The Breakdown - The Importance of an Open Metaverse

Starting point is 00:00:04 Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by nexus.io, near NFTX, and produced and distributed by CoinDesk. What's going on, guys? It is Sunday, June 19th, and that means it's time for Long Reads Sunday. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dig D.E. into the conversation. Come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. Also a disclosure as always, in addition to them being a sponsor of the show, I also work with FTX. It has been a very long week. It has been a long week in markets,

Starting point is 00:00:56 with the expectation of recession reaching a new high. It has certainly been a long week in crypto. first the implosion and seeming insolvency of Celsius, and then of course the drama surrounding Three Arrows Capital. If you are an everyday listener, you will probably have noted that I have not exactly been keeping up with the story of 3AC. I will say that it does not look good. When I'm recording this late Thursday, we are seeing more and more of 3AC's creditors come out and acknowledged that they had dealings with 3AC and were in the midst of resolving some issues. We've heard from BlockFi, we've heard from Deribit. And of course, there was that long thread from a market maker who accused 3AC of spending a million dollars of theirs held in trust with 3AC to try to pay back loans.

Starting point is 00:01:48 Aside from a quick tweet from Sue saying that they were in touch with all their counterparties, we have not yet heard from 3AC. There are copious numbers of threads out there talking about the insolvency of three arrows and the downfall and what they did wrong and the mistakes that they made. And I have no interest in being an apologist for any of that. I'm waiting to give the full accounting because I believe that every day that goes on we're going to get more and better information. Candidly, I fear that over the next few days, there might be some ripple effects where it's not just 3A that we're asking about when it comes to being insolvent. I never want to be in the business of spreading rumors or even giving incomplete information. This isn't the type of situation

Starting point is 00:02:32 where people need to be informed so they can get their money out of Three Arrows or anything like that. This is a private institution whose potential failure could have big ripple effects, but not ones that any of us can do anything about right now. All of which is to say is that there will be a Three Arrow Show, or at least coverage of what we actually learn, and I'm sure by the beginning of next week there'll be a lot more to discuss. In fact, it's a lot more to discuss. In fact, it's It's totally possible by when you're hearing this on Sunday, that we've already had much more of the picture revealed. But that's the problem when you have to record a little bit in advance.

Starting point is 00:03:05 Now, in case it wasn't clear, this is definitely going to be the beginning of a period of a lot of reflection for the industry. Entire categories of concepts will be thrown out, baby, bathwater, and all, while others will be reified and rededicated to. One of the areas that we'll have to do a lot of that exploring is the NFT space and the nascent metaverse space. When the ICO market boomed, a huge, huge amount of energy was just flushed down the toilet all at once. A big part of the next couple years were sorting out who had been actually interested in what tokenization might do in terms of changing social interactions

Starting point is 00:03:46 and social applications, and who was just there for a quick buck. And of course, obviously, the grifters were rampant. Even as someone who thinks that NFTs are a likely long-term shift and have a lot more story to be written and will create interesting opportunities and challenge expectations around things like how experiences are meted out and how creators engage with their fans and how artworks, it was never unclear that the first phase, like any mania phase, had more than a little of its own get-rich quickism. Sadly, the celebration of Anon's as a part of that community, which I think is something that we should fight for, contributed to the ease with which some known long-term scammers were able to become a part of it.

Starting point is 00:04:32 But this is one area where I definitely do not think the baby should be thrown out with the bathwater, and I think it's going to be important to do those reflective exercises to understand what the point was and is and should be going forward. And for that, one of the best thinkers is, of course, Punk 6529. His threads have become legendary throughout this period. And today I'm going to read a recent thread from June 12th on why the Metaverse needs crypto, and specifically why the Metaverse needs NFTs. The TLDR, he says, is that it is critically important that the ownership layer of the

Starting point is 00:05:09 Metaverse ends up on public blockchains, not in private databases. Let's dig in. First topic. What is the Metaverse? Is it Facebook? Is it Epic? Is it Apple? Is it other side? Is it Decentraland? No, in my view, the Metaverse is none of those things. The Metaverse at the most abstract layer is the Internet, but the Internet with two distinctions. The first distinction is that the visualization layer of the Internet will get progressively better. Today, we have free global video conferencing and 4K movies on the Internet. We did not have that before. In a decade, we will have functional extended and mixed reality.

