Metaverse easily explained

Metaverse - hardly any other topic was so controversially discussed in the tech world in 2022. Many dismiss it as a gimmick, while others see it as the future of the Internet. Louis Schulze, Ecosystem Development Manager at the Founders Foundation - a non-profit initiative of the Bertelsmann Stiftung - talks about what Metaverse really is and what benefits it brings to other industries beyond the entertainment industry. Intrigued by the impact of the technology, he launched FUTUR3 - a podcast series focused on the emerging Web3 space and all the technologies associated with it: Metaverse, NFTs, DAOs, DeFi or P2E gaming. Twice a week he interviews thought leaders to understand the fundamentals of technology and the impact on economy and society.

Metaverse, NFTs, Crypto Currencies etc. Where are we now and where are we headed?

Louis Schulze: Earlier this year I started a podcast series around the topic of Web3 like metaverse, crypto etc. to understand what it's all about. How I define the picture for me today is that Metaverse is the vision of a completely digitally connected world. That may be the case in five to 15 years. We'll be moving around immersively via AR and VR then. Digital economies exist there and we meet in digital space. The ongoing digitization is pushing everything in that direction. Web3 is the next stage to this metaverse. The blockchain-based Web3 technology, as a new idea of the Internet, adds new functions to the already existing Internet. It thus increasingly enables the image of a digital and connected world that then fully surrounds us.

Do we simply have to rethink the entire Internet world?

Louis Schulze: At least that is how it is promoted by the advocats of Web3. The word Web3 is a term that has been known in America for about two to three years. In Europe and especially in Germany, the term is rather less known. Here, the words "cryptocurrencies" and certainly "blockchain" and "Bitcoin" were more familiar. But wrapping these terms into a construct or a new idea of the internet is very new. To make it easier to grasp the terms, I came up with a metaphor: If a small house is built, then the blockchain as the technological foundation of this new Internet would be the basement, so to speak. A wide variety of technologies are based on it. One is cryptocurrencies. The idea of a financial world without banks, deFi, is a technology based on the blockchain. Another technology is NFT (non-fungible token). This is a kind of digital certificate of authenticity, also based on blockchain. The acronym DAOs (Decentralized Autonomous Organizations) stands for organizations in which you can participate directly by purchasing a token. It is a kind of community with a bank account. The last term to mention is: X to earn, play to earn or data to earn. This means that I generate and earn tokens through certain actions in the digital space, such as playing games (in the case of play to earn). The technologies form the second floor of the house with four rooms. The metaverse builds on top of this. Last, the Web3 forms the roof of the house. To give another definition: Internet is owned by the users and builders. Orchestrated with Tokens.

There is now more behind the Metaverse than just gaming, right?

Louis Schulze: I think it also depends very much on the definition and how I look at this Metaverse. Because if I associate with the metaverse the image of Second Life and of perhaps poorly animated 3D graphics, where few people move, then it has no real use. I'm also honestly not the very biggest fan of so many of the applications we're seeing right now. For example, I doubt whether it makes sense for our society and our economy to attend a concert in the Metaverse or buy a leather jacket there. I actually have a very hard time with those use cases. Of course, if you ask the fashion industry, they would point out the benefits, like digital dressing. I can put on something different without having to produce or buy the clothes separately. That also serves sustainability. I think it becomes interesting when I really see it as the final stage and also the vision of a digital open economy. I think autonomous driving is also part of the metaverse. Here, I am guided by an algorithm. I can no longer intervene myself and am exposed to it. And that is actually already metaverse. I am steered by a code - that is this vision of a completely digitally connected world.

Is Metaverse just hype or are tangible use cases emerging for SMEs?

Louis Schulze: The exciting thing is that the SME sector and also the B2B sector in particular are actually much further ahead when it comes to the topic of VR and AR and Co. We often notice this development in the B2C sector in the media. Everyone is talking about the latest shopping experiences, holding meetings and going to concerts in the metaverse. There are more and more use cases around immersive manufacturing, VR based production and predictive maintenance. For a manufacturing SME, those would be the first areas where I would see added value in terms of Metaverse.

