Building the metaverse: what can we expect in 2023?

Snapshot

Metaverse technologies such as NFTs are already being developed and utilised by companies
Global "players" will have an important role in the development of the metaverse, but a lot of development will also pend on strategic partnerships and acquisitions
The success of the metaverse will depend on how regulatory challenges will be addressed

The metaverse and its future has continued to be a focus of intense debate for the digital world over the past 12 months. Although it is many years away from becoming a full-scale reality, certain technologies critical to its future development have already emerged. What can be expected from the metaverse in 2023 very much depends on the development, growth and convergence of these technologies, and companies driving the metaverse forwards.

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Where are we now?

The metaverse, in its commonly envisaged future form – often characterised as a scalable, persistent, interoperable world and economy, spanning digital and physical, and with multiple contributors – does not yet exist and will not for some time.

However, when it does, it will be driven by a convergence of multiple underlying technologies that enable and allow it to operate and flourish. Many of these are starting to develop and be adopted at pace – for example, non-fungible tokens (NFTs), blockchain, artificial intelligence and machine learning, digital twins, 5G, scalable cloud computing, and virtual and augmented reality hardware. These exist and are developing all the time, which is something that will no doubt continue through 2023. Although their convergence and interoperability will take longer, the building blocks are already coming together.

Is Web3 the end goal?

Discussion about the metaverse and its development often includes mention of Web3. This is an idea that incorporates concepts such as "decentralisation" of the internet and puts the web as we know it today (Web2) – which is perceived by many to be controlled by a small group of companies – back into the hands of the users (see the Web3 article here.)

However, the metaverse is not reliant on decentralisation, nor is decentralisation predicated on the existence of the metaverse. So, although it may be possible and desirable to decentralise certain aspects of the metaverse, the two are not completely interdependent and should not be conflated into a single idea.

Metaverse tech: a levelling up in 2023

As global "players" hone in on the metaverse and its development, it seems likely they will seize opportunities to grow their metaverse divisions through strategic corporate activity. This is likely to continue in 2023 and beyond, with investment and strategic acquisition driving innovation and development for metaverse start-ups.

Strategic metaverse partnerships have also started to form. Although seamless interoperability between the metaverses of major players may have seemed implausible at first, partnerships such as these may open up those possibilities.

Cutting through the hype

As with all innovative technologies though, there are many challenges involved. Firstly, the considerable amount of interest in the metaverse last year can be said to have contributed to a degree of "metaverse fatigue", exacerbated by negative publicity surrounding recent events such as the bankruptcy of the US cryptocurrency exchange FTX (which led to millions of customers being unable to withdraw their funds). These events have created negative ripples among consumers over the use of NFTs and blockchain, which have, for example, stirred some prejudice against metaverse technologies.

From a regulatory perspective, protection of children and online safety is going to be one of the main challenges to be tackled. This has already led to companies exploring the use of innovative and reliable age and identity verification methods and reviewing their approach towards children's personal data.

Consumer protection issues are also a concern in areas of perceived high risk, such as decentralised finance. In October 2022, the European Council approved the Markets in Crypto-Assets Regulation, which, when finalised, will regulate cryptocurrency markets and protect EU consumers from the risks associated with an FTX-style collapse. The UK is similarly looking to strengthen its regulatory oversight through its proposed Financial Services and Markets Bill.

Peer-to-peer decentralisation is also an issue which will need to be addressed. Existing consumer protection laws often assume the existence of platforms and intermediaries that are able to police online trolls and ensure consumers are protected with respect to what they purchase. However, a shift towards a greater "de-intermediation" may leave consumers exposed in a way that requires a regulatory rethink.

Recently, accelerated corporate activity focusing on metaverse technologies has attracted the attention of competition authorities. The US Federal Trade Commission, in particular, has demonstrated a willingness to intervene in circumstances where it deems an acquisition or merger to be anti-competitive.

The future looks bright, we're just not there yet

There is a general consensus among futurists and other technology commentators that the metaverse will eventually find its way into our day-to-day lives in some shape or form. Social interaction is perhaps the most likely way in which this might happen. However, there are also opportunities in relation to entertainment, workplace collaboration, education and training, immersive advertising and ecommerce, with many more likely to appear as the technology matures.

While these visions are a long way from being realised, in the short term, metaverse technologies have other attractive applications for investors. For example, NFTs may ultimately play a pivotal role in metaverse transactions, but they have already proved to be an innovative tool for brands looking to reach out to new markets.

Development and investment in metaverse technologies is likely to continue at pace, particularly once macro-economic conditions have settled. Although navigating the various challenges will undoubtedly be tricky, it appears that many have set their sights on the metaverse, and will no doubt find a way through, one way or another.