EconAfterHours
- May 8, 2022
- 4 min read

The Metaverse Economy

Updated: Oct 27, 2022

By Radhika Gupta

The world is changing at a very rapid rate. It feels like yesterday when we started using the internet to order and buy things online, but we have indeed come a long way. Today, we live in a world where everything is just a click away. Believe it or not, one can even buy a property that does not exist in the real world. The pandemic era revolutionized the tech industry, with its latest find being the Metaverse.

The word Metaverse was first used by American author Neal Stephenson in the 1992 science fiction novel Snow Crash. It is a blend of two words: meta meaning beyond and verse derived from the word universe. This word recently resurfaced and made headlines when Facebook decided to make its own Metaverse. It is a persistent, online, three-dimensional environment that integrates several virtual places allowing users to work, meet and socialize. It can be considered a three-way marriage of virtual reality, augmented reality and physical reality.

Tech giants like Apple, Microsoft, Google and Facebook are racing to claim metaverse, but why are these companies so keen on it? This virtual realm operates as an economy with its currency and banking system. According to a Bloomberg intelligence report, this virtual world has promising economic possibilities and could become an $800 billion industry by the middle of this decade and a $2.5 trillion one by 2030. This economy marks the beginning of a new era of open, global and free digital market and trade.

A cryptocurrency is a digital or virtual currency secured by cryptography, making it nearly impossible to counterfeit or double-spend. It is based on the latest blockchain technology. Blockchain, in simple words, is a system of recording information in a way that makes it difficult or impossible to change, hack or cheat the system. As in the physical world, we transact using fiat currency; in the virtual world, we will be able to buy and sell things using crypto. Currently, many companies are trying to build their metaverse; it is critical to realize that cryptocurrencies are highly likely to power the metaverse economy. An example of one such metaverse where crypto is currently being used as the medium of exchange is Decentraland. Users may buy virtual plots of land on the platform as NFTs via the MANA cryptocurrency, which uses the Ethereum Blockchain. The largest bank in the US, J.P.Morgan, said that it had created a lounge in Decentraland called Onyx Lounge, making it the first lender to enter the metaverse.

The conceptualization of the metaverse has led to the popularity of NFTs or Non-Fungible Tokens. We use these tokens to represent the ownership of unique items. The virtual world allows the user to create, sell and trade digital items using NFTs. They are also based on blockchain technology, making them the perfect gateway to the metaverse as they empower the identity, community and socialization the metaverse economy is being built upon.

Metaverse is not a new concept when it comes to the gaming industry. Some giant gaming corporations like Roblox, Fortnite, and Grand Theft Auto have already built their virtual world with their virtual economies, storylines and characters. Merging NFTs with games has already seen some great success. Axie Infinity is a true testament to this fact. According to Wikipedia, Axie Infinity is a non-fungible token-based online video game developed by Vietnamese studio Sky Mavis, known for its in-game economy, which uses Ethereum-based cryptocurrencies. Players buy NFTs of monsters and pit them in a battle against each other. By September 2021, Axie Infinity had already hit a total NFT transaction volume of over $2 billion. Like most games developed in recent times, Axie Infinity is based on the Play to Earn (P2E) model, wherein every player earns NFTs or cryptos by playing the game. This is achieved by connecting the economics of the game with real-world finance and making in-game assets own-able and transferable on a blockchain.

Lately, many large firms have started investing in metaverse real estate. Metaverse real estate is not very different from the property in the real world. It exists digitally in 3D cities where users can simulate real-life pursuits like playing games, meeting people or shopping. Buying real estate in the metaverse is an expensive affair. The prices depend upon the location, population and demand-supply ratio of that piece of land and can go up to as high as $4 million! But this raises an important question: If the virtual plots are as expensive as the real ones, why would one like to invest in those? The answer is simple: return on investment is much more than real-world plots. It is believed that the ROI can go as high as 1000% and that too, in a short period.

The concept behind investing in digital land is that once you have it, you can generate money by developing virtual property and leasing it out. According to a J.P.Morgan report, in 2021, the average price of a piece of land quadrupled in six months. Across the four primary Web 3.0 metaverses, it increased from $6,000 in June to $12,000 in December. Brands have started buying up space to develop virtual storefronts and other experiences, contributing to the increase.

There are opportunities in practically every market when it comes to the metaverse's economics or metanomics. Metaverse will benefit the business consumer environment and provide a massive opportunity for business-to-business enterprises to grow. For example, you will have your online avatar in the virtual world. You will be able to buy digitally branded clothing for it after browsing virtual showrooms, or maybe your avatar can start a small business in the virtual world. Users will be able to test products in the virtual environment at much lower costs. The possibilities are infinite and bound to grow in the coming time.

Many believe that the development of the metaverse is inevitable, and it is expected to grow widespread in various fields. It will increase educational opportunities by making it a more immersive experience. It will expand market access for consumers from emerging and developing countries. Metaverse might make it possible for workers from less developed nations to get jobs in western countries without migrating. This technology will change the way we look at the world today. It is currently in its early stages of development, but it will be interesting to see how it pans out in the future!