Bankless - 84 - Defining the Metaverse

Episode Date: September 22, 2021

This is a classic Ryan-and-David only episode. With no guest, we dive into David's recent article "The Metaverse Emerges." What is the Metaverse? Raoul Pal described it as digital fluidity on our recent episode with him. Composable digital objects, a network economy, scaling social structures... whatever it is, Nation States aren't ready for the incoming metaversal explosion. Are you? ------ 🚀 SUBSCRIBE TO NEWSLETTER: https://newsletter.banklesshq.com/  🎙️ SUBSCRIBE TO PODCAST: http://podcast.banklesshq.com/  ------ BANKLESS SPONSOR TOOLS: ⚖️ ARBITRUM | SCALING ETHEREUM https://bankless.cc/Arbitrum  🍵 MATCHA | DECENTRALIZED EXCHANGE AGGREGATOR https://bankless.cc/Matcha  🔐 LEDGER | SECURE YOUR ASSETS https://bankless.cc/Ledger  🦄 UNISWAP | DECENTRALIZED FUNDING https://bankless.cc/UniGrants  ------ 📣 TracerDAO | Perpetual Pools are now Live on Aribtrum! https://bankless.cc/Tracer  ------ ------ Topics Covered: 0:00 Intro 7:00 Cryptoeconomic Nation State 10:45 Seeing Like The State 18:50 Humanity’s Faustian Bargain 23:30 Seeing Like The Protocol 28:45 The Metaverse 32:00 Metaversal Objects 35:40 Centralization 39:21 Neutrality & Density 46:10 Slowly Manifesting 54:00 Avatars & Identity 59:41 Fluid Value 1:06:25 Ethereum’s Role 1:10:33 Blockchain Taxes 1:15:45 ETH as Metaverse Money 1:22:35 It’s All Metaverse 1:27:43 Closing & Disclaimers ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://newsletter.banklesshq.com/p/bankless-disclosures 

Welcome to Bankless, where we explore the frontier of internet money and internet finance. This is how to get started, how to get better, and how to front run the opportunity. I'm Ryan Sean Adams. I'm here with David Hoffman, and we're here to help you become more bankless. David, this is the part of the show where I usually introduce our guests, but our guests are going to be ourselves on this show. So how are you doing today, man? Oh, good. I am in Colorado. So a weird show in a weird place, but it's going to be a really fun topic today. You know, you say it's a weird show, but we used to do a lot of these types of shows in the early days of Bankless. So for context, guys, we're going to dig deep on a theme.

That theme is the Metaverse. David wrote this fantastic article. I think it's the best article I've ever read on the Metaverse. It's called The Metaverse Emerges. And we're going to discuss that in depth. But we used to do this in the old days a whole lot, David, where it would just be like, before we had guests, before anyone wanted to come on the Bankless podcast and say hello, it was just you and I digging through a topic together. There's something we'd given a lot of thought to you. And I know you've given a lot of thought to the Metaverse.

So this is almost like a throwback to our roots in the episodes we used to do where we would deep dive on a given thesis. Like the Protocol Sync thesis came out of this. Digital Nation, Ethereum is a digital nation. Etha's money came out of this. Even the bankless meme came out of some of these early conversations. So I feel like this is a throwback to our old days. Yeah, absolutely. We say behind the scenes of Bankless, that Bankless is a thesis.

driven media company. And when we stumble upon a thesis that I think we think is valid and deserves to be like shared and propagated, it's time to make a show about that. So it's been a while since we've come up with a new thesis, Ryan just listed a bunch of them off. But every now and then, I think we have some good ideas. And so we are going to explore this thesis and see how it can predict how the metaverse emerges, hence the title of the episode or the, yeah, the episode. I think this is like so this is also another lens through which you can see crypto right the lens of seeing it through like a metaverse essentially I tweeted this out recently is like

just super simple right so one if you believe everything is going digital right most people believe that you know two people like to own things right they like to own their own property everything going digital people like to own property well number three they're definitely going to want to own their own digital property, right? So like, two plus two is four. That's the entire thesis of crypto, right? Humanity is going digital. People like to own things. People are going to want to own digital things. That's crypto in a nutshell. And if you believe that's true, then like, crypto's got to have a bright future. And I think the metaverse sort of fits into that because what we're doing in crypto is sort of like, I guess the

metaverse is hard to define. Maybe we'll get into some definition of it. But what we're doing in cryptos, we're layering kind of this object permanence on top of it, this digital property rights system. Raoul Paul, when we had him on the episode last time, David, he defined the metaverse as digital fluidity. And I really like that concept too. But what are we going to be diving into today? What's the high level here? Yeah, exactly. extrapolating on what you said, once we have digital objects and objects that exist only on the internet, then it's up to the internet and the things that we do on it to build a world around those objects because we're not going to build a physical world around those objects. We already have a physical world with physical objects. Now we have

digital objects, but what we are missing is a digital world. But I think this whole digital world of which people have started to call the metaverse begins with a base of digital objects. And so the fundamental thesis about this whole idea is that the metaverse emerges out of a shared registry, a shared state of truth, a single source of truth of all known objects in the digital universe, or the metaverse. So that's like kind of the skeleton for the whole entire thesis. And then the other concept is that like the metaverse is rendered at the periphery, but the objects are stored locally, right? It's stored centrally. And we've seen historical anecdotes for this, historical references. And that's also kind of why I think this thesis has a

decent amount of like foundation to stand on is that we can look back into history and see a similar pattern emerge with regards to and this is where we were talking about with the emergence of like the whole bankless nation digital leviathens crypto bitcoin ethereum these are digital nations in the clouds but they are just extensions out of like these same social social scaffoldings that we've seen come before them hence the nation state and what does the nation state do really really well it provides like numbers and serial numbers and like business tax IDs it like it also likes to serialize an account for things that are inside of its domain inside of its borders and once the nation state knows what's inside of it and it serializes all valuable objects inside of it then it actually starts to build a civilization around that and that is kind of how the nation state has in it know there's many different ways to describe how the nation state emerged but that is one in my mind how nation states were born.

They discovered that they have valuable things inside of them, and they started to account for those things and build a world around that. All right. So if that sounds interesting, guys, that's exactly what we're going to be talking about today, how the metaverse emerges, how crypto is playing a key pivotal role in the emergence of the metaverse. David, I feel like since the beginning when we started bankless, it's really been a quest of us trying to figure out what crypto is, trying to figure out what Bitcoin is,

trying to figure out what ether the asset is and what Ethereum is. And we've used many different analogies and many different mental models. And this is yet another. But I think it's going to aid the listener in sort of understanding this space and also understanding, A, where to spend their time, because that's a valuable resource. But B, where to invest their money as well, right? So, like, I recall kind of early definitions of ether, even in 2017, some people weren't saying it's money. but they're saying, well, maybe it's money in a limited use case for ICOs, like ETH as ICO money. Then DFI came about, and it was ETH is defy money.

Then NFTs made a big splash, and it's ETH as NFT money. And we talked about ETH's supply scarcity in the future with EIP 1559. Heath is ultrasound money. And now maybe ETH is turning into metaverse money. That is kind of a tantalizing conclusion that I hope we get to at the end. end. But David, let's zoom back out to the 20,000 foot view here and talk about some of these bankless concepts that we've talked about before. You kind of hinted at them a little bit, but I think for people who aren't familiar with some of our previous episodes, some of the stuff maybe

bears some recap, but you talked about crypto economic systems as a nation state. We put out a bankless podcast called The Bankless Nation, all about this. Can you talk about that mental model for things? Why do we refer to things like the bankless nation? Why do we talk about Ethereum being sort of the successor to the nation state? What's the concept there? Right. So Bitcoin Ethereum crypto economic systems, they take a lot of responsibilities that nation states have and they take them and say, hey, we can do this better. Not all of them. If your houses on fire or if you have a robber in your house, you are calling your nation state services, right? Ethereum's not going to save you. But many, many other things, largely to do

with property rights management is something that we can actually outsource to Ethereum, to a digital ledger that exists on the internet, and especially for our digital goods. And so certain roles and responsibilities, we can actually take away from the physical nation state and add it to the digital nation state, which is a ledger in the cloud, which is Ethereum. And the best thing about these digital protocols, Bitcoin Ethereum, Crypto, is that they don't have borders, right? They are on the internet. And so we have seen this trend over time of society going from to larger and larger and larger social scaffolding structures. Nick Zobbo calls this social scalability. You know, it started with hunter gatherers, moved towards like feudalism. We'd

start then move towards religion, then towards nation states. And now we have these crypto economic states. And so we see humans adopting more and more scalable social structures that, have less and less restrictions, less and less censorship resistance, more and more credible neutrality, and operate at larger and larger scales. And so the whole concept of the bankless nation is that, well, nation states used to make the money, but now the crypto-economic protocols can make the money. Nation states used to account and have a property rights system, and now we can give that role and responsibility to the digital nation states. It's physical nation states have a court of law, and metaverse nation states have smart contracts, right?

