By James Pethokoukis and Mark Jamison

The metaverse—a
network of online virtual worlds accessible through virtual reality headsets—is
getting a lot of attention in Silicon Valley. Digital “real estate” is being
bought and sold, cryptocurrencies are being exchanged, and Facebook founder
Mark Zuckerberg is convinced we’ll all be socializing and working in virtual
rooms before long. But is the metaverse here to stay, or is it just a fad? And
if the metaverse really is going to catch on, what should regulators know? To
answer those questions and more, Mark Jamison came back on the “Political
Economy” podcast.

Mark is the
director of the Public Utility Research Center at the University of Florida’s
Warrington College of Business and a nonresident senior fellow here at the
American Enterprise Institute. Over the past several months, Mark has
been writing about the metaverse and the challenges it faces.

What follows is a lightly edited transcript of our conversation, including brief portions that were cut from the original podcast. You can download the episode here, and don’t forget to subscribe to my podcast on iTunes or Stitcher. Tell your friends, leave a review.

Pethokoukis: Right now, is the metaverse one
place or is it many places?

Jamison:Well, right now it’s still evolving
and it’s evolving as many places and probably will stay that way. So we have
people who are doing things in just some game platforms. We have people who are
in the Decentraland platform. So it’s a lot of different places that somewhat
interconnect, and the way that they interact with each other is going to evolve
over time.

Facebook seems to making a big bet on the
metaverse, even renaming the company. But this is bigger than Facebook, right?

No, no.
Facebook is a big player in terms of the devices the people will have for
getting into the metaverse. But right now it’s not that big of a space in the metaverse.

So what can you do there right now? And what
do you think you could do there five years from now?

Well, there are a lot of things you can do right now. So for example, Snoop Dogg has purchased some digital land in the metaverse, and he’s going to put on concerts there. And so, people can go to that space and listen to the things that he might be doing. So you can do that. You can play games in the metaverse. You can have meetings. I’ve got a group that I call a “metaverse think tank,” and we meet in the metaverse and talk about different issues. So you can do that. You can engage in financial transactions. You can hire consultants and be a consultant yourself, helping people build things in this digital metaverse space. So more and more, anything that you want to try and do in the physical world, if you will, you can start doing in the metaverse as well. And that’ll change. That’ll keep growing.

What is compelling about it right now? What
can you do there, that you can’t do in the physical world or a Zoom call?

So once you
step into the metaverse, it becomes abundantly clear how different it is. When
I first held a meeting in this space, I was impressed by how different it was
than being on Zoom, because I actually turned to people and talked with them
and we shared documents around with each other. And we could see our computers
and see each other’s computers. It was much more like being together
physically. So that was a very different experience than Zoom. For example, the
things you can do in the metaverse that you really can’t do in the offline
world—the physical world, if you will—will be things like engaging with people
that you would never ever see otherwise, that you’d never be able to work with
otherwise. You can build businesses there that would be very hard to build
elsewhere.

Just for
example, the ability to reach customers and customize things into a visual
space that you’re not going to get elsewhere. So, for example, there are people
who are building art in the metaverse that would be really hard to be able to
build and sell in the physical world, because the audience is so small. But in
this virtual world, people can buy pieces of it and people can share it easily.
So there are lots of things like that around the edges, but that’s something to
keep an eye on because anytime we have a jump in technology, basically what we
do is take that new technology and do what we did before. At some point,
though, someone says, “Hey, wait a minute. This enables a whole other
world.” And that will be what the killer app will look like, but we don’t
know what that is yet.

Is this a disruptive technology?

Yeah, I would
consider it a very disruptive technology, because it’s going to take some of today’s
tech giants and make them a lot less relevant. So for example, if I were
Facebook, one of the things I’d be thinking a lot about is, “What happens to my
normal (what they call “Facebook blue”) Facebook platform in a metaverse
world?” In a metaverse world, people can take the content they produce and
actually package it with other people’s stuff, or people can come up with their
own algorithms for what kind of information they receive—that can all be done
in the metaverse. I can’t do it with Facebook’s system today. So it’s going to
make those types of businesses less valuable unless they change substantially,
which is always hard.

How does one engage with the financial aspect
of the metaverse? Is it all cryptocurrencies and non-fungible tokens and FinTech
platforms, or can you use “normal” money?

