VB: What’s your process going to look like for this, your road map?
Rosedale: We’ve done a lot of work to get this nice user experience up and running and into beta next week. The first process will be to grant some initial money in the cryptocurrency to our alpha and beta users. This will allow them to begin registering assets, as I described, and selling them to each other.
Next week — we have several hundred things from existing creators in our marketplace already, and we’ll also be putting up an avatar store. It’s a big shopping center on a High Fidelity server that has a bunch of attachments and accessories for avatars. On Tuesday you’ll be able to go shopping and get glasses and hats and backpacks and things like that to put on your High Fidelity avatar, and when you make that purchase, you’ll be going through what I described. You’re purchasing an official object. The certificate is put on the blockchain for you. Anyone who runs into you in High Fidelity can hover on that thing, pop up the certificate, and see where you bought it. They can also buy one of their own, which is obviously one of the benefits of digital goods in a virtual world.
In terms of road map, the next thing we’ll be doing is making the connection to other cryptocurrency systems, which will allow things like currency exchanges, so you can take money in our currency and turn it back into real money. We’ll be doing that as soon as we can, in another month or two after this beta goes up. We’re also in talks with other virtual world providers or interest groups about having them run additional nodes, as we say, in this blockchain we’re putting up, so we can begin the process of decentralizing the back end servers for the blockchain network.
There’s all kinds of littler stuff in the first quarter: flexible clothing for avatars, more things like person-to-person payments, walking up to someone and handing them currency. You can’t actually do that next Tuesday, but you’ll be able to soon. Next week we may also have a blockchain explorer up. If not, it’ll be imminent. That’ll be like a webpage, kind of like what you see with Bitcoin and Ethereum, that lets you inspect the public blockchain itself and see where everything is from the vantage point of a webpage rather than needing to go into the world.
We’re going to aggressively engage in a process of trying to get other virtual world systems to use this systems. Again, we’re very much of the opinion that if we get more services to use it — if we get another social VR service using it, and we’re talking to a couple of them — it’ll be a benefit to all of us. We’re willing to undertake the risk. Maybe our customers will spend their time hanging out in other systems where we can’t monetize them, but we’re willing to take that risk to get a larger Metaverse network set up.
VB: Is there a point where you would expect to try to make alliances with the likes of IBM or the accounting firms, the people who are doing large blockchain commerce initiatives?
Rosedale: I don’t know if you remember what a great participant in Second Life IBM was. They continue to do stuff there, I believe. I think some of the forward-looking infrastructure companies, like IBM or folks like Amazon, are the logical kinds of partners for pushing the agenda of interoperable — another great company is Google. They put up their Poly API this morning, and we were mentioned in that release, because we’ve been working with them to allow you to drag and drop content from Google’s Poly site.
I don’t know if you’ve seen that yet, the Google Blocks and Tilt Brush stuff in VR. You can drop those things into High Fidelity and have them just show up. Right now they don’t have any rules and regulations around reuse. They just have a big everything’s-free site. That would be another example of the kind of logical partner that could take advantage of such a system. It would be amazing to have people making things for Google Blocks, and they would be able to put a price tag on them and have them certified, no matter what virtual world they were in, in a similar fashion. Other things would be content sites like Turbosquid and things like that, but we’re moving as quickly as we can in terms of reaching out and talking to people.
VB: It seems like you can use this and turn it into a much bigger idea than just “Here’s one more virtual world.”
Rosedale: One of the specific things we like in that sense: Imagine a luxury item that’s interestingly unique in the real world. Jimmy Choo shoes or something like that. One of the other things we’d love to do — we haven’t started reaching out on this yet because we’re a small company and it’s further down the road, but we think it’s a possibility — would be to say, if you buy those Jimmy Choo shoes in the real world, maybe you’d get a certificate, issued automatically, which enables you to wear those same shoes inside High Fidelity or anybody else that’s participating in this system. That would be pretty cool.
I was talking to someone about this and I said, “Somewhere in New York is a person who owns more Jimmy Choo shoes than anywhere else in the world.” It’s an interesting property of public blockchain that you could give that person the ability to walk into Sak’s Fifth Avenue or whatever and have that little fact be something that they could know, or share with them. I’ve been struck by how many interesting opportunities there are.