And so some of the almost most significant parts of what a nation state does, in my mind, Ethereum does better. And the more and more that we can allow Ethereum to do that, the better, the larger of a global civilization we can become. That's just it, too. It's like, I think a big realization for me was after I read the book Sapiens, I know we've talked about that a number of times on bank lists by Yval Harari. And he talked about the major distinction between sort of, you know, animals and humanity is humans have the ability to share stories and coordinate, right? That's what all of our technology allows us to do, is to scale coordination. That's human beings superpower. I mean, we're smarter than animals, but like, not by a lot, right?

It's really when human beings kind of combine and form groups and create these shared narratives, the legal system as a shared narrative, an LLC, a corporation, these are shared narratives, money, fiat, all shared narratives. That allows us to scale, essentially, our civilization and our coordination endeavors. And that's what blockchain, that's what crypto is allowing us to do, too. It's a new social scalability technology that we've unlocked. Maybe we could spend some more time contrasting this with the nation state. So there's a book I know you've told me about that I haven't read yet.

But I want to read it. But maybe if I don't get to, there's a lot of books on my list. Give us the TLDR of this book. So it's called Seeing Like the State. And what's this book about? What's it saying? What were the takeaways for you after reading this thing? Yeah.

The book is about trying to illustrate a perspective of what it is like to see. like a state, as in take the perspective of a nation state. And this also alludes to one of the articles I wrote called the Digital Leviathans or straight up Leviathan by Thomas Hobbes. Thomas Hobbes illustrates the nation state as a composed body, a single body like a gargantuan titan, like walking the earth. Like that is the concept of the Leviathan. And the Leviathan, it's made up of all the people of a nation state and that gives power and control to like the executive. of branch, which is like the head of the Leviathan. And so what is the book seeing like a state is like, okay, what if you were actually the

eyes of this Leviathan? Like, what if you were the brain? And he talks... By the way, before you go on, David, what's so interesting, I think people don't think a lot about this, but the nation state is totally a human invention, right? So like, when did Thomas Hobbes live? Is this like 1700s? Yeah, I think he wrote this in 1781.

I hope that's right. And this was kind of like the... at the conclusion of sort of feudalism and aristocratic type powers and the beginning of the nation state era, right? 1700s, then in the 1800s. 1651, I was a little bit, yeah, really early. Okay, 1651, right? So, like, he was an early, I guess, philosopher, yeah, philosopher on the nation state. But before that, like, nation states didn't really exist, at least not in their present form.

Right. And so he was using this metaphor, the Leviathan metaphor, to talk about what? The citizens, the body kind of giving up some of their individual sovereignty in exchange for some basic services from the nation state, like military, in exchange for coordination, property rights, these basic services that the nation state could give it. But there's a sacrifice involved too, right? We have to, as individuals, we have to give up some of our self-sovereignty to this Levi's, to this Leviathan so it can like kind of conquer our enemies and help solve some some major

problems for us right right yeah and it also has its own aligned incentives with itself which isn't necessarily aligned with the people that compose the nation state there's a friction there like you have to give up some of your rights and the the leviathan has its own desires right and so that has what i called in the article nation state desires and the nation state desires are to extract as much value out of the land that it holds as possible. And so this is where it's like some of the things that we all abide by on our daily lives have come from. And as a reason, nation states, if they want to extract the value out of their domain, their dominion, they need to understand what's actually in it so they can actually figure out how to extract it. And that's where some of the like

these registries and accounting systems that nation states have come up with have been bestowed upon us as individuals. If you live in the United States, you have a social security number, you have a telephone number, the government knows where your physical address is. If you have a business, you have a business tax ID number so you know where like where your taxes are going to come from. And these numbers are like the more modern versions of these things, but they started even earlier, according to the book where like nation state like land assessors would go out and evaluate the land of landowners and say like, hey, this land is really fertile, and it can grow this much crops, six by six rows of aspen trees for lumber.

And this land will net this amount of yield on a yearly basis. Therefore, we can tax this land this much. And it's kind of, if you extrapolate that out, you see, like, you know, nation states form, maybe on like a little settlement on some land somewhere, and it grows and grows and grows, and it grows into nature, and it homogenizes nature. It orders nature. Nature is chaos and nation states are order and nation states need everything ordered perfectly so they can account for everything.

And that's why we have gone from... It wants to give all the trees, all the livestock, all the animals, a serial number and enter it into its centralized registry, right? It's ledger, if you will. And the more effectively you can do that, the more can tax the land. And the more can tax the land, the more can fund the military. The more can fund the military, the more powerful the nation state is. And if it's the most powerful nation state, then you get to order the whole world.

world, right? Like, this is an empire, like a quest to be like an empire, right? Like, maximum growth. That's what you mean by seeing through the eyes of the Leviathan. That's what the Leviathan sees. It wants to conquer the body of the nation state. It wants to kind of grow, colonize things. It wants to, you know, register things so that it can tax those things so that it can continue to grow. Right. Yeah. And that's where I put in my article this clip out of the Matrix movie where Neo is like pulling the stem out of the back

of his head as he's birthed out of the Matrix and then he looks around and he sees fields and fields and fields of humans as they're just being like sucked dry of their energy from like these robotic overlords like that is like that art that piece of art is illustrating the same point

all of these humans have serial numbers I'm sure right yeah like column number like 13 like row 34 or like unit seven. Like, oh, there's Leo. Wait, doesn't, doesn't Neo, it's been a while since I've seen the Matrix, but I got to like review because the new Matrix movie's coming out,

I definitely want to see that. But like, doesn't Neo have some sort of barcode on his arm as well, like in his real body? I think I think that's right. Yep. Mm-hmm. Mm-hmm. Right. Okay.

So I don't think that was on purpose by the, uh, by the actual director of the Matrix, but like, it's a one way like artists know what's up. Okay. So that's what the book is saying. If you're seeing like a state. you're trying to serialize everything, enter it into your registry, tax everything so you can grow. Is that sort of the theme of the book? What were the takeaways of that book? Is it like, is this a good thing? Is this a bad thing? Or is it just a thing that nation states do? It's just a thing that nation states do.

My biggest takeaway was that like nation states and nature cannot live harmoniously, right? Like nation states need to impose order upon nature and nature is inherently chaotic, right? And this is why indigenous cultures of the world have witnessed oppression from whatever nation state, like, they encounter. Nation states don't like indigenous people because they're nomadic. They don't, like, use the local fiat currency. The value they produce is, like, undefined and nebulous. And so, like, especially inside the United States, the United States of America have confined its Native Americas into smaller and smaller and smaller plots of land because, like, we can't figure out how to account for them. And so we just give them their reservations, and then we just order everything around them.

And this has caused a lot of strife in the world. The desires of the nation state are fundamentally misaligned with the desires of the human. And one of the core theses of the metaverse emerges is that Ethereum, as a digital rights management system, a nation state in the clouds, fundamentally improves upon that misalignment between protocol and individual, and allows the individual to, to live more harmoniously with nature because it doesn't impose nation state desires because it's a protocol. We have algorithmically removed the misaligned incentives out of a nation state by putting everything into code and saying, hey, you can't be evil anymore. Well, let's get into that in a second because I think you've maybe unlocked an interesting,

like an interesting quest there. But like I want to ask the question, do you think that is, is there some level of this? This is sort of a Faustian bargain that humanity has made, right? Like, we are seeking greater order to improve our technology to grow further. Therefore, we have to create order out of nature. And there are some detrimental effects in, like, doing that. I mean, we could have stayed as a species back in sort of agrarian societies, or even prior to that, like hunter-gatherer societies.

Would we be any happier? I don't know. that's a very difficult question to answer. It's an existential question. But that definitely has not been the trajectory. We have moved in the trajectory of more society, more civilization, more order out of nature. And on the back of that, have developed some pretty astounding things, some wonderful technology. Also invented some terrible technologies.

