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Over the course of a year, the number of companies working on the metaverse grew from 200 in July 2021 to more than 500 now, according to a report on the metaverse by market researcher Newzoo.

A year ago, a lot of people could plausibly say they never heard of the metaverse. But with demand for virtual living exploding thanks to the pandemic, the metaverse quickly spread as a vision for life in persistent, 3D spatial worlds that were all interconnected in an online universe.

Now just about every major tech company, brand, influencer, and gaming company is getting involved in the metaverse, the universe of virtual worlds that are all interconnected, like in novels such as Snow Crash and Ready Player One. It’s the way to reach the younger generations of the future. Last week, McKinsey said that the metaverse will have a $5 trillion market value by 2030. And the Khronos Group announced a coalition of groups and companies to come up with standards for the metaverse.

Roblox is one of the world’s most popular games and it’s become a platform where players can create their own games and capture their value for it. Roblox and Epic’s Fortnite have added features such as virtual concerts, and influencers are staking their claims.

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The metaverse is giving rise to virtual runway shows hosted by the most popular fashion and luxury brands. And the early iteration of blockchain games focuses more on the economic aspect and lacks the “fun” element to sustain new players. But the hope is such games will become stepping stones to the metaverse by bringing interoperability and true digital ownership.

Newzoo said that digital in-store shopping sessions will likely become more realistic and commonplace as XR and VR technologies evolve. Virtual land — which is essentially 3D ad space — has taken the non-fungible token (NFT) space by storm.

Newzoo's view of the metaverse.
Newzoo’s view of the metaverse.

Mihai Vicol, metaverse lead at Newzoo, in an interview with GamesBeat that the hype has cooled in recent months due to the global macroeconomic slowdown, but he said that interest in the metaverse is growing as the natural successor to the Web2 internet.

Newzoo said the transition from Web2 to Web3 will decentralize the tech economy, changing the way that brands interact with users and tech middlemen. And it is sure to change the way that consumers live, work, and experience entertainment, Vicol said.

He said the evolution of simulated 3D worlds presents a massive opportunity for brands, with a transition from diffused physical spaces into virtual worlds providing brands with a chance to reach a condensed mass of users that are hard to reach through other forms of advertising.

Huge companies such as Nike, Louis Vuitton, Balenciaga, and Meta have recognized the shift and are executing metaverse strategies.

While NFTs grew into a multibillion-dollar market in 2021, they have suffered a crash alongside the cryptocurrency market thanks to fears of a global recession. Coin valuations and the public interest has declined in recent months, but Newzoo remains optimistic that the top projects will succeed. The report looks into the top trends in the metaverse and blockchain space.

The report notes the industry has not agreed upon a single definition of the metaverse. Jonathan Lai of A16z described the metaverse as persistent, shared, 3D virtual spaces in a virtual universe.

Tim Sweeney, CEO of Epic Games, called it a real-time 3D social medium where people can create and engage in shared experiences as equal participants in an economy with societal impact.

And Newzoo defines it as an interconnected and interoperable network of persistent, virtual worlds that are populated by large numbers of players who interact with each other via 3D digital avatars, which offer users a heightened sense of immersion and presence.

Newzoo cited investor Matthew Ball for noting aspects of the metaverse such as scaling, where the cap in virtual spaces will rise from 100 people per zone to potentially infinite. He said it will have persistence, where it will feel like a permanent place where you can be immersed in new experiences. It will be interoperable, have its own economy, and enable users to express their own identities across spaces. It will combine digital and physical experiences, and be populated by a wide variety of individuals, informal groups, organizations, and commercial enterprises.

Whither blockchain?

The map of the metaverse has hundreds of companies.

One of the key questions is whether blockchain technology is the key stepping stone to the metaverse, enabling interoperability and ownership through authentication on the digital ledger of the blockchain. But could we find alternative paths? I asked Vicol why some hardcore gamers have resisted NFTs and whether blockchain games are poised to go mainstream?

“You mentioned the distaste of most native or hardcore Western gamers toward blockchain games, and frankly, I don’t blame them,” Vicol said. “Just 15 months ago, blockchain games were essentially non-existent. Maybe we had a few titles like CryptoKitties or Axie Infinity. But play-to-earn games basically did not exist.”

Now we’ve seen the rise of Axie Infinity as well as the subsequent collapse of some of these games. The problem is that they aren’t being played by gamers. Rather, they’re played by cryptocurrency fans who want to make a profit on the games.

“The problem is these games are not sustainable. And if you ask these people who are playing these games, mostly everyone wants to profit off of these games,” he said. “And in a sustainable ecosystem, it’s simply not feasible that 100% of players can make a profit. There has to be a number a certain amount of players that play the game for fun, so they put in five bucks and at the end of the day, they don’t expect to come out of it with $10 or $50.”

Vicol believes that blockchain games will only catch on when top developers launch high-end games that are fun to play. These games have to find novel utility for NFTs if they are to succeed. Only then will the games appeal beyond crypto investors and draw in the mainstream players. Some games like collectible card games such as Gods Unchained may have found the right utility for NFTs, Vicol said.

“You have to have a sustainable ecosystem, and in 90% of the crypto games, I don’t think this has been the case,” Vicol said. “I do believe that sustainable blockchain-based economies can be built in six months or may two years. But we’re just not there yet.”

It’s also not clear if the metaverse needs cryptocurrency to succeed as well. Gabby Dizon, CEO of Yield Guild Games, predicts we will have 10 million crypto wallets this year, but crypto is in a world of hurt with Bitcoin falling to less than half of its recent value. The number of crypto wallets will depend on a recovery.

Vicol hasn’t said when he expects the blockchain games and the metaverse to hit the mainstream.

“The real question is whether people will actually play these games,” he said. “It’s still too early to tell. You can throw billions and billions to the sector, and you might get at least a few decent games that will be played by millions of players. But I think it’s still too early to call that. I definitely don’t think that the future of the metaverse is necessarily tied to the success of blockchain games.”

He added, “Now, whether or not you need blockchain to build an open metaverse is an ongoing question. There are people on both sides of the argument. But I think titles like Roblox or Fortnite have shown that you don’t need blockchain.”

A diagram of the metaverse' sectors.
A diagram of the metaverse’s sectors.

Vicol does believe that it requires shared standards for the metaverse to get the whole platform off the ground. He sees brands going into virtual real estate and virtual world applications such as Decentraland and The Sandbox. Those worlds don’t have many users, but they’re also in a very early stage of development.

Newzoo hasn’t made its own prediction for the revenues associated with the metaverse or its eventual value.

“I’ve been a bit intrigued by all these big consulting firms dishing out numbers like $8 trillion (Citi) by 2030,” Vicol said. “I was a bit perplexed. So we don’t actually have any metaverse revenue estimates yet, but we are thinking of potentially creating the estimates.”

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