2022 - The Year the Metaverse Got a Reality Check

Dr. Christina Yan Zhang, CEO, The Metaverse Institute

On 17th December, I chaired a discussion on Twitter Spaces with four distinguished experts in the metaverse, blockchain and digital technology. Our topic was: Is there still a point in entering the metaverse? Nearly 2,000 attendees tuned in; so, I guess that many people are asking this question.

Since Facebook changed its name to Meta in October 2021 and announced it would invest $100bn in the space, there has been enthusiasm worldwide about the metaverse. McKinsey & Company predicts that the metaverse-related economy could be worth $5 trillion by 2030.

Some would argue 2022 was a year when the metaverse saw continuing growth in interest, while others would point out the bursting of some significant bubbles. NFT sales have dropped by 97%. Crypto is facing tough regulatory questions after the collapse of FTX. The share price of Meta has slumped 70% since its peak; a business worth $1 trillion in September 2021 is now valued at $310bn, and the company laid off 11,000 employees this year, 13% of the total.

Matthew Ball, tech investor and author of The Metaverse: How It Will Revolutionise Everything, says: “A year ago, it was mostly ‘What is the metaverse?’ Questions now are a lot more practical: ‘What will be here? When? For whom? How, and why?’”

Looking back at the year, what lessons can we learn to help us build a sustainable, inclusive and equitable metaverse ecosystem in the future?

The Definition of the Metaverse

The term ‘metaverse’ is nothing new. Author Neal Stephenson coined the word in his 1992 science-fiction novel ‘Snow Crash’, which envisions a virtual reality-based successor to the internet. In the novel, people use digital avatars of themselves to explore the online world.

Dr Christina Yan Zhang, CEO of The Metaverse Institute. She is a pioneer in the metaverse. She started her master dissertation on the topic in 2006 using metaverse to develop international strategies for universities worldwide and completed a PhD with full scholarship in using digital twin services in the metaverse to augment the AEC industry in 2012. Christina is an award-winning business leader who has 16 years’ experience turning forward-thinking ideas into ultra-high growth business with global impact. She has extensive experience working with government ministers, universities presidents, and business CEOs on industry, innovation, and skills strategies. Christina was the first Chinese elected to the national executive of the UK National Union of Students (NUS) since 1922 and represented the interests of one million international students studying at 600 UK higher and further education institutions who contribute £30bn a year to the UK economy. She has sat on more than 20 advisory committees for UNESCO, the World Bank, the Commonwealth, the EU, and UK Governments among many others. She has led many successful lobbying efforts with government leaders, including former UK Prime Minister Theresa May on immigration changes. Christina also contributed to the establishment of the Commonwealth Students Association, representing 2 billion youth across 54 countries. Between 2012 and 2013, she worked in the UK Parliament developing policy for the Shadow Business Secretary’s team.

The First Wave of the Metaverse

The 2003 virtual world Second Life is often described as the first metaverse. Second Life allowed people to create an avatar for themselves and have a parallel life in an online virtual world. Developed and owned by the San Francisco-based firm Linden Lab and launched on June 23, 2003, it saw rapid growth for some years and in 2013 it had approximately one million regular users. It is still going strong as of 2022, with around 900,000 active users.

I was lucky to be one of the early adopters of the metaverse, in 2006. I saw it as the next generation of the internet, and both my Master’s degree and PhD were focused on using the metaverse to help education institutions develop their international strategy, and on how architects, engineers and the construction industry can use VR and AR simulations.

The Second Wave of the Metaverse

The metaverse we talk about today is actually the second attempt at mass adoption. It started with a successful IPO of Roblox in March 2021, which achieved a market value of $38bn. The excitement about the metaverse really ramped up after Facebook changed its name to Meta in October that year.

Now, the metaverse has become a convergence of a whole range of cutting-edge technologies, which together will form the next generation of the internet. These include better and faster IT infrastructure, such as 5G and 6G mobile networks; new user interfaces such as XR, wearables, haptics, and voice/gesture recognition; and new computing technologies such as spatial, edge and quantum computing. There are also new information-organising tools such as AI and machine learning; digitalfinance technologies such as blockchain, NFTs, and cryptocurrency; and new forms of social interaction online, such as e-sports, virtual events and gaming. Many of these developments are interrelated or even interdependent, but it is still uncertain what shape the emerging ecosystem will take. Nevertheless, it seems inevitable that many of these elements will combine to make the internet more immersive, interactive and intuitive.

Entrepreneur Jon Radoff has proposed seven fundamental layers of the metaverse. This is a good starting point to understand the ecosystem.

Challenges and possible solutions

1. IT infrastructure and computing power

Currently, the technology does not exist for hundreds or millions of users to participate in a shared concurrent experience in the metaverse. Although some metaverses with high concurrencies have existed for decades, such as Second Life, they essentially spoofed the experience by “sharding” and splitting users into different “worlds” and servers. As a result, a player only really sees or interacts with a small handful of other players at any one time.

Intel’s Raja Koduri has said that computer chips would need 1,000 times their current power to support a true metaverse.

To achieve the full potential of a metaverse where millions of users can interact concurrently, quantum computing could be a solution. This year’s Nobel Prize was awarded for groundbreaking research on quantum entanglement, which could potentially make it possible to create the IT infrastructure to realise the full potential of the metaverse.

Quantum computers could potentially be much, much faster than our fastest computers today. And the top IT firms involved in developing quantum computing, such as

IBM, Nvidia, Microsoft and Google, are also involved in building the metaverse. It would be interesting to see the more powerful computing power in place soon to provide the necessary IT infrastructure to allow the metaverse to flourish.