But quality of life wise, right, ask yourself, would you rather live today having this conversation talking about the metaverse? with all of the benefits of technology or in a hunter-gatherer society. I mean, for me, like, I would not last a week in an ancient society, I think. But, yeah, what are your thoughts there? Is this just not a trade-off that we've had to make as a species in order to achieve these advances

and these unlocks? Yeah, absolutely. United States, people, humans, have been making trade-offs as technology is a trade-off, right? Like we moved from hunter-gatherers to like the agricultural world and we moved from being like upright, athletic, like, you know, hunters to bending over back-breaking, like, farmers. And now we all have back problems. Like our backs aren't meant to like bend over and pick stuff up. And that's and also like grain is as a fundamental like part of the human diet, not actually the best thing that's aligned with us.

Yet it gave us the calories that we needed to make civilization to do things like learn how to like have hospitals. and like mend broken bones and cure cancer and make vaccines. So there's always tradeoffs. But also, new technologies can impose better tradeoffs than old technologies. And so while we do are capable of making tradeoffs that do kind of suck, we over time can iterate on improved technologies that allow us to make better and better tradeoffs. Hey, guys, that was all about seeing like a state. And now we are going to get into the seeing like a protocol.

side of this conversation, which is, of course, the beginnings of what a Metaverse is. Before we get there, we have to take a moment to talk about some of these fantastic sponsors that make the show possible. Living a bankless life requires taking control of your own private keys, not your keys, not your crypto. That's why so many in the Bankless Nation already have their Ledger hardware wallets, which makes proper private key management a breeze. But the Ledger ecosystem is more than just a secure hardware wallet. Ledger is the combination of the ledger hardware wall and the ledger live app. And if you're used to seeing all of your crypto services and favorite de-apps all in one place, Ledger is where you want to be. Not only does Ledger

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teams, including Ethereum's top infrastructure projects, and we'll be opening up to all users shortly. There are so many apps coming online to Arbitrum, so you may want to pack your bags in preparation for the Great Migration to the Arbitrum Layer 2. To keep up to speed with Arbitrum, follow them on Twitter at Arbitrum and join their Discord. Okay, so now let's look through the eyes of a protocol, right? So we saw through the eyes of the Leviathan and what that looks like. And you're starting to get into it. But what does it look like to be organized by a protocol?

How does the protocol see things? Isn't the protocol sort of trying to do the same thing? At some level, we've talked previously, David, about the analogy of Ethereum being sort of like a black hole. and it's just sucking all of this capital into it. Ethereum itself wants to organize the world as well. It wants to serialize everything, right? The whole idea in the early days when we talked about Ethereum is everything will be tokenized.

tokenize the world. Yeah, tokenize the world. This is Ethereum as sort of a different digital Leviathan, if you will, but it is pulling all of this economic activity into its ranks. It is trying to serialize everything, give everything like an eth address, a contract, ID, a serial number on Ethereum. It wants to take your bank account and serialize that as well. What's different between the nation state and a protocol like Ethereum?

Right. It goes back to what I said, is that it's all these digital items. And now, because they're digital, now we can start to talk about having sort of nation state in the clouds. But also, it's a lack of desire for growth, right? where the physical nation state is a top-down empire, the Ethereum nation state or the Ethereum Neo-Nation, whatever you want to call these things, is actually an opt-in nation,

as in we grow it rather than it growing itself, right? So we choose to make Ethereum larger by taking our capital and putting it into Ethereum. We choose to make Ethereum larger by figuring out how to tokenize maybe real-world assets or just like create new on-chain assets, right? So because Ethereum is inherently an opt-in system, like you are not born with your Ethereum address. You are not born with like your favorite NFTs.

But when you are born in the nation state, you are given your social security number. You are all ready. No choice. No choice. No choice. What your citizenship was. Right. What your social security number is.

You have no choice about kind of the geographic limitations of your physical presence. That's just assigned to you at birth. Right. And so like while Ethereum is on this same trajectory in the sense that it wants. to like envelop the world, it's because we choose it to do that. We only will allow it to envelop us of what we want to be enveloped by because that is our choice, because we are the people that are actually shaping Ethereum rather than like the physical nation state actually shaping us.

And so it's where the cart and the horse are related to each other. And in my mind, when we have these protocols working for us, rather than dictating to us how we work, we are more aligned with the world around us. What's nice, you know that portrait of the Leviathan? I think it was in your article, but it actually has like a weapon in its hand. Is it like a saber or something? It's a sword, yeah. I can't remember.

A sword, okay? So it's got a sword in its hand. That really symbolizes a primary weapon that the nation state uses, which is violence. The carrot. Eric Borges has been on, you know, talks about all the time, like, you know, the ability to throw people in cages. the ability to kill an individual, the ability to take violence on an individual. That is a right that we've only given to the state.

It's illegal for a citizen to do any of these things to imprison another citizen, for example. But the state has this ability, has this license over violence. The nice thing about something like Ethereum, these digital nation states, is no violence. They don't even have the power to instantiate violence. The worst they can do is like slash you

for like breaking a protocol rule, right? Which you opted into, by the way. You opted into, and they're fairly enforced. It's completely 100% transparent. You know exactly what you're getting into. And it's the collection of capital. So it's not actual physical violence. So the protocol Leviathan, the Digital Nation Leviathan,

has kind of a different, he has no sword in his hand. He has. Maybe it's code and algorithms. Oh, no. He has tokens. He has incentives. Right. Right. And so yeah, exactly. Take out the sword. It's all carrots, no sticks.

Exactly. Take out the stick, replace it with a carrot. When I made this image for the bankless Dow and I photoshopped out the sword and I replaced it with a bankless token. And Dow's are there only like mini-leviathans. And they have the one power that Dow's have is the ability to mint their own token. And that's the one thing that they get to do. And they get to use that token as incentives. Right. And so like it's incentives only. And that's why like there's in my mind going to be a lot. lot less oppression under a metaverse world that uses opt-in incentives versus nation-states which control and coerce you. Okay, so we've gotten to this state where we've, I think, established what a digital

nation is and how a protocol sees things in a different way. It still wants to coordinate, still wants to serialize. It doesn't use violence to do that. Only uses incentives. Only uses carrots, no sticks. So far, we haven't really talked about the concept of the metaverse, right? And the metaverse is something that's very hard to define, right? A lot of people might define it as kind of like the entire, you know, human digital experience.

Like the internet is part of the metaverse. But in your article, you talk about objects, object permanence being a key attribute that's required to manifest the metaverse, maybe a ledger of object permanence. Can you talk about what you mean by that and how crypto fits into that? So we created digital scarcity with crypto. That's what Bitcoin created. And that's not actually enough to create the Metaverse because BTC and ETH and fungible currencies are, the fungibility doesn't allow for unique objects to form.

Because they're fungible, like if you have two dollars, well, or two single dollar bills, we actually have $2, right? That's the one thing that you have. And so like the fungible nature of currencies can't allow for digital objects. And when we talk about the metaverse, we're talking about a version of a universe that behaves like our physical world. And so we need non-fundable assets. And there's no surprise that like this whole metaverse phenomenon is coming on the heels of like the two NFT manias that we've seen over the last year or so. NFTs or whatever non-fundable tokens can represent digital objects that,

can actually interact with each other. And that's really, really important. In the same way that, like, I have these two objects here. I've got a coffee mug and my phone, and in the physical world, they collide, right? If they were fungible, the atoms and these objects would just, like, mesh. They would just come and form, like, a blob. They would just come together. But since they're separate, each one is, like, you know, unique.

Each item I have is non-fungible. Now that we have non-fungible objects in, quote, unquote, the Metaverse on the Ethereum ledger, we can have objects that collide. And so, like, I have a handful of ERC 721 items in my wallet. They're in the same place. And my wallet is like, my Ethereum wallet is like my Ethereum address, like my, but in the same way that, like, my nation's say address, my home address is my address. My Ethereum address is like, oh, these objects are in the same spot. They're owned by the same individual at the same address, at the same location.

