The metaverse, cryptocurrency, Web3. Besides all three of these things being hot technology buzzwords, what do they have in common? For many tech developers and investors, the metaverse and crypto are intertwined and will become part of Web3 -- a decentralized internet controlled by individual users rather than by big companies.
Although the metaverse (basically three-dimensional immersive virtual worlds) and cryptocurrency (Bitcoin (CRYPTO:BTC) being the first of thousands of cryptos) are two very different things, they could come to heavily rely on each other as they develop.
Blockchain
Blockchain and how it powers the metaverse and cryptocurrency
Let's start with a fundamental piece of technology that lies at the heart of both cryptocurrency and the metaverse: blockchain. Originally designed by Bitcoin creator Satoshi Nakamoto and now used by other big cryptos such as Ethereum (CRYPTO:ETH), blockchain is a public digital ledger that records transaction data. Transactions utilizing a blockchain network can be peer-to-peer and remove intermediaries (such as a bank or tech company) from user interactions. This can reduce costs and speed up the time for transactions to take place, among other things.
Commerce on the internet is still taking place using a digital version of traditional fiat currencies. Blockchain and currencies based on it were developed as a digital-native means of transacting business in a digital world. Metaverses with their 3D virtual worlds and immersive services are also seen by some as utilizing blockchain technology as a way to create permission-less interactions between internet users.
The metaverse
Metaverse shopping
There are lots of 3D immersive worlds in existence today, such as video games where players can interact with each other in real time. By some definitions, though, these 3D worlds don't truly become part of the metaverse until they have a full-fledged digital economy.
Many of these games and services allow users to purchase digital items. For avid video gamers, this is a common practice. Outfits and accessories can be purchased to customize your in-game look or improve player performance. Cloud computing-based services utilize a similar concept, enabling a free-to-use or cheap starter package but locking premium or add-on features behind a paywall.
Sound a little pointless and far-fetched? This concept of metaverse shopping could have real-world applications, too. Shoppers could try on a virtual version of clothes in the metaverse before making a purchase. Nvidia (NVDA 1.05%) CEO Jensen Huang talks a lot about "digital twins" of physical world locations, which has tremendous potential for businesses when designing and constructing property or planning for manufacturing projects. The same could be said for individuals who could preview a home remodel or sample a product, such as furniture, in a digital recreation of their home.
Crypto coins and NFTs
Metaverse, crypto coins, and NFTs
With the potential for e-commerce and social interaction, this is where cryptocurrencies and applications built on a blockchain enter. Direct peer-to-peer interactions on the web hold the promise of instantaneous settlement of funds and near-zero fees. Item ownership can be guaranteed using an NFT (non-fungible token), which could take the form of a piece of art, a digital collectible item, or a digital version of a real-world purchase, such as a pair of Nike (NKE -0.26%) sneakers you could also wear in the metaverse.
For now, though, the metaverse is largely the realm of the video game industry and other imaginative start-ups. It's worth noting that turmoil in the crypto space during the first half of 2022 also cast a shadow on the metaverse and its viability as a full-fledged digital economy. Nevertheless, here are three early-stage projects to watch that are bridging the gap between cryptocurrencies and the metaverse.
1. The Sandbox
The Sandbox (SAND -2.21%) is a user-created digital world in which users can create and sell digital content within the game. SAND is the in-game token that acts as a currency and is built atop the Ethereum blockchain network. These tokens can be bought and sold on a number of cryptocurrency exchanges. SAND can be used to purchase virtual land, buildings, accessories, and other items as NFTs.
2. Decentraland
Decentraland (CRYPTO:MANA) is another Ethereum network-based metaverse experience. Participants can use the native token MANA to purchase virtual land and develop it for games and other experiences, as well as for avatars and digital accessories. Decentraland is controlled by the Decentraland DAO (decentralized autonomous organization). Owners of MANA or virtual property in Decentraland can participate in the DAO and vote on initiatives and new developments.
3. Axie Infinity
Think of Axie Infinity (CRYPTO:AXS) as an Ethereum blockchain-based version of Nintendo's (NTDOY 4.33%) Pokémon franchise. Players train fantasy monsters called Axies and compete against other teams. Axie Infinity is a "play-to-earn" game, meaning participating can earn the player AXS tokens. The tokens can be spent on new Axies (which trade as NFTs), training existing Axies to improve their traits, and participating in the upcoming launch of virtual land within the Axie Infinity universe. The most expensive Axie ever was bought for the equivalent of $820,000 of Ethereum (at the then-market price).
Related investing topics
Future prospects
Prospects for users and investors
Prices of some native tokens used in a metaverse have skyrocketed in recent years, attracting plenty of investor attention. However, bear in mind that investing in cryptocurrencies and tokens built on a blockchain network is highly speculative -- and not just because they're new technologies.
Crypto coins and tokens used in the metaverse aren't businesses that generate revenue and profits. Instead, they're a type of digital currency that can be used to make purchases or participate in a metaverse. Their values are highly subjective and prone to wild swings in price. Individual stocks of businesses can be very volatile, too, but investors can make assessments on their value with revenue and profit metrics -- metrics that crypto investors do not have.
This problem led to some extreme volatility in the wider crypto universe in 2022, when prices for coins and tokens skyrocketed and then collapsed within a few months. Although there is still some monetary value in cryptocurrencies related to the metaverse, the larger value comes from more abstract -- and harder to price -- benefits.
Early versions of the metaverse hold a lot of promise, especially for those interested in participating in them. Ownership of some cryptos grants the holder a voice in a DAO or other virtual project, and artists and other digital creators can have a new outlet for their business.
Tread lightly when it comes to investing in this space, as it's moving fast and still under development. But the intersection between cryptocurrencies and the metaverse is worth keeping an eye on in the years ahead.