It involves
both of those actually. So you will have some spaces that are very much using
dollars and cents if you will, for their transactions. But a lot of them are
using their own cryptocurrencies and they’re using their own cryptocurrencies
for several reasons. I think one of the main ones is that if you own SAND, for
example, which is the cryptocurrency for Sandbox, it’s not easy for you to take
that SAND and go spend it someplace else. So it keeps you locked into Sandbox.
So you’ve earned some SAND in Sandbox, you’re probably going to spend it there
too. So it’s valuable that way. And so, that cryptocurrency serves as a barrier
to exit, if you will. So people will do that. And then, we also see some rather
innovative ways for people to borrow money, for people to engage in other types
of FinTech services, insurance, etc. So there are things you can do in that
space that, at least today, it’s a little hard to do in a traditional economy.

It sounds like there are some sort of lock-in
effects with these currencies being tied to particular platforms. Do you
think regulators are likely to push to make these platforms more connected to
prevent a monopoly from emerging?

Well, I’m
sure there’ll be a regulatory push for that. Whether they argue monopoly . . .
well, they probably will, actually. They probably will argue that, but what I
would hope that they would keep in mind is that creating a space that has value
in it because you have this barrier to exit, that makes that space profitable
and makes you more likely to build it and makes it more likely for you to
improve it. If you can’t profit very much from building a great space, then
chances are you don’t build it. And that might lead us to more monopoly rather
than less monopoly.

Or a government created metaverse.

Oh,
absolutely. Which would be quite frightening, actually.

I was an early Oculus adopter, so I know what
it’s like a little bit to be in that world. And my experience is, depending what
I’m doing, either it’s okay or sometimes it makes me a little nauseous being
there. Can you spend a lot of time in that virtual reality world? Are you able
to tolerate it or is it perfectly fine?

I don’t spend
much time in a virtual reality world. My world is analyzing issues, and I don’t
necessarily need to have three-dimensional visions to do that, but I do value
that ability to step into that space and meet with people, talk with people
that I wouldn’t get to otherwise. So for example, this small little metaverse
think tank we put together includes people from Boston, from California, from
Washington, DC, from Florida: We all just get together and we’re able to talk
on a moment’s notice about what we’ve just learned, what we’ve been up to, what
we think we’re going to be doing next. And it’s pretty valuable to us.

We mentioned a little bit about regulation. Of
course, the internet is very lightly regulated. (Certainly it was at the
beginning, though some people might like to change that.) Is this a lightly
regulated universe right now?

It is right
now because, frankly, it’s just moving too fast for someone to step in and try
to regulate it. I think that holds some people back. I would be concerned if
governments did try to step in and regulate at this moment. So for example, one
of the things I’m trying to think about is how there’s a lot of interest in
creating new privacy regulations. And we’re building those based upon a
paradigm of social media and Google search. I don’t know if that applies in a metaverse,
but if we pass these laws, do they stop people from being able to engage in the
universe? So if these were US-oriented laws, for example, does that mean the metaverse
actually grows someplace else, if our laws don’t match that future?

So right now each version of the metaverse is
being run by an individual company. Is that right?

It’s a
mixture. So there’s always a group of individuals, probably forming a company
that establish a metaverse space and they design the software. They design how
that software is going to work. And the way I think about it is that it’s the
physics of their space. These are the immutable laws. You can’t change these. There’s
gravity there, things have dimensions to them, but then they also have (not
all, but some have) what they call DAOs, these decentralized autonomous
organizations. And these are people who generally own some property in that metaverse,
that space of the metaverse. And then, they help establish what some of the
other laws are. They might establish laws, for example, on how commerce can
happen, on what kinds of namings of the things you could use, what kinds of
businesses you could do, on what they are going to do with information that’s
gathered, privacy-type issues. There’s a physics that’s written by the
companies. But then you might think of it as how colonies and countries formed
over the past few centuries: all these experiments of different forms of
governance. And we’ll see how they work.

It seems like it would be difficult for
government to regulate this since it’s a quickly evolving space. Is this still too
new for government? Are regulators paying attention to this?