And so these objects are allowed to collide, right? And so these objects on Ethereum, these ERC 721 tokens, are going from address to address to address interacting with each other. And that is kind of the very bare bones of what creates a metaverse. That goes from just having internet currencies and an internet ledger into having an actual metaverse. That is what unlocks the metaverse, is having digital objects with digital properties that are able to interact and collide with other digital objects and their digital properties. So you may you have this line, I think, in the article, the Metaverse, you said, is the shared registry of metaversal objects, which is kind of a different definition than I've heard before, right? So most definitions of the Metaverse are somewhat like vague, right? Like we don't really know what exactly they mean, but you think this shared registry is really important and this idea of object permanence with like registered. items is very important. Can you get like talk about that a bit more and can you get a bit more concrete in terms of like what you actually mean? So when people, I think the clearest

representation of maybe the metaverse is like the ready player one movie where we all put on our VR goggles and we're in some completely digital world surrounded by digital objects and, you know, digital avatars and all of these things. Is that, what you mean when you're talking about the metaverse is just having something like Ethereum be the registry, the property rights layer of all of those digital things or help us understand this? Sure. Yeah. It is really important that there is a single shared state of truth and this alludes to like kind of they're kind of needing to be one one single shared state of truth. Right. Like we have a lot of conversations about like all these different blockchains out

there. Each blockchain offers its own metaverse. But the objects in one blockchain, one L1, can't go on to a second L1 because they operate on different codes. They are on different protocols, and those objects can't interact. And so objects on Ethereum, because they're all on Ethereum, they can interact. And Ethereum having the most diverse and rich landscape of non-fungible tokens is kind of why we're talking about Ethereum. It is where all the tokens lie. And now you talked about like the Ready Player 1.

Now imagine, and we just came out of this whole like loot phenomenon thing, right, where loot tokens are these tokens with eight properties in them. And now people are making like websites that you can load up your loot bag with all of the eight items inside of it. And then a character emerges on that website holding like your scimitar and your chest plate and your boots and your robes or whatever. And so like now that these tokens actually have properties, they can be bestowed upon a character on a website. And then that character can go and interact in like whatever world is created on this website based on the properties that they have, right? And so, like, say there's this website that has this game and, like, in order to get to, like, level two, you need to

be an owner of a scimitar. Like, that's what unlocks level two. And this portion of the metaverse can understand and acknowledge the existence of an object that is inside of your Ethereum address and then change the state of the world based on the objects that you have. And that is kind of the early primitive of the metaverse. And so like if we're talking about like a ready player one, say so we have like this massively successful ecosystem and like you can have like maybe you have a digital car and it's inside of your digital house and like you have your digital crypto punk as your avatar. So you have your crypto punk in your car in your house and all these objects are assigned to you because you own them because you own the private keys that owns the address at which they are at which

they lay. And so now that all of these objects exist inside the same plane of existence, which is the same shared state of truth, all of these objects can relate to each other, and we can actually recreate the properties of the physical world in the digital world, which is what the metaverse is. Okay, so a question there, right? So what we're talking about is really a digital registry of objects, okay? But you can have that in two forms. So you can have that in the form of a centralized database registry of objects. Or you can have that in the form of something like Ethereum, which tries to preserve decentralization, censorship, resistance, you know, immutability. No one can arbitrarily change the rules on you.

Do you think that there is going to be a place for a centralized registry of objects that exist alongside. of something like Ethereum, which is sort of a decentralized registry of these metaverse objects, will they kind of coexist? Are there some cases where decentralized is needed? Are there some other cases where centralized is needed? Yeah, and this gets into people's loosely defined ideas of what the metaverse is. When people say the metaverse, like, just think of this ready player one thing. But like, I think what people are coming to understand is the metaverse is going to be,

it's not going to be one central place. And so while there can be like central databases that have, you know, a central registry of objects, if that database is siloed from Ethereum, then we just have like the World of Warcraft database or the Fortnite database. And that's what we already have. Or the U.S. government database or, you know, the China digital property management database, for example. Totally. Right. As soon as these centralized databases become more interoperable with Ethereum.

and honestly that's what roll-ups are for because what is a roll-up? Like Arbitrum, I'm pretty sure this is right, has a centralized sequencer, right? And so, you know, Fortnite can spin up their fork of Arbitrum, have a centralized database of which they control. Then you can play your shooty-shooty-shoot-y-Fortnight game, come out winning an item, and then you can take that item back to Ethereum, and that's what creates it the Metaverse. Your ability to take that item away from one part of the Metaverse and then take it to another part of the Metaverse. And so there are like two domains in Ethereum right now that

I'll bring up. One is Axi Infinity. The other one is God's Unchained. The tokens in these parts of the Metaverse, and the reason why they're part of the metaverse is because they're on Ethereum, do not interact with each other, but they can value, can flow from one to the other. So you can play your Axi infinity games, make a bunch of money, take it over through Ethereum, through the liquidity layer of DeFi, and then take that over to God's Unchained. And then you can, the, state of the games that you played on Axi Infinity can actually allow you to buy other cards on God's Unchained. We can take this even a step further where like maybe for some whatever reason, Axi Infinity and God's and Chain decide to collaborate. And they actually acknowledge the same tokens.

And so like you have a token that works in Axi Infinity that gives your Axi character some item, some gift. And then you can take that same token over to like Gods Unchained. And it also impacts the way that you play that game over there. And so now this is where that shared state, that shared registry of items becomes really, really important because it allows any ecosystem, which wants to freely and openly plug into Ethereum, to answer to the same registry of objects.

And so we can all acknowledge these objects that we all share together and have the metaverse acknowledge them, rather than having a central metaverse, we have the metaverse just opt into acknowledging all of these digital assets. I guess blending a couple of other thoughts that we've talked about on bankless into this a little bit. Like maybe there's two concepts that it kind of come to mind, right?

Because so my take on this, David, is that we will have like centralized registries of property, as well as like these decentralized registers of property, settlement layers of property. but the decentralized ones will essentially accrue the highest amount of economic value because these are the most trustless layers for us. So if you get to a situation where let's say China had a digital property management system and the U.S. had a digital property management system, right? And those two countries, for whatever reason, no longer trusted one another, you know, broke some treaties, something bad happened, right?

then how do you arbitrate those disputes? Well, you've got this intranational thing that's outside of the purview of the nation state called Ethereum where you can settle higher stakes disputes. It's more credibly neutral. Either China or the U.S. can use the same system and be treated in a fair way because neither of those two countries own the system, right? So one concept we've talked about before is the protocol sync thesis, where basically the most credibly neutral, legitimate, most decentralized settlement layers,

property settlement layers kind of start to sink to the bottom and form the basis. They are the most dense material and other more centralized, I guess, property management systems rest on top of these things. And so then you also get, to the extent that becomes true, then you also get another concept that comes in here, which is like the concept of economic density, right? Where one tradeoff for decentralization is like lower throughput, fewer transactions per second, right? Things like Ethereum are scaling, but they're never going to scale at the rate something like Amazon Web Services does in a centralized way, right? So like it'll always be a fraction of the scalability of a centralized service. But like what you can do when you preserve, you know,

the trustless nature of something like Ethereum, the trust. guarantees is you can settle very high-stakes economic transactions. And so what we'll probably see is for every single transaction on something like Ethereum or even even a roll-up, more and more value will be like compressed into that transaction space. So if the average transaction like today on Ethereum is, you know, $10 in an Ethereum transaction, right? Like maybe 10 years from now, maybe, you know, 30 years from now, maybe that'll be like millions of dollars, maybe billions of dollars. Maybe it will be the entire economic activity of a roll-up, which is like an entire nation-state GDP rolled up into economic transactions on Ethereum.

So do these two ideas fit into what you're talking about as we think about like decentralization versus centralization, the idea of critical sync, the idea of economic density and, you know, collapsing toward the most trustless layer. Yeah, and we can see that play out in the current NFT markets right now. But I'll start with credible neutrality. And that's why Ethereum has had such a strong emphasis on credible neutrality and the crypto space as a whole. And why projects are in the space that sacrifice credible neutrality don't see the adoption

that they do. And I think people have in the back of their minds that like when you sacrifice credible neutrality, you sacrifice like almost the entire metaverse, right? because it has to be an open source software that the Metaverse is built on. Because no one wants the Metaverse by Facebook, right? I'm sure it'll be like really fun and easy to use. But like it'll also be just like a complete dystopia and top down control. We have to have fair rules, right?

Fair rules. We have to have the, I mean, decentralization to me is like an anti-corruption technology, right? And Facebook is very corruptible. All you have to do is know one person. because majority shareholder rule over Facebook, and you can corrupt that entire system, right? So anti-corruption technology has to be at the root of these things. Right, and that's why Bitcoiners are all very, very strong about, like,

don't change the rules of the system. You can't change the rules. And if you change the rules, then the whole idea about Bitcoin is that it offers very, very strong foundations. Ethereum has those same principles. We need to figure out the best way. to make the long-term sustainable foundations. And once we do, we make those foundations rock solid.