I think the challenge is a chicken-and-egg problem. With respect to hard goods in the real world, labeling them all and putting them in the blockchain — it’s not that strong a use case yet. It’s not a very interesting thing to do. You have to have enormous adoption mass before anyone cares. But on the other hand, taking, say, real-world items, even a few cool real-world items, and having you get the virtual version along with them, actually seems like a pretty good idea. It’s the kind of thing that makes sense for blockchain.
VB: Do you think there’s any risk of — what happens if Bitcoin goes back down to a dollar each, some kind of crash?
Rosedale: That was one thing I hadn’t touched on yet, but the other thing we’re trying to do is create a stable exchange rate. Second Life has had a very stable exchange rate, about 265 Linden Dollars to the U.S. dollar, for the last decade now. It did that during an S-curve period of very slow growth, very intense growth, and then very slow growth again. Over that whole period we had a very stable exchange rate against the dollar and the Euro, and we still do. You can go on the Lindex and see what the exchange rate is. I guarantee it’s right around 260.
Bitcoin, on the other hand, is ridiculously unstable and unsuitable for commerce at the time, whether it’s $10,000 or $1,000 or $1. It just fluctuates too quickly. What we’re going to do there, people haven’t started doing this with blockchain yet, but there’s a way to do it and a couple of great papers I could share. There is an algorithmic way, using smart contracts, to manage the money supply of a currency that makes it behave the same way that Second Life’s did.
The question is, how do we maintain a steady exchange rate given that Second Life was totally open? It’s a market-based exchange rate. You can set your own buy and sell prices. There’s a real foreign exchange market. The price of the Linden Dollar in dollars is floating. But the way we kept it stable was we openly and transparently created new currency and sold it on the open market with the goal, as we explained to our end users, of holding the exchange rate roughly constant. When the exchange rate would start to drop, meaning Linden Dollars became more expensive, our trading guy would create new Linden Dollars and sell them on the open market.
The interesting question is, if you want to do something like that, how do you do it if you’re using a cryptocurrency? Smart people have been thinking about this and we’re going to use the approach they’ve been converging on, which is that you can make a smart contract that monitors the exchange rate of the currency. That currency will trade against the dollar, or you could measure it against a basket of currencies or whatever. It’s what’s called using an oracle in the cryptocurrency world, meaning that your smart contract looks at a website to get a number, and when the currency becomes more expensive, the algorithm automatically disburses a bunch of new money. It mints new currency.
This is being done today with smart contracts on Ethereum. The capabilities are all there. Some of these different ICOs have been related to attempts at doing this. There are different ways of managing money supplies. But the basic idea is that — in High Fidelity right now we have basically zero people buying and selling digital assets. In a few years we’ll have many millions of people, or hopefully even hundreds of millions of people, engaging in VR digital asset transactions. The growth of that economy you manage using the process I just described. Rather than having there be 22 million Bitcoins ever, you have a smart contract that looks for the deflation rate and generates new currency and distributes it.
The way it’s distributed is a longer story. You basically create a second token on a public blockchain, and that token — whoever holds those tokens receives the newly created currency. It’s almost like a dividend from a stock. That’s something else we’re going to do next. We don’t need to do it right now because it’s easy to manage the currency at the outset. But that’s the strategy we’re going to use in the long term.
To your question about ICOs, that may be something in the future that we sell, those tokens that serve as the recipients of those dividends. That’s a piece that we haven’t worked out, but that’s directionally what we’re going to do. What we know is that the outcome of that will be that the exchange rate can be managed to be relatively constant. That will make the currency, the HFC, completely usable for day to day transactions.
VB: It seems like you’ve become a Secretary of the Treasury for High Fidelity.
Rosedale: Well, that’s what I was for Second Life. A friend of mine who’s a big Bitcoin guy, they called him Alan Greenspan in Second Life because he was so obsessed with virtual economies. He went on to become one of the big Bitcoin entrepreneurs. The interesting thing here, though, is to do it using an algorithmic approach, so that we don’t have to have a human-managed system. That would be a centralization risk, and one of the things we’re trying to do with High Fidelity and this broader ecosystem — we don’t want anybody to be able to convince me to do something stupid.