If 2020 was the Summer of DeFi, and 2021 the year of NFTs, 2022 will arguably be remembered most for advances made in the metaverse. It remains to be seen whether augmented and virtual reality gaming will change everyone’s lives, and whether the metaverse will – as some predict – become a $13 trillion opportunity by 2030.
But this year has certainly got tongues wagging about the potential of simulated digital environments, whether we want to interact, earn, work, game or exercise.
The metaverse, of course, belongs to the same web3 world that has spawned yield farms, DAOs, decentralized prediction markets, blockchain games and countless other dApps in recent years.
Described as a new paradigm of the internet that incorporates elements such as distributed ledgers and token-based economics, web3 is an ambitious, almost revolutionary concept that hopes to usher in an era where privacy and autonomy are deemed sacrosanct. And few people are better placed to comment on web3’s future than Charles Read.
End Game For NFTs
The co-founder of web3 venture capital firm Rarestone Capital, Read has made over 100 investments in the last three years, most of them in the web3 stack. He’s also an ardent NFT enthusiast, snapping up digital art, avatars, metaverse land, and tools to support gaming endeavors.
“A lot of the NFTs I’ve bought resulted in access, networking or contacts,” explains Read. “I’ve met my idols and made friends with some amazing people as a result of this – and I think that’s really exciting and can’t be overlooked. Of course, sometimes I pick up NFTs which I don’t necessarily think will appreciate in value and I don’t intend to sell; I just want the access that comes with them. Opportunities come in all shapes and sizes.”
The access to which Read refers brought him into the orbit of heavyweight legend Mike Tyson and pioneering producer DJ Premier, both of whom have embraced NFT technology in a big way. Read expects more household names to get involved in the NFT space over the coming years, tokenizing exclusive content or special privileges such as backstage access.
“We are actually seeing quite a lot of this already. For example, on the Royal platform artists can fractionalize song royalties as NFTs which give supporters a financial stake in a track's success. Ivan Atkinson is working on a similar model for the movie business, where members of a DAO can determine things like the ending of a film. Don’t get me wrong, there’ll still be a market for nifty NFT art that is its own thing, but I definitely expect the encoded utilities and use-cases to expand.”
Interoperability is another area where the NFT ecosystem must improve. “You should be able to take your NFTs with you into various virtual worlds, and to leverage them in different ways,” argues Read. “Interoperability is supposed to be a watchword of web3, but we don’t currently have enough bridges between distinct ecosystems, communities and metaverses. I think that will gradually change but it's going to take time.”
Play to Win
Read isn’t an investor who games; he’s a gamer who invests. As a kid, with Bitcoin merely a twinkle in Satoshi’s eye, the future Rarestone boss was immersed in Tomb Raider, Metal Gear Solid, Resident Evil and Final Fantasy, experiences that helped him understand and appreciate the economies underlying the latest wave of blockchain games.
Rarestone has invested in dozens of such releases, many of them in the burgeoning play-to-earn space. Projects like Himo World, a strategic puzzle NFT game built on BNB Chain, and multi-chain shooter Epic War mean he’s well placed to evaluate where the industry is headed. Will we all be acquiring digital goods and leading our virtual avatars into battle in the near future?
“You still have to make a compelling game, at the end of the day. There are a ton of web3 games out there, but a comparatively low percentage of them have re-play value. While I still think there’s a lot to be done on the education front, this first phase of web3 gaming has focused on popularizing the tech – onboarding web2 gamers, promoting NFTs and the creator economy, showing people what they can do, how they can earn, etc.
“The next phase needs to be focused on pushing boundaries and improving gameplay, really blowing people’s minds as to what can be achieved. Advances in smart home tech and wearables will of course feed into that. You want to feel like you’re in the game, not just playing it. And there should be links between virtual and physical reality: completing certain tasks in a metaverse might trigger an NFT payout which can be redeemed for a physical good: Super Bowl tickets, high-end headphones…”
Investors aren’t shy about opening their checkbooks when it comes to web3 games. Limit Break, a startup dedicated to building massively multiplayer online games, has raised $200m over two funding rounds. And Andreessen Horowitz (a16z) this year unveiled its own $600m fund focused on game studios, consumer applications, and infrastructure providers.
Read is correct to say that web3 games must improve, at least if any are to achieve true mass-market appeal. According to a recent survey, 51% of backers believe gameplay is the most important factor when considering bankrolling a project; with 31% saying graphics are most vital.
Talent entering web3 from gaming giants like Electronic Arts and Ubisoft will have a major role to play, and the opportunity to exercise their creativity in making the ecosystem all it can be.
Privacy is a Right
Alongside access to trustless financial protocols, and new monetization models linked to user-created content, a major theme in web3 is privacy: the ability for users to remain anonymous while moving through the cryptosphere.
Of course, this ideal is at odds with existing KYC framework whereby exchanges must identify customers to comply with anti-money laundering regulations. With data leaks all too common, and cyber criminals increasingly targeting crypto holders, privacy is destined to be a major battlefront between cypherpunks and governments.
“The truth is that KYC on most private wallets is a huge risk; we’ve seen time and time again hacks that result in massive data leaks, and they’ll typically be in the hands of bad actors,” notes Read. “That data is really dangerous and I think we’ll see a huge rise in targeted crime to people who hold crypto-assets.
“There are people doing good work to steer regulators in the right way, such as Coin Center, and there’s a lot of work to do but it’s being done. I also think CBDCs (central bank digital currencies) are a huge risk to the average individual’s privacy when it comes to purchasing. The ability for a state to freeze your funds or deduct money from you instantly if you speak out against them is a pretty bleak future.”
KYC isn't the only problem for crypto users aiming to preserve their privacy; vulnerabilities in certain web3 wallets also put them at risk. This year, blockchain security firm OMNIA uncovered a vulnerability in MetaMask that would let hackers acquire users’ IP addresses when they received airdropped NFTs.
Recent actionsby the US government, meanwhile, suggest privacy-preserving web3 protocols are firmly in the cross-hairs.
“We need to be aware of these risks and educate people on them,” says Read. “Censorship to this extent is scary. It goes without saying that people have an inherent right to financial privacy, and the burden of proof shouldn’t be on a user to prove they’re not a criminal. Over time, I hope consumers will better recognize the benefits of privacy in web3 because we definitely have the tech and the talent to offer robust privacy to users.”