And the ethos of free open source software on Ethereum is, I think, one of the reasons why the Metaverse will emerge on Ethereum, A, because it adheres to the credible neutrality of the whole entire system, is also Turing Complete, which you have to have Turing completeness in order to build the Metaverse. And like the combination of those two things, like foundations that don't shift, permissionless building upon a shared state of truth. and inherent credible neutrality in the whole entire system, those are the ingredients for what creates a metaverse.

And that goes back to what I was saying, where the metaverse won't actually be one thing. It'll be rendered at the periphery, as in like the metaverse will look different based off what part of the metaverse you're on. Are you in the Fortnite metaverse? Are you in the Axi Infinity Metaverse? Maybe you're in the Zoom chat metaverse.

But so long as like the, and it can be built as needed by local servers, local centralized servers so long as the valuable things that are in the metaverse are adhering to the concept of what you were saying economic density and the valuable things so long as the valuable things adhere to credible neutrality the periphery of the metaverse can be rendered however it doesn't doesn't matter like if a GPU crashes it doesn't like you know mess up your objects so let's say you have like you know $50,000 loop robes I have no idea how much these will cost in the future of

course you you have no problem bringing those into a virtual universe like a World of Warcraft or something to that effect because you still own that object. But it's fine if the universe you visit World of Warcraft like everything else is centralized so long as your, you know, your $50,000 item does not rest on Blizzard Entertainment and their shareholders and kind of that as its property settlement layer. That's what you're saying, right? That's exactly right. That's exactly Right. So, David, like all of this transformation, maybe we're in the metaverse, like, right now or we're on our way toward the metaverse. Maybe crypto is kind of the, like, the opening shot of the metaverse and how we'll describe it in future generations.

But like, everything you're talking about, how long is this going to take before we're fully inside these virtual, you know, worlds? Do you think in like five years time, in 10 years time, we're going to be inside of these? Or do you think it's going to be so gradual that we just like won't even notice? Right. So in the article, one of the things I wrote is that there will not be a specific Genesis moment or location, but rather the Metaverse will slowly manifest all around us. The Metaverse will be a composable universe whose objects are shared and interactive. And so like the Genesis moment of the Metaverse, was that like the Internet?

The Internet itself? was that the first moment of the Metaverse? But when did the Internet actually even come about? Was it when two computers connected? Was that the first moment of the internet? Or was it when the first Bitcoin block was mine? Was that the Genesis moment of the internet? Was it when the first NFTE on Ethereum was minted?

Like, when does it actually begin? And so, like, the answer to your question, the Metaverse exists already. No one knows when or how it started. I think we can all agree that it's in its very, very nascent form. but like it's becoming more and more real as more and mirror technology is answer to a single shared source of truth of objects it becomes more and more real and I think your question implies like when is the metaverse can be here I think like everyone in their mind is goes back to

that ready player one like when can I put on my VR goggles and exist an alternative universe yeah I mean people mean when they ask that right so like I mean at that point we have to go talk to VR experts and say like hey when is this going to be ready when are when is there's going to be an MMRP inside of VR that also answers to objects that I have on my Ethereum address. And like, I'm on Kathy Wood's side of things in the sense that like the future is coming way faster than people think it is. And the best thing about the Metaverse is it has an inherent financial incentive to build it. Everyone, there's financial rewards to building it. And that's why this NFT mania has happened so quickly. And so like the financial compensation

for helping this come about is absolutely massive. And there are definitely teams who are working on video games that are digitally asset-powered. And I think, I don't know, I'm going to go ahead and say, like, there's going to be asset-powered VR games within five years. But maybe, like, maybe to your point, the whole VR thing is a distraction, right?

We're all looking towards, like, eventually it's going to be Ready Player 1, and that's the metaverse, and that's when the whole thing starts. but like if you just measure as a proxy the amount of time over your lifetime that you have transitioned from spending it on like analog things real world things versus like digital things um i bet you'd notice some just a massive increase right like the time you spent in front of a screen for instance is one measure has that gone up or down like throughout your life right

It's you to the point where, like, people don't even go to the bathroom without, like, having a screen, like, really close to them. You know what I mean? Like, it's just, we're always on screens. And so that's one measure. And how about, like, your economic activity? What are you actually producing? Well, like, we've gone from a society that has actually, like, produced real concrete things and spending our time doing that sort of labor to, like, all of my output is, is completely digital, right? you know, we talk about communication, how that's transitioned. I mean, when's the last time you wrote a letter to somebody, right? Like, but all of our communication, I communicate more than I ever have, and to more people than I ever have. But like the proportion of that that's turned digital, it's like 99% now. What about your financial portfolio? Is that nation state bound or how much of that is non-nation state bound

and actually on Ethereum instead? Well, that's another flippinging, right? And it's like, nation state bound versus, like, not nation state bound is one dimension. But like, if we just talk about digital, right, man, it's already digitized, right? I just like, I keep a $20 bill on me in, like, in my pocket just in case somebody needs cash for something, right? But like every once in a while. But actual, like physical dollars, fiat currency, I almost never use anymore. And I haven't for a long time.

Right. So like this is the trajectory. everything is becoming more and more digital. And so we probably won't even notice as we enter the Metaverse. There are definitely these milestones, right? Like birth of the Internet, birth of digital scarcity and crypto, just like creation of like the first NFTs and tokens. But, you know, maybe the mobile phone is definitely another piece of that puzzle.

But like, I don't know if we'll really notice as we enter and as we transition unless we look across like decades and kind of measure how we're spending our time and our whatever where our outputs are going. Well, probably the thing that we're going to notice the most is that like our kids are way more into the metaverse than we are. It's like they found corners of the metaverse we didn't even know existed and like that's kind of when we'll really know. It's like, oh yeah, it's for sure here. Yeah, absolutely for sure. Well, David, we've got some more things to cover it. I want to talk to you a bit more about identity and how identity can be a metaversal object.

And also talk a bit more about items. Maybe we'll hit on the loot phenomenon. And we've got to end by talking about Ethereum, what this means for Ethereum and ETH as an asset. As I said at the outset, the metaverse is another way of looking at what Ethereum is actually going to accomplish, what it's going to do in the world. So we'll link that in. Guys, before we do, we need to thank the sponsors that made this episode possible.

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value to contribute to the Uniswap Dow? No matter how big or small your idea is, you can apply for a unigrant at Unigrants.org and help steer Uniswap in the direction that you think it should go. That's exactly what we did to get Uniswap to be a sponsor for Bankless, and you can do the same for your project. Thank you, Uniswap, for sponsoring Bankless. All right, guys, we are back. David, man, we're talking all about the Metaverse, how it emerges, what it's going to look like. And talking about how we would transition into the metaverse. I think one thing if you watch like Ready Player 1 or something like this, you see this concept of an avatar where individual might be a certain way in their physical life,

but they actually get to select their own identity in the metaverse and be sort of a different character, a different person. I think this concept of identity in the metaverse has some implications. So what are your thoughts on this? And what did you write about it? Is this one of the objects that need to manifest and have permanence is an individual's identity. Yeah, and I think this is actually useful if we back up and go back to the nation state concept of identity just to set the stage once again. If you pull out your ID on your like nation state driver's license or ID card, like it has your physical properties on it because your physical properties are really, really good for identifying who you are. So like your skin color.

Age, height, weight. Age, height, weight, eye, color, skin, color, like, gender. And then, so this is the, like, this is just your physical form, right? These are, and you can't change these things. And that's why, like, it's a representation of your actual DNA. Ethereum doesn't know, nor does it care about any of these things. It doesn't care about the physical manifestation of your body. It just cares that you are an actual individual.

And so after that, you can kind of become anything on Ethereum, right? you can actually lose connection with your physical form and choose to manifest yourself on in the metaverse however way you see fit. And this actually kind of goes into the same kind of concept of like mindfulness meditation. Mindfulness meditation is about learning to discover the entity inside of the body, inside of the mind that's actually separate from the body itself. So when you go and look at the in the mirror, you see your reflection, but that's not actually you. That's just your body. You are something else. And on Ethereum, it doesn't care about your body.

It only cares about you. And so with Ethereum, and then like this definitely gets started with like the NFT avatar movement, but I definitely think it gets more rich and diverse from there. You can pick a representation of yourself that you actually feel on the inside. Like, and so like when I was perusing for my crypto punks, I was scrolling through properties of crypto punks that I resonate with, right? I didn't pick the Cryptopunk that smokes cigarettes because I don't smoke cigarettes. I picked the Cryptopunk with a hat because I thought it looked cool.