Starting point is 00:05:43 What is functional extended and mixed reality? Imagine something like a pair of sunglasses in size, weight, and style. These glasses will be able to switch between normal reality, augmented reality, which is digital objects overlaid on your field of vision, and virtual reality. Nexo lets you easily buy crypto with your bank card and earn industry-leading interest rates. Earn up to 16% on crypto and up to 12% on stable coins. Nexo makes passive income easy with interest paid automatically and daily. With Nexo, you can also borrow against your crypto at 0% APR and exchange over 300 pairs.

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Starting point is 00:07:02 The breakdown is sponsored by FTXUS. FTXUS is the safe, regulated way to buy and sell Bitcoin and other digital assets, with up to 85% lower fees than competitors. There are no fixed minimum fees, no ACH transaction fees, and no withdrawal fees. One of the largest exchanges in the U.S. FDXUS is also the only leading exchange that supports both Ethereum and Solana NFTs. When you trade NFTs on FTCX, you pay no gas fees. Download the FTCX app today and use referral code breakdown to support the show.

Starting point is 00:07:37 We will spend most time in augmented reality, not virtual reality. Imagine augmented reality as breaking the tyranny of your laptop and phone screen. Imagine walking down the beach, not picking up your phone to see a notification, just seeing it in the corner of your eye. Imagine a colleague teleporting into your office for a chat or brainstorming session, and they more or less look like they are right there. Man, if Zoom and COVID put a dent in business travel, can you imagine what teleporting will do? You will, on occasion, pop into virtual reality.

Starting point is 00:08:09 Maybe with your colleague you want to walk around a room with data and documents, a virtual workspace. Maybe you want to see a hotel you plan to visit and walk through it, see the beach, see the pool. But most of your time you will be in augmented reality. For the type of knowledge worker, me, who anyway spends all day looking at screens, this should be an improvement to quality of life, not a reduction. Less time on a screen, more time in a more natural U.X. And it's going to start making physical location close to irrelevant for business purposes. Basically, except for the social part of eating and drinking, everything will be close to real life without the travel. In the meantime, we will have progressively better 3D spaces on our computer.

Starting point is 00:08:46 Walking around and looking at an NFT gallery on OME does not require special gear and is clearly better than seeing the NFTs on OpenC and 2D. You can, of course, go into OME with virtual reality goggles as well, but in practice today, VR goggles are still quite annoying. Heavy, bulky, short battery life, dorky. I spend 99.99% of my time in OME on a laptop. But it will be a progression, an incremental progression, where browser-based worlds will get better, augmented reality devices will get better.

Starting point is 00:09:14 Bit by bit, the visualization layer of the internet will get better until it is unrecognizably better, plus or minus 10 years. As the visualization layer of the internet gets better, digital objects will become more useful and more important. Avatars, 2D and 3D and 3D, work, work, work, 3D virtual spaces, and hundreds of other things. Not only will the objects themselves become more important, they will lead to different emergent behaviors.

Starting point is 00:09:38 We see this already with avatars in mixed eponymous, pseudonymous, and and anonymous communities. Yes, it is the internet plumbing underneath, but just like social media changed human behavior on the internet, Metaverse-type experiences will further change it. NFT, Twitter, plus Discord, plus various virtual worlds is a form of early Metaverse. I feel like I am entering a different world here, not just some websites. The most important question for the health of the internet, Metaverse, and human society in the 2030s will be decided now. And that question is, who stores the definitive ownership records of those digital objects? There are two answers, a company's database or a blockchain.