I don’t know
how much attention people are giving it at the federal level, so I can’t really
answer that. It does worry me some that people would step in. So you and I live
in the United States, and this is a country that formed from people largely who
couldn’t get along in other countries. We didn’t like their laws. So our
ancestors came and formed this country. That could be true for the metaverse as
well, that we’ll see situations where if a traditional legacy government tried
to impose regulations on a metaverse space, people could just end up going
elsewhere.

There used to be a lot of search engine
companies, but then there was a narrowing. Will we see the metaverse dominated
by just a few big players due to network effects?

It would not surprise me that there would be just a few large players. Almost every industry gets there. That’s Pareto’s principle: There’s always this heaviness in just one space. It’s not necessarily true in the metaverse, though. Not that it won’t be true that in particular places, that there wouldn’t be a heavy concentration. But the whole metaverse might not be just one space. It would be like saying that all sound is a marketplace, and there’s only going to be a few people providing sound. Well, that’s not true, because you’ve got all the different forms of music. You’ve got different kinds of talking. You’ve got movies. You’ve got all these different facets. And in each one, there are people who are more successful than others. The metaverse can very much be that way, that there will be a lot of specialized spaces with some big winners in those specialized spaces, but not necessarily for the metaverse overall.

The Wall Street Journal recently ran a piece (I think it was from Peggy Noonan) saying kids shouldn’t be allowed to use social media. And I can certainly see where that similar impulse would apply to the metaverse. People are going to be worried about pornography or other sex-related, seeing physical violence, even though it wouldn’t be real. How relevant are those kinds of concerns?

Probably even more relevant than they were in our traditional internet, because it’s easier for you to hide your identity. Now that you can do things in three-dimensions, do things more visually, you can be more abusive than you were in our traditional Facebook areas, Twitter areas, etc. And it’s easy to have all the gambling and things like that can go on, and it’s hard to screen.

So there’s potential for abuse here that people need to pay attention to. Although, there are also new mechanisms. So for example, the main way to step into the metaverse is going to be through three-dimensional goggles. Some of those goggle makers are now including features that screen things, that are protecting privacy, maybe providing parents greater control than they would’ve had when everybody’s just using a laptop or a desktop PC to get to the traditional internet.

There has been all this criticism of the large
technology companies, but as a parent, would you feel more comfortable if you
were going through a Facebook headset or something, rather than some headset
from a company you’ve never heard of that doesn’t have those sorts of filters?

Well, I would
check out the headset very carefully, and I may trust Facebook more than I
would somebody else. Or I may trust Apple, which is reputed to be coming out
with its own headset. HTC has already released one that’s emphasizing privacy.
So as a parent, I would check it out and make sure it worked. I’d read all the
reviews, but I’m more confident that we’ll be able to have those protections in
that type of technology than we’ve had with our PCs.

At this point, what advice would you give
lawmakers?

Stay well
informed. Keep watching, keep listening, and resist the temptation to step in
and say, “I’m going to now take control of this.” Because we’re all
overly confident that we understand this world that’s changing, and we’re
always viewing that future through a rear-view mirror. So we’re going to do it
incorrectly. So be very careful, hesitate, and check yourself before you step
in and try to pass laws. And have some confidence that, at least in some
countries like the United States, we have a common law approach where the law
can evolve as problems emerge. So that helps us a lot as well. And I guess
that’s the other thing I would keep in mind as well: These decentralized
autonomous organizations, these government bodies, they’re going to evolve as
well. For the ones that don’t perform well, people are going to exit that part
of the metaverse. The ones that give people what they want, those protections
they want, the safety to securities that they want—those are the ones that are
going to attract people and attract commerce.

And do you expect this to be a US-focused thing?
Or will there be big global players or America and China, with Europe a distant
third?

That’s to be
determined yet. We’re moving into a space in the United States where a lot of
our government officials want to take control. And that means that the innovations
move elsewhere. And some of the really interesting spaces are being developed
elsewhere. There’s one coming out of China that’s pretty useful at this point.
How long China tolerates that, we’ll see. Another of the big ones was actually
started by a couple of people, one from France and one from Argentina. So they’re
working together. We’ll see if the US companies still have the freedom and the
creativity to be big players in the future.

Mark, thanks for coming on the podcast.

It’s my pleasure and it’s my honor to do it.

The post Is the Metaverse Here to Stay? My Long-Read Q&A with Mark Jamison appeared first on American Enterprise Institute – AEI.