Could Economic Growth Within the Metaverse Continue Forever?

The discussion surrounding the Metaverse has been incredibly speculative, and a foreign concept to the average person. For most, the idea of an “AR and VR technology coming together in the physical space to create a digital world” sounds like a line ripped from classical science fiction. In fact, the word “metaverse” was coined back in 1992 in the science-fiction novel Snow Crash. Skepticism surrounding the digital space is not new, however. The Internet was once foreign territory, a groundbreaking development in technology accessible through new devices called “personal computers.” Today, it’s an afterthought that nearly 84% of humans in the world can access the internet through a device that fits in their pocket. 

All this to say that the Metaverse seems to be where technology is heading. With huge developmental support from companies like Facebook (now known as Meta), Microsoft, and Apple, it is almost inevitable that the Metaverse will be relevant to everyone in the coming years. But while many debate the implications it could have for social media and video games, the Metaverse extends far beyond entertainment. It is a deeply complex system, with its own currency and economy. Users already have the capacity to buy and sell digitized assets, like NFTs (Non-Fungible Tokens), without the use of any financial intermediaries. And the prices of these assets seem to be increasing without fail. For example, the floor price of a Bored Ape Yacht Club NFT has gone up from around 15 ETH (Ethereum) in August to around 60 ETH as of January 1. This growth in terms of USD is from approximately $47,000 to $220,000. While not every NFT is quite this successful, it seems like you could throw money into any one of them these days and make a profit (disclaimer: not financial advice).

This begs the question: can the Metaverse’s economy grow infinitely? In the real world, we have physical limitations; there is only so much property within countries that is affordable for a given population, therefore prices can’t grow past a certain threshold before collapsing the economy. GDP will not grow forever; at some point, we’ll need to scale back on resource extraction and manufacturing, possibly sooner than we think. In theory, the only physical limitation the Metaverse faces is creating more server farms to keep it running 24/7. There are no finite resources within a digital space. For the sake of argument, scarcity is artificially manufactured. There isn’t a regulatory agency like the SEC to enforce policy, because there’s no policy to begin with. Crypto whales can already influence market fluctuations with their vast holdings. So, could they influence artificial inflation too?

Probably not.

Right now, we really don’t have the hardware to worry about this issue to begin with. Raja Koduri, the head of Intel’s Accelerated Computing Systems and Graphics Group, has stated in an editorial that we would need a thousand-fold increase in computing capacity to house the metaverse as we imagine it. His estimate for the next five years? An eight to ten-fold increase. So, there’s that.

Regarding regulation, governments are still trying to figure out what to do with cryptocurrency. In Canada, some coins fall under the definition of securities and can be regulated as such. Others, not so much. The SEC argues that regulation is necessary to protect investors, whereas the crypto community continues to fight in favor of decentralization. Currently, Bitcoin is somewhat regulated through fiat onramps and adherence to KYC (Know Your Customer) and AML (Anti-Money Laundering) laws, but there hasn’t been any considerable progress in terms of centralization.

Whales probably aren’t a problem either. It isn’t a new concept that most wealth is held by a rich few. Given that we operate in such an economy already, prices and inflation rates will reach an equilibrium point determined by the average users and not the wealthy few.

It is unlikely the metaverse will grow forever in economic value. As user numbers increase and the popularity of digitized assets becomes mainstream, it is within the best interest of tech companies to keep the Metaverse accessible to all from a business perspective. How this will be accomplished remains to be seen.

What we can surmise for sure is this: the Metaverse is coming, whether you like it or not.

Edited by Nadira Anzum
Featured Image “Cyptocurrency” by Icons8 team is licensed under CC BY-NC-SA 2.0