How the Metaverse Could Change the Future of Services and Payments

Here are the five key takeaways

1. The Metaverse: The metaverse is an immersive, computer-generated universe that blends the physical and digital worlds. It offers a sense of immersion, real-time interactivity, and user agency.
2. Services in the Metaverse: The metaverse could potentially overcome some limitations of the physical world, offering new ways of delivering and consuming services in a virtual environment.
3. Payments in the Metaverse: For the metaverse to function as an economic system, it needs a reliable and efficient way of facilitating payments and transfers of value.
4. Centralised vs Decentralised Payments: Payments in the metaverse can be classified based on whether they are centralised or decentralised. Each model has its own advantages and disadvantages.
5. Future of the Metaverse: The metaverse is a dynamic and evolving journey. It is not a substitute or replacement for the real world, but a complement and extension of it.

Backdrop

Imagine that you are sitting in your living room, wearing a pair of smart glasses that project a holographic image of a virtual world in front of your eyes. You see a street full of shops, cafes, and people, all rendered in realistic 3D graphics. You can walk around, interact with other users, and buy or sell goods and services using digital currencies. You can also switch to different virtual environments, such as a tropical island, a medieval castle, or a futuristic city.

Welcome to the metaverse, a term that describes an immersive, computer-generated universe that blends the physical and digital worlds.

The metaverse is not just a sci-fi concept. It is already a reality for millions of users who spend time and money in online games, social networks, and virtual reality platforms. These users create avatars, buy virtual land and items, and participate in various activities that resemble or surpass those in the real world. The metaverse is also attracting the attention of big tech companies, investors, and policymakers, who see it as a new frontier for innovation, entertainment, and economic activity.

But what are the implications of the metaverse for the services sector, which accounts for a majority of output in most economies?

And how will payments work in the metaverse, where users may need to exchange value across different platforms, currencies, and jurisdictions?

In this blog post, we will explore these questions based on a recent paper titled "The economic implications of services in the metaverse by Carlos Cantú, Cecilia Franco and Jon Frost" by the Bank for International Settlements (BIS), a global organization that fosters cooperation among central banks and other financial authorities.

The metaverse: a brief history and definition

The term “metaverse” was coined by Neal Stephenson in his 1992 novel "Snow Crash", where it refers to a virtual world that users access via VR headsets and other devices. In the novel, the metaverse is a dystopian escape from a chaotic and fragmented real world, where nation-states have collapsed and corporations rule.

Since then, the idea of the metaverse has evolved and expanded, influenced by other works of fiction, such as William Gibson’s Neuromancer, Ernest Cline’s Ready Player One, and the Matrix movies. Today, the metaverse is often used to describe any virtual world that offers a sense of immersion, interactivity, and agency to its users. These features are enabled by technologies such as VR, AR, 3D graphics, artificial intelligence, blockchain, and cloud computing.

There is no single or agreed-upon definition of the metaverse, and different platforms may have different visions and designs. However, according to one paper, the metaverse requires three features: a sense of immersion, real-time interactivity, and user agency. The metaverse is also built on multiple layers of technology, such as sectors, software, interface, infrastructure, and enablers.

Different components make up the metaverse, from the applications that users interact with, to the devices and networks that power them, to the tools that enable transactions, identity, and governance. The metaverse is thus a complex and dynamic system that involves various stakeholders, such as users, developers, platforms, regulators, and intermediaries.

The metaverse and the services sector

The services sector comprises a wide range of activities, such as trade, transport, education, health, entertainment, and finance. These activities are often constrained by physical, temporal, or resource limitations, such as distance, time, availability, or cost. The metaverse could potentially overcome some of these limitations, by offering new ways of delivering and consuming services in a virtual environment.

Some examples of services that could benefit from the metaverse are:

• Gaming and e-commerce: These are the largest and most established segments of the metaverse, where users can play, socialize, and shop in immersive and interactive worlds. Gaming and e-commerce could benefit from greater interoperability between platforms, allowing users to transfer their avatars, items, and currencies across different games and marketplaces. This could also create new opportunities for content creation, advertising, and monetization.
• Education and training: The metaverse could enhance learning outcomes and experiences, by providing realistic simulations, virtual field trips, and collaborative projects. Students and teachers could access the metaverse via VR, AR, or other devices, and interact with each other and the content in a more engaging and personalized way. The metaverse could also improve access and affordability of education, by breaking down geographical and financial barriers.
• Healthcare and wellness: The metaverse could improve health and well-being, by enabling remote diagnosis, treatment, and therapy. Patients and doctors could use the metaverse to communicate, monitor, and manage health conditions, using smart wearables, VR, and AR. The metaverse could also provide new forms of physical, mental, and social care, such as fitness, meditation, and support groups.
• Workplace and collaboration: The metaverse could transform the way people work and collaborate, by offering a more flexible and productive alternative to physical offices. Workers and employers could use the metaverse to create and join virtual teams, projects, and meetings, using VR, AR, or other devices. The metaverse could also enhance creativity, innovation, and diversity, by allowing workers to access and share information, skills, and perspectives from different sources and locations.