Starting point is 00:10:19 If we end up with a company's database, we will end up with the Web 2 dysfunction, but worse. SMTP is an open protocol that anyone can use so we don't have societal-level fights on who is allowed to use email. Short messaging online ended up becoming Twitter. So we end up having the most absurd, surreal discussions on the topic of who is allowed to, to use short messaging being dependent on who is the CEO of Twitter. This is in no way the correct architecture for our progressively more digital economy. This is a no-win situation for everyone, including Twitter. Twitter cannot rank order all 8 billion people in the world daily and decide each day, who has been sufficiently naughty or nice to be allowed to have short messaging.

Starting point is 00:10:58 But if the Metaverse ends up becoming something like today's social networks with all your important digital assets behind an API key and a terms of service agreement, it will be much worse on multiple dimensions. The first reason is rent-seeking. Facebook is proposing taking as much as 47.5% of the revenue from each Metaverse object. Why should anyone, especially any non-USA economy, want to give 50% of its digital GDP to Facebook? That is higher than the most socialist tax rate. The second reason is fear. The Metaverse will be your persistent, ambient digital reality. If you can be banned, cast into the darkness based on an algorithm flag or a random customer service rep, That is terrifying. You could lose everything for no good reason.

Starting point is 00:11:38 The third is political security. It is bizarre enough that Twitter and Facebook are in the strange position of having to decide who won the election, if there is a coup in progress and so on. This is 100x worse for other countries who have no say at all in this. The fourth is global national security. Augmented reality works by pointing a camera into your field of vision. Imagine if I sent a camera to Web2 executives. Wear this please on you and your family's heads. Stream to 6529 servers. Don't worry, I have a privacy policy. I would obviously be laughed out of the room, but this is what will happen in the coming years from tech giants. And this security honeypot, live streaming views of everyone in the world, will be compromised by hackers

Starting point is 00:12:18 and security services. Now, what are NFTs? A standardized, interoperable, portable, decentralized, self-sovereign, user-controlled cross-application method to store any digital object. In the simplest terms, any application that integrates ERC 721 can integrate PUNC 6529. This is a vastly superior way to support innovation and interoperability. Your Web 2 digital objects are trapped. Getting an API key, seeing if your service is allowable, and integrating with programmers every service with every other one is basically impossible, fake. Whereas with an open protocol, all these issues go away. It's like hyperlinking or HTML. Anyone who integrates the ERC 721 or ERC 1155 standard can integrate digital objects.

Starting point is 00:13:04 Today, we have dozens of applications. One day, we will have hundreds of thousands. It is, in the end, quite simple. Anyone who says, no, I think NFTs are not the right place to store digital objects, should be asked. Okay, sir, in which company's database do you believe they should be stored, and why is that better? It is funny, sad, and frustrating to watch politicians in the USA and EU, more or less vaguely identify the problems with Web2 and at the same time, harass the solution,

Starting point is 00:13:31 hit it on the head with a hammer. The answer to all these forced interoperability rules and so on is staring everyone in the face. You can have user-owned assets and identity today on public blockchains. Bitcoin is this for money. NFTs are this for any digital object. My view is that the USA should be promoting user-owned data for innovation reasons and every other country should be doing so for both innovation-infranational and economic digital sovereignty reasons. The digital economy will be massive in the coming decades. It will absorb most of the white-collar economy and even take some market share from physical economy. Of course, we will have houses and restaurants and hotels and power plants. But progressively, a larger and larger percentage of

Starting point is 00:14:11 work, social and education will be digital. So if I were setting policy, I would do two things in this arena. Encourage development of public blockchain-based systems for digital assets and economies, easy to do, and pour money into open source visualization hardware. Harder to do, but a decent bet, in my humble opinion. If this is your first time around here, we are fighting for an open metaverse. That is the type of reflection that I want to see during the spare market. A question not of this collection or that collection, or even the nature of collections and PFPs, but a much more elemental discussion of what the point actually is. Thanks to 6529, as always for a great thread.

Starting point is 00:14:53 Thanks to my sponsors, nex0.io, near NFTX for supporting the show. And thanks to you guys for listening. Until tomorrow, be safe and take care of each other. Peace.

The Breakdown - The Importance of an Open Metaverse

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