High Fidelity recently unveiled Avatar Island, a virtual reality domain where users can buy and sell items based on a blockchain service. Philip Rosedale, CEO of High Fidelity, sees it as the latest evolution of virtual worlds and virtual life.

While at Linden Lab, Rosedale created Second Life, one of the earliest and most successful virtual worlds, in 1999. Now he has a new startup in High Fidelity, which is a contender to build the same kind of virtual society in VR. But at his new company, Rosedale is trying to modernize the commerce system and open it up so it can be more empowering for both users and creators.

To do that, High Fidelity has built its Avatar Island commerce system on a blockchain, similar to cryptocurrencies such as Bitcoin and Ethereum. The ledger of transactions will exist independent of High Fidelity, providing unalterable, irrefutable proof of ownership. The system is in its beta stage now. It has a user interface for a wallet and marketplace. On the backend, High Fidelity is creating the first server for the blockchain, and it will eventually be one of many servers that store money and information about who owns what.

Under this design, High Fidelity the company could disappear and the blockchain would live on. Other virtual worlds could use it. It could even bridge the gap between purchases in the virtual world and the real one. With Avatar Island, users can now purchase more than 300 items for their avatars. Those items were created by digital artists around the world who will make money from the purchases. And if users want to take their belongings and avatars to another world, they will be able to do so.

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In the future, item ownership recorded on High Fidelity’s blockchain could also be used to translate purchases between the virtual and real worlds. An asset’s PoP exists on the DAR blockchain independent of High Fidelity. An asset’s chain of ownership — its sale and resale — lies entirely in the hands of the object’s owner.

Here’s an edited transcript of our interview.

Above: Philip Rosedale, CEO of High Fidelity.

Image Credit: Creative Commons

Phil Rosedale: Second Life still has a rich economy. That’s one of the pieces we’ve recognized we needed before people would start building, a focused system so people could buy and sell things with each other, and also a system to properly recognize ownership in a virtual world. In a place like Second Life, it’s relatively simple, because the game is under the control of a home server. The game company decides who owns what and keeps track of that.

But from the beginning, our vision for VR at High Fidelity has been — the nature of the way people are going to want to use VR and head-mounted displays in general for meetings and business and all these other things would mandate everybody running their own servers. When you look at something like the Second Life marketplace, which has something like 3.5 million items in it and $700 million in transactions — when you play that forward and say, “How does that work in a generalized VR sense?” you need something that spans all those servers, that allows people to recognize digital assets and make transactions. Just like a website, you don’t really trust any individual server.

We’ve been thinking about this and working on it for the last couple of quarters. As you can imagine, we first started looking at blockchain technology as the way to do. What we’re putting up in beta form next week, so everyone can start playing with it and using the UI and requesting money at the start, is a set of enhancements to High Fidelity that are basically — a UI for a wallet, for buying things in the marketplace and looking at what you own, and then on the back end that information is being put into a blockchain. We’re standing up the first server, and there will be many servers run by different organizations and individuals in a manner similar to the way things like Bitcoin work today.

That blockchain is going to store money. It will also store information about who owns what. The interesting thing about that is that — what we’re building, we envision it as a generalized digital asset registry. When you have something to sell in a virtual world — you could be Herman Miller wanting to sell official Herman Miller chairs, or someone who made an article of clothing they want to sell for avatars — the way we’ve built this, it’s similar to the patent and trademark office. You make a submission of something you want to register, and we put that up in public. We let some time go by, so that people can look at it in the same way you have a public period of inspection, and then once that period is over, we write a certificate into the public blockchain that says, “This item is now available for sale.”

Then, when somebody buys that item, they become owner in the same way you become owner of currency on a blockchain. Once you do that, you can then sell that digital good to anybody else. We don’t even need to be involved. It’s a completely public blockchain transaction. And then there is UI in High Fidelity that lets you do cool things, like if you walk up to someone and they’re wearing a hat, you can hover your lasers in the world at it and you can bring up the certificate, the proof of purchase on that item. This is all going into beta next Tuesday.

Above: Avatar Island has a market where you can buy and sell items.

Image Credit: High Fidelity

VentureBeat: How long were you guys thinking about blockchain as a solution for this? Did it come up a long time ago?

Rosedale: We started working on it about six months ago, formally, because it was at that point that we started working on how we were actually going to enable commerce overall. I’ve been looking at blockchain, Bitcoin and Ethereum and general blockchain tech, since Second Life, because obviously the Linden Dollar was in some ways the first digital currency. Not a decentralized cryptocurrency, but it was and is certainly the big digital goods currency.

About the time that Bitcoin came out, I was well aware of it, and I was also independently designing a kind of generic — I was thinking a lot, during my day to day duties at Second Life, about how to generalize what we had done at Second Life to do something decentralized for currency. I didn’t have all the ideas that Nakamoto had in the Bitcoin paper, but I’d started forming some ideas about a distributed ledger, basically, and how one might keep everybody maintaining the same ledger.

It’s been pretty natural. I’ve followed along with all of this technology. But the last couple of quarters we’ve finally dug in and started building the back end of this thing we’re putting out. It’s a lot of work. The blockchain technology is incredibly interesting and important, but it’s really barely working yet.

In particular — and this is an interesting element of the story, the way that public cryptocurrencies, this is Bitcoin and Ethereum, the two big ones, work today — because of the way consensus is reached, by doing a puzzle basically, a cryptographic lottery game in which somebody wins after a few minutes, the way those systems works puts a strict limit on how long it takes to confirm a transaction and how many transactions can be done per unit of time. Finally, the cost of doing a transaction is set in a kind of uncontrolled way by these big public networks. There are several problems.