I actually don't even wear hats. I just thought the hat looked cool. So I guess my Metaverse version of myself does wear a hat. And it can get even crazier than that. You don't have to actually carry any of the properties of your body into the Metaverse. It can be a complete blank slate of identity

on Ethereum. And you can use these NFTs, these ERC 721s, as representations of who you are. And it also, importantly, doesn't actually have to be a profile picture NFT. Like, it doesn't have to be a penguin. It doesn't have to be a crypto punk. All identity on Ethereum is, is specifically ERC 721s located inside of a specific Ethereum address. That's all identity is. Even if it's just Fidenza's or like Arblocks, one of ones, any sort of NFT, distinct from ERC 20 tokens, right? Because like if I have a wallet with like MKR, ETH,

and unitokens in it, there's like 10,000 other wallets out there that have that same permutations of ERC-720 tokens. But when it comes to ERC-721s, that's how you actually make a unique address on Ethereum by having unique tokens represented inside of that unique address. And so by curating a collection of ERC-721s, which represents your taste because these things are unique and therefore culturally significant, you can actually dictate your taste out to the rest of the world. And so it's kind of like a black box of like, we don't know who the person is, but we can see their taste, their digital representation of their unique assets in their Ethereum wallet. And maybe one of them is a profile picture NFT. But like, really, according to

Ethereum, there is no difference between a profile picture NFT and like an art block. They're just ERC 721s. It's when humans view these things that actually bestows like an identity layer on these things. All right. So this Ethereum mattress has like three Fidenzas and an ether rock. They don't own any profile picture NFTs, but they're clearly somebody that really likes high status NFTs. This person only has like a single pudgy penguin. That's that's who they are. And so these entities, we can, while they can't actually, like the spirit of a human can't actually be on the blockchain, like it can instead choose ERC 721's to actually manifest itself on the blockchain.

It's so interesting, right? Because like this idea of avatar is far older than Ethereum, right? Like any chat room you enter, like even on Twitter, you can create an avatar based on any JPEG, any image that that you can find and it's all free. But what's interesting about what you're saying, this idea of object permanence is of course like NFTs aren't free. They are unique and they have some economic value associated with them. And you mentioned the term signaling, right? And because of that tie to economic value that's associated with them, because of this ability to select and trade,

and because these avatars actually cost something, they send a completely different social signal than a free piece of clip art that you might find somewhere on the internet and that anybody can replicate, and that's not verified in the Ethereum registry. And I almost wonder if it's like these kind of like social signaling dynamics that are key to instantiating the metaverse as sort of a more organic type of structure and why we haven't, why crypto is going to foster its emergence.

You remember that conversation we had about memetic desire, right? Like, you can't really get mimesis, memetic desire, the desire to copy another human being for a free piece of clip art that doesn't have any digital scarcity. But you can when you see something like a cryptopunk. And you're like, wow, that's a what, flashing that cryptopunk. That like means something. And so I wonder if the 721, ERC 721, helps to instantiate these sort of like basic human like needs and desires. and social signal and creates like the status hierarchy, I guess, that we have in the real world and we see without even knowing it, and it replicates that into the digital.

Because that's what I've been thinking of as you're talking about. Like, what's the difference between an avatar that you have to pay for that's registered to Ethereum and like a random piece of, like, clip art? I mean, you could be a, you know, a, I don't know, a sausage if you want in your avatar for free. Or like, you know, a peanut, a human peanut or something. You could be a frog. you'd be whatever you want, not have to pay it. What's the significance of the ERC 721?

Yeah, I think really the answer is that, and you touched on a really important point where you have to actually pay for these things. And when you pay for something, you are signaling to the rest of the world that you value that. And when someone takes a peek into your wallet and they see all these 721s, they are getting a glimpse of what you value. And so what is your identity other than what you value? What we value kind of impacts who we are. And so, like, it's a very pure form of, like, okay, this individual really values these things, these NFTs, and these NFTs have these properties.

Maybe one's a crypto punk. Maybe an NFT is, like, a credit for, like, donating towards some charity or some public goods. And that is indicating who you are. So going back to, like, removing, like, the meat space atoms and DNA around a soul, when you, a soul, a spirit, like, chooses NFTs to represent them, they are choosing. choosing to communicate who and what they value to the Ethereum community, to the Ethereum blockchain. And so you take a peek at their NFT portfolio, you're taking a peek into their values, what they choose to value. And I think there's also something to say about just how like the color of your skin or like your background, the country you came from. So much

of society, unfortunately, bestows values upon accidental properties. Like the color of your skin, that that does not work in the world, in the, in the metaverse, right? Like, just because, like, white people have, like, an accidental positive bias, like, that actually doesn't translate over to the metaverse because that doesn't work. You don't have a white-colored skin Ethereum address. And so we are actually able to rid, get rid of our biases that aren't actually communicating anything of value. And instead, we get to bestow our Ethereum address with things that we actually value that

actually do communicate to the world what we value. Yeah, that's interesting. And that's definitely a very hopeful explanation. I do also wonder if we'll just create new biases in the process, right? Maybe some of these biases will be based on, like, wealth and capital. And so, wow, you have a crypto punk? What does this mean about this person as an individual? Definitely, it means that they're wealthier than the average individual, for sure.

But yeah, I guess it's super emerging. guess maybe what's interesting about it too is we just found a way to replicate the social signaling that we have in the real world now in the metaverse and in the digital world. We haven't had the ability to do that before. And I think that is definitely a meaningful milestone in humanity's transition from the analog world to the metaverse for sure. Let's talk about this. Oh, you want to say something on that? Yeah. So there's also the topic of just like you can actually have more than one identity, you can spin up multiple Ethereum addresses and each have them represent different sides of yourself, which is something that you can't do in the physical world, like you can't put on a

new face. And like, I'm reminded of our podcast with the Dros Rosenthal about the Crypto Renaissance where like in the Renaissance, we had pre-Rennaissance, we had these like planer 2D profile versions of art. And then after the Renaissance, we had these 3D photo realistic versions of art. and I kind of think there's going to be a similar paradigm shift with identity, because not only can we choose our identity by choosing what represents us, but we can choose what represents us at different times. So, like, I've gone back and forth between my Cryptopunk avatar and my Pudgy Penguin avatar and my cool cat avatar,

just how I feel. Like, what is my mood today? And I can, like, create a digital identity for myself that is more aligned with my current state of mood or context of what I want to be in, right? And so, like, maybe I choose one Ethereum, wallet, which has no association with another Ethereum and wallet, to represent me for my professional business ongoings and, like, the suit and tie, David, or I'm, like, in video game mode, and I want

my crypto punk on. And so I'll choose that identity. And so, like, having a fluid identity where we actually aren't fixed into one specific version of ourselves, I think is going to, like, be a zero to one moment in the world of actual, like, identity. And back to Ethereum's role in all of this, it's to serialize all of these objects, right? So you're talking about loot earlier, it's serializing all of the items and objects, but it's also going to serialize all of the identities as well, including if an individual has kind of multiple identities that they want to portray in addition to serializing all of the assets. So maybe we get to kind of the final discussion point here, David, which is how Ethereum fits into the mix here as a system. And you called it the economic foundation

for the Metaverse. You said a Metaverse requires at least three things. Number one, an asset registry. Number two, a layer of financial applications, a banking layer. And number three, an economic engine. And you say that's what Ethereum is. It's a registry of tokens. It's a composition of Defi applications.

It's a native money and economic system. And when you compose it together, it becomes essentially the economic foundation of the metaverse. Can you get into that in a bit more? Like, how important is Ethereum to this whole emergence of the Metaverse? Is it the core thing? Is this what's going to cause it? I think so.

