What is the metaverse, and what does it have to do with crypto?

The metaverse is a term for shared, three-dimensional online worlds where people appear as avatars (digital characters) and can meet, play, work and buy things. It is an idea more than a single place. Crypto enters the picture because some of these worlds record land and items as tokens on a blockchain.

Where does the idea come from?

The word comes from Snow Crash, a 1992 science fiction novel by Neal Stephenson, in which people escape into a virtual city. Titles such as Roblox, Fortnite and Minecraft host millions of players who socialize and spend money on digital goods inside them.

The term reached the headlines in October 2021, when Facebook renamed its parent company Meta and said it would invest heavily in virtual and augmented reality. Other technology companies and consumer brands announced metaverse plans soon afterward.

What does the metaverse have to do with crypto?

Most virtual worlds are run by one company. It owns the servers, and anything a player buys exists only inside that company's database.

Crypto-based worlds, such as Decentraland and The Sandbox, take a different approach:

• Land and items as NFTs. A plot of virtual land, an outfit or a piece of art is issued as an NFT, a unique token on a blockchain. The owner holds it in a crypto wallet and can sell it on an outside marketplace.
• Tokens as currency. Each world usually has its own token, used to buy goods and services inside it.
• Shared governance. Some hand decisions about the world's rules to token holders through a DAO, an organization run by member votes.

The promise is that purchases belong to the user and could, in theory, move between worlds. This idea overlaps with Web3, the wider push for an internet built on blockchains.

How much is hype and how much is use?

The gap has been wide. Prices for virtual land climbed quickly in late 2021, and some plots sold for millions of dollars. Prices and trading then fell sharply through 2022 along with the rest of the crypto market.

Reported visitor numbers for crypto-based worlds have been small compared with mainstream games that use no blockchain at all. Meta's virtual reality division reported operating losses of billions of dollars a year after the rename.

Critics make several points. Virtual land is scarce only because its creators decided to limit it, and a company can always create more or a rival can open a new world. Items rarely work outside the world they were made for, because each game must choose to support them. And the value of an item depends on the world staying online and popular.

Supporters argue that people already spend large sums on digital goods in games, and that recording them on a blockchain would give players real ownership. Whether many players want that remains an open question.