These are just some of the possible applications of the metaverse in the services sector. There may be many more, as the technology evolves and new use cases emerge. However, some challenges and risks need to be addressed, such as data privacy, security, regulation, quality, and inclusion. The metaverse is not a panacea, and it may not be able to fully replace or replicate the real-world services that people value and need.

Payments in the metaverse

For the metaverse to function as an economic system, it needs a reliable and efficient way of facilitating payments and transfers of value. Users may need to pay for goods and services, receive income or rewards, or exchange assets and currencies, both within and across different platforms.

How will payments work in the metaverse, and what are the implications for the payment industry and the financial system?

One way to classify payments in the metaverse is based on whether they are centralised or decentralised.

• In a centralised model, a single entity (such as a platform or a company) controls the payment system and makes all the decisions.
• In a decentralised model, the payment system is based on a network of peers (such as users or developers) that operate according to a set of rules or protocols.

The centralised model is more common in existing metaverse platforms, such as Roblox, Minecraft, and Second Life. These platforms have their own native tokens or currencies, such as Robux, Minecoins, and Linden Dollars, that users can buy or earn and use to trade within the platform. The platforms also accept various payment methods, such as PayPal, debit cards, or credit cards, to buy their tokens or currencies. The advantage of the centralised model is that it can provide stability, security, and convenience to users and platforms. The disadvantage is that it can create barriers, fees, and risks for users who want to transact across different platforms or currencies.

The decentralised model is more prevalent in blockchain-based metaverse platforms, such as Decentraland, The Sandbox, and CryptoVoxels. These platforms use cryptocurrencies, such as Bitcoin, Ethereum, or their own native tokens, such as MANA, SAND, or VOX, to enable payments and transfers of value. The platforms also use non-fungible tokens (NFTs), which are unique and verifiable digital representations of assets, such as land, buildings, or items. The advantage of the decentralised model is that it can offer more freedom, interoperability, and innovation to users and developers. The disadvantage is that it can entail volatility, complexity, and uncertainty for users who are not familiar or comfortable with cryptocurrencies and blockchain technology.

The choice of payment model in the metaverse may depend on various factors, such as user preferences, platform features, regulatory requirements, and market conditions. There may not be a one-size-fits-all solution, and different models may coexist or compete. However, some general principles or criteria that could guide the development of payment systems in the metaverse are:

• Efficiency: The payment system should be fast, cheap, and easy to use, with minimal friction, delays, or errors.
• Security: The payment system should be safe, reliable, and resilient, with adequate protection against fraud, theft, or loss.
• Interoperability: The payment system should be compatible and integrated with other platforms, currencies, and systems, both in the metaverse and in the real world.
• Inclusion: The payment system should be accessible and affordable to all users, regardless of their location, income, or identity.
• Innovation: The payment system should be flexible and adaptable to new technologies, use cases, and opportunities.

Conclusion

The metaverse is a fascinating and fast-growing phenomenon that could have profound implications for the future of services and payments. The metaverse could offer new ways of delivering and consuming services in a virtual environment, creating new value and benefits for users, providers, and society. The metaverse could also require new ways of facilitating payments and transfers of value, creating new challenges and risks for users, platforms, and regulators.

The metaverse is not a fixed or final destination, but a dynamic and evolving journey. The metaverse is not a substitute or replacement for the real world, but a complement and extension of it. The metaverse is not a utopia or a dystopia, but a reflection and projection of it. The metaverse is what we make of it, and we have a responsibility to make it a place where everyone can learn, play, work, and thrive.

P.S. What’s your take on the metaverse? Do you see it as a game-changing innovation or just a passing trend? Share your thoughts in the comments below. We’d love to hear from you! 🚀

Disclaimer: The views expressed in this blog are not necessarily those of the blog writer and his affiliations and are for informational purposes only.

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