And with the current state of the Metaverse and Ethereum, going back to like what I was talking about with, like, we have the Axy Infinity realm of the Metaverse, and we have the Gods and Change realm of the Metaverse. These are disparate, discreet, separated parts of the Metaverse, but what connects them is their underlying association to Ethereum. So like I said, you can go and do a bunch of gaming and Axi infinity, make a bunch of money, pull it out, and take it over to Gauzen Chain. But when I say take it over to Gauze unchained, like you've got to sell your Axy money, your smooth love potions or your axes, and you sell them using DFI. Defi applications, using the financial banking layer. and then you can translate that value into Gauzen chain tokens,

Gauzen chain cards. And so it's this underlying financial layer. And no wonder why DFI came first in the progress of Ethereum before NFTs is because you have to build objects on top of financial applications because that's how we value the objects. And so DFI is like this early financial primitive, this financial backbone that allows the metaverse to be built on top of it. And so more and more.

realms of the Metaverse will just get appended onto Ethereum because Ethereum is a permissionless open source piece of software. And so different areas of the Metaverse will be built. And before we figure out how to make assets seamless in all of them, they will be made seamless by their integrations into DFI. So DFI will be the coupler, the initial coupler behind all of these separate parts of the universe where like maybe the tokens aren't interoperable, but the value is. And so labor can actually get translated from one part of the Metaverse to another, using defy. And of course, that is facilitated by Ethereum's economic engine, proof of stake, and also EIP-1559, and that supports the financialization of so many different things and all the, and the

tokens in the financial layer. And then that is what then creates the ability to have a metaverse on top of those things. And so ultimately, everything collapses down deeper and deeper towards, again, the protocol sink. Got the NFTs and the metaverse on the top. Got the defy in the middle, you got the Ethereum L1 at the bottom. And that's why Ethereum has always been so focused on security, security, security, like, we are going to secure the whole entire metaverse. And so no, like, we can't have proof of work. We can't have wasteful electricity spending. It has to be the most secure consensus protocol possible because think of how incredibly valuable the metaverse is going to become. We have to optimize for security. And that is why so many of the

developers of the Ethereum protocol when they are working, they are working to make the strongest economic foundations for the Metaverse possible. And that has been like the Ethereum R&D effort over the last like six years. I really feel like Ethereum as an economic engine for the metaverse is going to be a narrative that takes hold, not this year, maybe not next year, but definitely in the years to come. We're a bit early on some of the other Ethereum narratives, like, you know, ETH's money, defy all of these things. I really do feel like the metaphor, is going to be sort of the necks unfolding. People recognize that this is the property rights and settlement layer and economic

engine of the metaverse that we're creating here. And God, how much value is going to be poured into the metaverse in the coming years? So I guess listeners, like, prepare yourselves. One other thing as we talk about this, David, this kind of comes full circle as well to our concept of the nation state. Remember, we established that the nation state earlier is an entity that likes to serialize things like serialized objects and individuals and people and identities and all of these things in order to collect taxes in order to grow. What's interesting here is I see a similar dynamic

with Ethereum. So it's serializing all of these things in order to collect taxes in order to grow. Now, we don't often call gas fees taxes, but we have on bankless before. In fact, that's kind of an interesting model to think of all of the network fees, all the transaction you fee fees you pay for on a chain, on Ethereum are actually taxes. These are taxes on the objects themselves. And these are, I guess, utility taxes, right, excise taxes. So like when you spend something, when you do a transaction, you have to like pay the toll. So it's kind of a consumption-based tax. But also with EIP 1559, Some of this transaction fee gets burnt and gets sent to who?

Anybody, effectively, that owns ETH in the form of reverse dilution. It's almost like sort of a dividend, if you will, only it's kind of burnt to any ETH holder. Can you talk about that a little bit? Do you see this relationship between the nation state and taxes and Ethereum in taxes in how it charges for its gas fees? Yeah, totally. And when EIP-159 came out and I wrote that article, the final puzzle piece of Ethereum's monetary policy, that is exactly how we illustrated it, is that these are how Ethereum collects taxes. All economies need to have some sort of value capture mechanism in order to secure itself. It just so happens that nation states don't have a stop for that.

And so nation states are like, oh, we need to collect taxes so we can fund the military, but we can collect more. and then after that we can collect even more and after that we can collect even more but Ethereum by the way we've got these other hidden taxes called inflation right so we could just increase the supply and not even tell you about the tax right totally Ethereum on the other hand

it taxes you based off of your consumption of a public good it is a pay per use it doesn't tax you if you're not using it and so like Ethereum has a public good it's called block space we can't have too much of it otherwise it wouldn't be decentralized and in order to use this block space, you must pay the going rate as determined by the market, which is the same rate that everyone else is paying at that one moment.

But it's inherently fair, incredibly neutral, because you aren't paying, you are by definition paying your fair share. And so, like, it's, in my mind, it's a very elegant mechanism. You also talked about, like, what happens when all of these objects in the Metaverse, objects is actually, I have very limiting coding knowledge. but I do know that objects is a code relevant term. That is a technical term in the world of code. When you like, I heard the code say like grab.

Something that has state, basically. Right. Something that's state. Like you grab an object. On Ethereum, now that we have all these objects and like we said, the metiverse is a shared state of objects. And importantly, that shared state allows objects to collide and interact. Right. So like my, my, my, uh, armor also like has properties that might help out my sword in like

world of warcraft. And these objects interact when objects and like objects are, Ethereum, they have like contract calls. You can call an object. And that means that two objects are just colliding. And when the Metaverse has tens of thousands, hundreds of thousands, hundreds of millions, hundreds of billions of objects floating around in the Metaverse, A, that each one has its own serial number because each one had to be like manifested in Ethereum by a transaction. But now every time an object collides with another object, that is also another transaction on Ethereum. It's likely going to be on a roll-up. That's what roll-ups are for.

But like all of this economic activity, this vibrancy of objects interacting with objects, interacting with objects, creates an economic engine. It is the heat of the economy. And then EIP-1559 captures a portion of that heat to recycle it into the Ethereum economy to make sure it's secure, make sure it's going, make sure the engine is fluid. And that is the model of the metaverse. And that is, in my mind, really, really bullish. It's really bullish. It's so cool. I mean, so like, I guess maybe the last piece to talk about before we get to sort of, you know, summing this up and concluding this, is we've talked about Ethereum as sort of the, you know, economic engine for the Metaverse. And we've always differentiated Ethereum as a network from ether as an asset, ether as a money that is, you know, an asset within that system, within that network. And so why not talk about the ramifications? of ETH. At the outset, we talked about the different narratives of ETH over the years. It starts

as ICO money, that it becomes like defy money. More recently, it's been NFT money, you know, reserve currency for NFTs. And now maybe this new narrative moving forward, this new use case, is for ETH to become metaverse money. What's so interesting about Ethereum as a digital nation, as opposed to like real nation states, is all of the taxes that it collects, there's no nation state on earth that actually burns a portion of the tax revenue and returns it to citizens

in the form of reduced supply, right? But with a crypto economic system where you don't have to pay for like an expensive military and massive bureaucracy and people in offices and buildings and all of these things, you actually can operate much more efficiently. And so with EIP 1559, of course, whenever any of that economic activity happens,

the taxes are collected, and a huge portion of those taxes are actually burnt and pass back to the citizens or the, I guess, one form of citizens is anyone who owns ETH. Well, almost everyone must own ETH, right? In order to exist in the Metaverse, you have to do anything,

you have to own a little bit of ETH at the very least. And this is kind of the, I guess, the bullcase back to ETH as an asset. I want to ask you about this. So is there the possibility that eth as an asset becomes kind of the trifecta money for the metaverse, a medium of exchange, a store of value, and a unit of account, and becomes sort of a reserve asset for the metaverse. What's your take there?

And what would that mean for ETH as an asset in the future? Yeah, whether or not it's a medium of exchange, I think, is up for debate. I think ether as an asset is fundamentally going to be a very low velocity token. I do think there's going to be higher velocity tokens on top of Ether that use Ether as collateral. Rye comes to mind if we want to talk about non-state level currencies. But even Rye actually is kind of collateral optimized. But other than that, Ether is going to be like your collateral in applications inside of the Metaverse, inside of games. It's going to be how you actually engage with games.

when there are applications on roll-ups that don't require eth, that you do a bunch of economic activity, well, by proxy, that roll-up is using ether for you every time it makes a transaction to the L-1. And we've been talking about this lately ever since we had our interview with Arbitrum, is like we kind of think that roll-ups are going to be the biggest ethers, right? So all of these roll-ups are going to have a ton of economic activity on top of them, and then are going to collapse them down to a single transaction and then put that transaction on the Ethereum main chain. and that transaction will be a big bundle of transactions, and that will burn a lot of eth.

