry by offering a new form of ownership and connection to fans. Moreover, gaming platforms such as Fortnite have initiated a trend of hosting digital concerts, featuring renowned artists like Travis Scott and Marshmello, fostering a vibrant and interactive entertainment culture in the virtual space.

Another dimension to watch is the role of digital media firms, such as Xplorer Studio, which launched a series of NFT astronauts, offering owners the privilege to tailor their online identities through an exclusive suite of tools, enhancing the personalization and engagement in the metaverse. The metaverse economy is also witnessing the emergence of virtual real estate transactions facilitated through NFTs, a development that is gradually establishing genuine value within this digital frontier.

Individuals and entities are acquiring digital lands with the anticipation that these spaces will appreciate in value, similar to physical real estate. This trend may lead to a new landscape where virtual real estate becomes a viable investment avenue, offering opportunities for economic growth and the creation of diverse digital neighborhoods. Governments and regulatory bodies may need to pay close attention to this space to ensure the establishment of a fair and secure environment, fostering innovation while mitigating potential risks such as fraud and the concentration of digital assets in the hands of a few.

Implications of NFTs in the metaverse

Wider implications of NFTs becoming increasingly used in the metaverse may include:

• Users engaging in the sale of digital assets such as clothing and art collections in a metaverse marketplace, which could potentially foster a vibrant economy resembling the offline retail industry, but also raising concerns about intellectual property rights and the replication of exclusive designs.
• Retail companies creating digital twins of their physical products to sell as NFTs in the metaverse, potentially leading to a diversification of revenue streams and offering consumers new ways to showcase their purchases in virtual environments.
• The establishment of financial and legal services within the metaverse to oversee NFT transactions, potentially bringing about a new frontier for these industries with services tailored to the virtual economy, but also posing challenges in terms of regulatory oversight and the prevention of fraudulent activities.
• Individuals buying digital lands and constructing homes furnished with virtual appliances and furniture, potentially giving rise to a novel real estate market and opportunities for interior designers to venture into digital space designing, but it might also inflate a bubble of speculative investments with uncertain returns.
• Communities forming around shared experiences in the metaverse, such as shopping or attending concerts, which could potentially foster deeper connections and a rich virtual culture, but also might lead to issues of digital addiction and a detachment from the physical world.
• Artists finding new avenues for monetization by minting their artworks as NFTs, potentially allowing for greater financial independence and a direct connection with their audience, but also facing the risk of high energy consumption associated with blockchain technology, raising environmental concerns.
• Musicians selling their music as NFTs, potentially reshaping the music industry by offering a new form of ownership and connection to fans, but it may lead to a complex web of rights and royalties, requiring careful navigation and understanding of the legal landscape.
• The potential for educational institutions to issue degrees and certifications as NFTs, ensuring authenticity and easy verification, but also requiring a robust system to prevent forgery and maintain the value and trust in such credentials.
• Governments potentially using NFTs to issue important documents such as land deeds or educational certificates in the metaverse, ensuring a high level of security and authenticity, but also requiring substantial investments in technology and infrastructure to maintain and oversee such systems.
• Environmental organizations potentially using NFTs to fundraise through the sale of digital assets in the metaverse, opening up new avenues for financial support, but also facing scrutiny regarding the environmental impact of blockchain technology, the underlying technology of NFTs, and its energy consumption.

Questions to consider

• What digital items do you think may become increasingly valuable within the metaverse if converted into an NFT?
• Would you be willing to purchase NFTs for use in the metaverse?