2. Virtual ‘Ghost towns’ - active user decline in consumer-focused metaverses

According to Decentraland, their “goal is to be a fun and entertaining platform with a thriving community that educates and onboards people to the philosophies and tech of Web3.” This is a good business model during time when the consumer wants to spend more time having fun and entertain themselves. However, during a time when the world is likely heading for recession, 75% of consumers are trading down across categories, according to McKinsey, 38% respondents are cutting Entertainment spending. Entertainment focused metaverse would also be affected by the recession.

“Consumer facing metaverses need to create solid social reasons for people to consistently visit the platform. The ‘ghost town’ issue is nothing new. When I was doing my PhD research on the world’s first metaverse Second Life in 2006, similar issue always exists. Unless there are major events, many parts of the digital world are less populated”. “For the metaverse to flourish, it needs to bring real world commercial value and social impact. That is what we, at The Metaverse Institute are doing, help organisations to use the metaverse tech to improve the real world.”

There are no easy solutions here. Existing, well-established retail and entertainment venues in the real world, such as cinemas and shopping malls, can expect declines in their business during downturns - so it will be especially challenging to launch new online venues in these fields when customers are feeling the pinch. Consumer-focused metaverses may simply have to wait until the broader economy recovers.

3. An alternative starting point: Enterprise-focused metaverses

Given the economic climate, it is more likely that this new internet will grow out from the corporate sector, which has the resources to invest through the downturn. That means a focus on enterprise solutions. The second wave of the metaverse will look less like ‘Second Life’, and more like ‘Second Work’ - at least in the short term.

Led by big tech such as Meta, Google, Apple, Microsoft, Nvidia etc, billions of people who already use the enterprise service for daily work would find the transition to the metaverse faster and smoother.

For example, Meta and Microsoft have announced a metaverse partnership focused on the future of work. “Both companies view the metaverse as the next stage of workplace collaboration. Meta can capitalise on Microsoft Office’s loyal 1.2 billion users, while Microsoft benefits from Meta (nearly 3 billion monthly active users) to boost its own enterprise metaverse and VR gaming ambitions.” Microsoft’s Work Trend Index data shows that 50% of Gen Z and millennials envision doing some of their work in the metaverse in the next two years.

Another major leader in the enterprise metaverse is Nvidia. Backed by more than 3.5 million developers creating some 3,000 accelerated apps, Nvidia has also launched Omniverse Cloud Services, a metaverse-asa-service cloud that is used for Building and Operating Industrial Metaverse Application. They already work with more than 200 big enterprises worldwide from telecom, to energy, advanced manufacturing, to defence and aerospace. Amazon, AT&T, BMW, Ericsson, Foxconn, GM, Kroger, Siemens, Sony, Universal Robots, and Lockheed Martin are among some of the big enterprises using Omniverse to model reality (as digital twins) in the metaverse to improve operations and designs.

4. Digital Identity for both human and AI avatars

Digital identify is another key issue needs to be addressed before mass adoption. In addition to the digital identify of human being, there is also increasingly an issue of the digital identify of AI avatar. Since most people cannot live 24/7 in the metaverse, increasingly, a large number of avatars would be created using AI to populate the metaverse provide guidance, service and support to human avatars to make the best of their experience in the virtual world.

This year, Google and Meta demonstrated new text-to-video AI systems, focusing on quality and length with interesting results. My business partner Alan Boyd has announced in September 2022 at a metaverse conference I organised and chaired in London on the world’s first Digital Autonomous Lifeforms (DAULs), AI virtual assistants that are “Born on the Blockchain, Live in the Metaverse” who could provide 24/7 support to human to navigate the metaverse.

Consider the popularity of generative AI, for example, ChatGPT, once this technology is used to create large number of avatars in the metaverse, combined with voice recognition and gesture recognition, how could we clearly define the digital identity of human and AI avatars in the metaverse. If anything goes wrong with the AI avatars that cause harm to human avatars, who would be legally liable?

Currently this issue has not really been much discussed in the public domain. Digital identity of human avatar is an unresolved issue that regulators worldwide have been working hard to solve. The rise of digital identity of AI avatar would pose more complexity to the debate.

Some countries already start to legislate on generative AI. In December 2022, Chinese authorities have passed a regulation on “deep synthesis” technology, which includes technology that uses deep learning, virtual reality, and other synthesis algorithms to generate text, images, audio, video, and virtual scenes.” The new laws will go into effect from January 10th, 2023, and effectively require any AI-generated images to have a watermark that defines them as such. The rules ban people from using deep synthesis tech to generate and disseminate fake news. Platforms also

Led by big tech such as Meta, Google, Apple, Microsoft, Nvidia etc, billions of people who already use the enterprise service for daily work would find the transition to the metaverse faster and smoother must remind users to get permission before they alter others’ faces and voices using deep synthesis technology.

Conclusion

If 2021 was the start of the second wave of the metaverse, then 2022 was the year it got a reality check. Consumer-focused environments are likely to struggle as long as economic hardship persists, while IT and computing power needs to develop significantly to build a truly immersive experience. Meanwhile, following the highprofile cryptocurrency collapses, the question of how to monetize metaverse experienceswhether that happens through blockchain-based digital assets, digital fiat, or bespoke in-world currencies - remains very much open.

But the next generation of the internet is still in development. A fully immersive VR world of the kind envisaged in science fiction, which is used daily by billions, will not arrive any time soon. But workable enterprise applications, such as digital twin technology, are already being used at scale. These will help drive investments in network infrastructure, which in turn will help spur the next generation of consumer-focused metaverses, perhaps when the economic outlook is better.

Looking back over 2022, I remain positive about the metaverse’s future development. At the Metaverse Institute we are here to assist you in your journey exploring the next generation of the internet and using it to spur commercial success and social impact in the real world.