The unfolding digital universe, known as the metaverse, is being shaped by two distinct approaches: a decentralized path powered by blockchain technology, and a centralized one driven by major corporations. This analysis delves into the unique facets and potential pitfalls of each approach.
There are two main paths to the metaverse — two rabbit holes, to keep with our leading quote. One is the “decentralized” metaverse that is powered by tokens, and one is the “centralized” metaverse that is built by corporations, some of which are publicly traded. Each has its own advantages and disadvantages, which you’ll read in this report.
In a nutshell, the centralized metaverse is built in a very similar way to Web2, with corporations owning the rails, the marketplaces and the data, but can easily offer a streamlined user experience. There’s little wonder that both Microsoft and Meta are heavily invested in the space. Microsoft can bring games know-how (Xbox) and now artificial intelligence (AI) power (Bing, OpenAI) to the table, while Facebook already has users interacting avatar to avatar in some way.
The decentralized champions are Decentraland with its native MANA token and The Sandbox, native token SAND. These platforms feature virtual worlds where users can build their homes and rent, sell or transact in any other way without asking for permission, or being at risk of censorship or sudden account locks by developers. One of the strongest points for decentralized offerings is the ability for users to “own” their in-game items on-chain. As long as users do not lose access to their wallets, no one else can take these away.
Decentralized platforms also tend to espouse open standards and composability. This gives users the ability to trade characters and in-game items on open marketplaces without needing consent by developers. Finally, cryptocurrencies offer perfect payment rails for users, and developers building on top of Ethereum or Avalanche get secure transfers, exchanges and wallet technology out of the box, for free.
In Web3, composabilty refers to the way in which open standards enable users to combine different technologies without asking authors for permission. One example would be the way nonfungible token (NFTs) can be “fractionalized.” A developer can deposit their NFT into a smart contract which sells or lends out tiny pieces of that NFT for others to trade or own. The developer doesn’t have to talk to the NFT developers but can use the appropriate standards (ERC-721 and ERC-20 in that case). The fractions are automatically usable in decentralized finance (DeFi) applications if they conform to the standards there. Composability let’s Web3 users create totally new and unforeseen use cases, by themselves, without intermediation.
Both the centralized and decentralized visions of the metaverse offer unique benefits. The centralized model, backed by tech giants such as Microsoft and Meta, delivers a unified user experience. Conversely, the decentralized metaverse, led by platforms like Decentraland and The Sandbox, empowers users with uncensored transaction capabilities and ownership of in-game assets. The flexibility of Web3 allows for the integration of disparate technologies without the need for permission, paving the way for innovative use cases. Grasping these complexities is crucial for understanding the future trajectory of the metaverse.