So, in a kind of beta testing, I could try out a facility without having to build it first?

Louis Schulze: Of course, first of all, enabling technology is important. We often talk about the VR goggles and co. Certainly that's one of the first things I have to invest in to have that experience. There are also applications and metaverses that work without these glasses. At the end of the day, it's a 3D world that we already know from gaming. Then it needs these so-called CAD drawings, as we know them from the past. These are then specifically adapted to the 3D worlds and also standardized to make them accessible for all. This ensures a uniform experience. In the second step we talk about buzzwords like Unreal Engine and Co. In Germany, there are many providers who support the initial production planning and the production process. In this way, initial prototypes of new machines etc. can be examined in the metaverse, i.e. in the digital world.

So you could identify optimization needs, for example, of production workers. Are these the use cases?

Louis Schulze: Yes, I think that all technologies around this buzzword Web3 pay into a reduction of transaction costs. In the Metaverse context and in the SME example that we're in right now, it's that we can simply reduce transaction costs such as travel effort, production effort, and planning and coordination effort. With DAOs (Decentralized Autonomous Organizations), for example, you can have a wide variety of people become partners in an organization. There is no need to set up a cooperative or hire a notary. Here again we have this effect of reduced transaction costs. And I believe that this is precisely the economic benefit that we can create in the short term.

Communication channels can therefore be shortened by meetings in the metaverse?

Louis Schulze: I mentioned the metaphor of the house earlier. I like to use a second metaphor with a bridge: I think that Web3 and metaverse technologies are a bridge between companies. Previous technologies, such as software, are perfectly designed to optimize processes and revenue potential within companies. However, we have not yet managed to build the connection, i.e. the bridges, between companies in the best possible way in terms of technology. When companies collaborate, we often have this dilemma of lack of trust. I believe that with Metaverse, Web3 and blockchain technology, it is possible to ensure a trustworthy and secure transfer of data and information between companies. The data is anonymous and secured. I have it traceable on the Blockchain and by doing so I create a much higher degree of an open economy (Open Economy). I actually believe that the Web3, Blockchain, and Metaverse benefit the fact that we can operate in this ecosystem. Metaverse is "Authority by Code": the authority is no longer just us humans, but we have the assurance that a code governs the transfer. These are precisely the potentials that we can explore in the long term through this.

Do we need additional regulation?

Louis Schulze: Blockchain technology and also this token economy in particular are still in their infancy. If I were a decision-maker in a company now, I would first refrain from tokenizing everything and doing a lot of blockchain. There is simply not yet the corresponding legal certainty. And at the latest when I suddenly have to handle cryptocurrencies in accounting, then this would certainly blow up all accounting processes for the time being. That's why I can understand very well that there is currently still a certain distance to the topic. But lawyers and law firms, as well as companies and start-ups, are slowly beginning to open up this area for themselves. This means that regulation is currently being developed. A lot is happening right now to create legal certainty for companies. You can't say we're five to 15 years away from that here either. So it would be a mistake to wait until ten years from now to address the whole issue, because that's when the certainty will be there. Many use cases will emerge here in the very short term.

Does Metaverse simply need early adopters?

Louis Schulze: I like to use an example from Web3 for this. It is usually the case that the producing company is responsible for the emission and has to reduce it. But it is only responsible for a fraction of the emissions created. We are talking about scope 1, 2, 3 emissions. How then do I reduce scope 3 emissions, for example? At this point, I would inevitably have to work with my suppliers, not just my Tier 1, but Tier 2 and Tier 3, and so on. Now surely it would be beneficial to have a secure space where I could share data and identify potential. Where can we save CO2, what are the production steps and what are the corresponding data streams for that? All of this would be secured by the blockchain, so that companies can start trusting each other and not have this trust dilemma. That's what early adopters are needed for. From the conversations in my podcast, I'm very confident that a lot has already happened there.