And so, like, it's just, like, ether has, like, brute forced itself into, into a massive bullishness by utility. And, like, when ether can do anything in the metaverse by nature of what it is, having so much in utility means it can do anything. It can be a medium exchange if you want it to. It can be your collateral in your metaverse if you want to do. It can do anything. the other thing as well is if the metaverse does emerge in the way that we've been talking about today

right you have to ask yourself what is going to be the reserve money the reserve currency for the metaverse and i think it's pretty safe to say it's not going to be a fiat currency oh 100% it's it's not going to be u.s dollars it's not going to be you know uh the digital rmb it's not going to be the yen it's not going to be the euro right that is a foreign currency inside of the Metaverse, whereas... Foreign invader. Right. Ether is a native currency of the Metaverse and has a specific set of properties and rights

and has higher status, right? So, like, if you believe in the Metaverse thesis and that this is essentially how humanity is going to evolve over the next, you know, decades to come into this digital age, And you have to ask what currency, what store of value asset is the leading candidate to become the reserve asset of this space, right? In any list that doesn't have ether at like number one, first place from a probability perspective, other things could happen. Other currencies could emerge. This could play out in kind of a different way that we don't foresee. but it seems so clear to me that ether is like the number one most probable asset to

to take that to take that rule and to be that reserve currency ain't going to be fiat unlikely it's going to be something like bitcoin bitcoin does not have the surface area to host or support a metaverse and all of the eth killers that I've seen to date david have made tradeoffs that make them much more centralized and less likely to become the settlement layer for the Metaverse. So kind of full circle here a little bit on bank lists where, you know, from the outset, we've been looking at different lenses to view some of these crypto assets. We've long recognized that Bitcoin and Ether are some of the most important. But I think this lens that Ether is going to be the reserve currency of the Metaverse is something new.

And I think could give this whole thing even more legs, right? Like 10K, 20K price of ETH, you know, that ain't nothing, right, compared to what this could become and what this could be. Right. During the 2020 NFT phenomenon, during like the fall, winter, there's that meme that came out where, like, art is priced in ETH. And I think that was actually early premonitions of what came out of the second NFT phenomenon, which is ETH is metaverse money.

The fact that when people value like Cryptopunks or ArtBlocks, they don't price them in dollars, they price them in ETH. And I think that's just indicative as like the rest of the Metaverse will be priced in Eith. Well, sum this up for us, David. I think your article ends with this interesting kind of table. Maybe it's a meme, but maybe you can describe this for the podcast listeners. And this looks kind of simple, looks kind of cute, maybe dumb, but you also say that there's a lot of nuance here. So why don't you describe what we're looking at and talk about this? Yeah, it starts off.

It definitely is a meme, but like I actually think it's really, really profound. And like we always say on bank, this, memes are representations of the truth. And so the title of this chart is technology terms used in startup descriptions and tech articles. And it has two columns. It's like a pre-post. It's like 2021-2020 versus 2021. And so in 2020, we had multiplayer games. But now in 2021, we call it the metaverse.

In 2020, we had virtual reality experience in 2020. well it's just called the Metaverse. 2020, augmented reality filter, Metaverse. 5G Cloud Connection, AR Cloud, Digital Avatar, Digital Event, Metaverse, Metaverse, Metaverse. It's all the Metaverse. And so, like, when I talked about, like, the Metaverse will be rendered at the periphery,

it's because all of these things are different, like representations of the Metaverse in their own domain, like a multiplayer game. Well, if you hook it into Ethereum, now it's the Metaverse. Virtual reality, if you hook it into Ethereum, now it's the Metaverse. like a 5G connection on your phone, well, if there's assets on there, now it's now it's part of the metaverse.

And so while this was a facetious meme of just like people trying to hype up their product by saying, oh, we're a metaverse company, they're right. Like they are a metaverse company. All they have to do is integrate with a digital shared state of global assets. And right now that's Ethereum.

Yeah, absolutely. That's a good way to end it. So what are the takeaways here for people? I guess if I'm talking, you know, thinking of the top of my head, one of the big takeaways is, you know, don't miss this, right? Like the metaverse is here. The metaverse is coming.

If you believe this, then you should be on a quest to collect all the Metaverse money you can, buy and hold. Right? That would only make sense to go invest in the crypto assets that you think could be reserve currencies of this new Metaverse economy. You definitely want to understand how the Metaverse financial system works so you can operate in it in the future. maybe teach your kids because they're going to be brought up in this metaverse as well. So you want to understand Defi. You probably want to join the metaverse economy in some meaningful way. Maybe work for a metaverse native entity like a Tao.

And you probably want to immerse yourself in metaverse culture just to figure out what that's all about. Maybe invest in metaverse culture where you can because culture is humanity. And if humanity is transitioning into the metaverse, that's where our. culture is going to reside as well. In fact, all of this seems like advice that Josh Rosenthal told us at the end of the crypto renaissance episode where we talked about humanity transitioning into this new crypto renaissance. Maybe another word for that is transitioning into the metaverse. These are some of my takeaways. Do you have any other's dad? Yeah, I happen to be in Denver for the Mcon conference, the Metacartel conference, and there's also a lot of a metafactory people here as well.

And Ryan, like, I have to say, I thought that you and I were at, like, the top of the game when it comes to, like, understanding the metaverse. I think we're about a year behind some of the people that I'm talking to at this conference right now. Like the metacartel and matter factory teams, like those dows, which are dows, by the way, they know what's up. And some of the art and stuff going on here is, like, really, really blowing my mind. And the big takeaway here is that, like, who do you think is going to build the metaverse? is it going to be the Mark Zuckerbergs of the world, the Zuckverse, or is it going to be DOWs? I think a significant part of the richness side of the Metaverse is going to be built by Dau's because they are Internet Native organizations.

They are Metaverse organizations. And so the Metaverse, I think, is going to be built by these organizations. And so if you want a part of these things, it's another call to action to find a Dow that is building the Metaverse and join that effort as well. And then also in my article, I leave just a few notes that quickly came to mind as I was trying to tie this off. And I said, I can only leave you with the same lessons we have learned over and over again throughout crypto. Fair launches work. That's what.

And so the metaverse needs to be built. And it needs to be built with credible neutrality foundations, credibly neutral foundations. And that's what fair launches are. So different pockets of the metaverse are just going to explode into existence via fair launches. I think that's a decent prediction to make. The other one is that leaders matter. This is just a fundamental truth. Like we need leadership.

And so when we talk about like fair launches and aping into fair launches, we also need leaders to take the mantle and actually guide us into the metaverse. So there's an action item there. But ultimately, and this is the last one, we are going to ape into everything until we figure it out. And so the metaverse is going to be built no matter what. It's just a matter of how efficiently and quickly can we do it. we only see it like dimly through a mirror right now.

So I don't know, 90% of the things we say in this episode might not turn out to be true, have like no idea. Hey, previous bakeless episodes hold up pretty damn well, Ryan. They've held up pretty well so far, I've got to say. But we also, I anticipate, I guess another way to say that is like I anticipate 10,000 things that we never would have predicted to come about. I think broad strokes, this is kind of a very broad thesis that the metaverse is coming. You should get involved and that Ethereum will be the center of this thing. But there will be so many other things that we're not able to predict that you just have to keep your eyes peeled. And we will, of course, try to update you on them as they arise.

That's what bankless is for. Guys, thank you so much for listening to today's episode. Some action items for you. Number one is read the article we've been referencing this entire episode. the Metaverse emerges. We'll include a link in the show notes. Number two, some previous podcasts that we've referenced. Of course, welcome to bankless.

It's kind of a canonical bankless introduction that you should listen to if you already haven't. Also, a bankless nation where we talk about crypto as a nation state and the protocol sync thesis. We'll include links to those in the show notes. Also, we never say this, but another way to level up on the Metaverse is to become a bankless premium member. We never talk about the perks of the, uh, the perks of the show notes of the, being a premium member on bankless, but now's maybe an opportunity to do that. A bankless premium

member gets a number of things, including a full market opportunity report. What's going on in crypto every single Monday? We publish that on the newsletter. A bankless premium member also gets an inner circle discord chat. This is a group in discord of bankless sojourners that meet and talk about everything that's going on in crypto. It's fundamental for the journey. Also includes a debrief where after every single Monday episode, David and I give our thoughts on the bankless premium RSS feed. So you get a premium podcast feed with it. Also included as Alpha Alerts, where if there's a big opportunity in crypto, we try to publish that to you so you know about it first. And a 2021 bankless badge NFT. That could be a valuable property in the Metaverse as well in the

future. So if you're interested in any of those things, we will include a link so that you become a bankless premium member as well. Guys, that's been everything. Of course, none of this was financial advice. ETH is risky. Defy is risky. So is the Metaverse. You could definitely lose what you put in, but we are headed west. This is the frontier. It's not for everyone, but we're glad you're with us on the bankless journey. Thanks a lot. Hey, we hope you enjoyed the video. If you did, head over to Bankless HQ right now to develop your crypto investing skills and learn how to free yourself from banks and gain your financial independence. We recommend joining our daily newsletter, podcast, and community as a bankless premium subscriber to get the most out of your bankless

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