The Metaverse Won't Scale Without Blockchain Technology

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The metaverse will be our new culture and mainstream reality. It’s not a matter of if, only when. We will live in parallel worlds -- the virtual and the physical -- immersed in two worlds that are separate yet connected via the utilization of blockchain technology.

The term “Metaverse” was coined by Neal Stephenson in his 1992 science fiction book, Snow Crash. In the book he presented a kind of virtual reality where every interaction could have a direct impact on the physical world. Sound impossible? Not really.

Don’t be afraid to dare to dream. Every sci-fi scenario from the 70’s and 80’s has become a reality. Think about teleconferencing using Zoom or Microsoft Teams; this was considered science fiction in "Back to the Future." Communicating via wristband was futuristic in “Star Trek” and "Dick Tracy" but we can do that now with an Apple Watch. Everything we once imagined has become part of our reality and everyday culture, and the metaverse will be no exception. Blockchain technology will be the enabler.

Brands are not only acknowledging this next cultural evolution but are also understanding the power of blockchain technology in the context of the metaverse, and are making investments in the metaverse, through the creation of non-fungible tokens (NFTs) and other digital asset marketplaces.

If the metaverse is to become more than merely 3D gaming, and emulate our physical reality and beyond, then the use of blockchain technology is imperative. Blockchain technology will enable all transactions and actions in this virtual space to have a real impact, in the same manner as in our physical reality. With the use of blockchain technology, we can not only create and authenticate virtual assets but most importantly, enable their ownership transfer and transactions. Here are some examples:

Sports Attire

The Adidas line of NFTs, launched in December, 2021, was called Into the Metaverse, and it not only revealed Adidas's intentions to enter the space, but also its understanding of the necessity of the use of NFTs in the metaverse. Every virtual outfit to dress avatars in the metaverse has be tokenized and authenticated via an NFT.

Nike has also been making inroads. In December 2019, it was awarded a patent to tokenize the ownership of exclusive sneakers, called “Cryptokicks.” When purchased, those sneakers become linked to a unique owner, all recorded via blockchain technology. Also, the owners of the sneakers will be able to “intermingle or breed the digital shoe with another digital shoe to create ‘shoe offspring’ and have the offspring made as a new, tangible pair of shoes.”

Nike also filed trademarks with the U.S. patent office to sell branded sneakers in the virtual space, and in mid-December 2021, it has acquired RTFKT Studios, a digital collectibles company, which will allow Nike to sell virtual sneakers to outfit people’s avatars in the metaverse. Nike’s investments in NFTs and blockchain technology serve as a testament that blockchain technology is an essential component to the existence and scalability of the metaverse. They recognize that they will not be able to offer and sell virtual sneakers or other virtual products in the metaverse without the use of blockchain technology.

Real Estate

On Decentraland, a decentralized 3D virtual reality platform, there are 90,601 virtual parcels of land, where each parcel is an NFT. Metaverse Group, a subsidiary of, acquired in December 2021 a virtual plot for $2.43 million. Emulating the physical world, this parcel is located in the heart of Decentraland’s Fashion district. Metaverse Group plans to develop the estate for fashion shows and commerce, and to establish partnerships with existing fashion brands looking to expand their e-commerce offerings within the metaverse.

Financial Institutions

Prominent financial institutions are also making investment in virtual real estate. In February, JPMorgan opened up an "Onyx lounge" in Decentraland. In addition, the company released a paper which explains how a bank in the virtual world can operate much like it does in the real world, and how JPMorgan plans to provide all its current services in the metaverse. In March, HSBC partnered with Sandbox, a virtual real estate platform, to buy a virtual plot which will center on sports, e-sports and gaming.

Financial Payment Services

Financial payment service providers are also betting on the metaverse. In April, Mastercard filed 15 trademarks related to NFTs, virtual worlds and more. In March, American Express filed for similar trademarks for “downloadable computer software for facilitating the transfer of a virtual payment card to an electronic mobile wallet,” among other areas.

Visa has been the first to bet on the metaverse and has been moving into the ecosystem for some time, adding crypto staff to the team and purchasing a CryptoPunk NFT collectible last summer. These actions support Visa’s report on “the Metaverse as a strategic infection point,” published in November 2021.

Why NFTs?

Why are NFTs an essential component in the metaverse? It's because everything is transaction-based.

To facilitate any transaction and the transfer of ownership, authentication is key. A transfer of ownership will not occur without authenticating who doing the transferring, and what is being transferred. This is the true power of NFTs, providing authentication and facilitating the transfer of ownership. An NFT can authenticate a physical asset, like a $200,000 bottle of single-malt scotch, or a virtual parcel in Decentraland.

The metaverse is not just about creating a virtual space, it’s about bringing people together in a virtual space, expanding on existing communities or creating new ones. NFTs can facilitate the creation of these communities – locally and globally – and tighten their relationship and interactions with their brands and among themselves. Brands such as Dave and BusterAdidas and Burberry are recognizing this and creating NFT collectible programs to expand their customer base and engage in experiences to enhance brand loyalty.

These programs are at their experimental phase; neither the companies nor any third party have provided any data. It's too early to know which loyalty or reward program might work, and some may fail. But brands are acknowledging the power of NFTs and are investing in these experimental efforts.

Transactions and Transfer of Assets in the Metaverse

The ultimate premise of the metaverse is to emulate our physical world and beyond. How do we make sure that transactions in the metaverse are actually real, and not fantasy transactions like in an online game? How would JPMorgan provide its current services at its virtual Lounge in Decentraland? While NFTs provide authentication, decentralized finance (DeFi) applications, which would be automated, self-executing products and services where users directly interact with the application, utilizing blockchain technology, will enable these virtual transactions and connect the virtual with the physical space.

DeFi applications will allow the transfer of funds from the wallet created in the physical world to any virtual space, and between different virtual spaces (I talk more about the necessity of interoperability here). But DeFi goes beyond payments. With DeFi applications, you’ll be able to take a mortgage on your parcel purchased on Decentraland or use this virtual parcel as a collateral for your business in the real world or in a parallel virtual space. You’ll be able to borrow to pay for a virtual garment of Dolce & Gabbana, or lease this virtual garment to other members of the community. DeFi will enable all type of transactions in the virtual world – connecting between the virtual spaces and the physical world.

Almost 30 years after the word "'metaverse" was coined, we are able to make science fiction a reality, with blockchain technology as the enabler. So, dare to dream. First, we imagine, and then technology follows.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Merav Ozair, PhD

Dr. Merav Ozair is a global leading expert on Web3 technologies, with a background of a data scientist and a quant strategist. She has in-depth knowledge and experience in global financial markets and their market microstructure.

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