Does the metaverse need crypto?

Presented by FTX: How the next wave of technology is upending the global economy and its power structures

Apr 27, 2022 View in browser   By Derek Robertson Presented by FTX The Fidelity Stack in Decentraland. | Business Wire Crypto and the metaverse drive this newsletter for a reason: Their relationship will matter a lot to how our next digital landscapes get built, and who oversees them. Already, crypto is a huge asset class with growing attention from Washington. The metaverse, so far, is not like that. It's a piecemeal virtual landscape that looks more like a bunch of experiments than a full economy. Almost everyone agrees, however, that their futures are interlinked. To a certain type of metaverse enthusiast, our virtual future is inseparable from blockchain technology — not just for practical reasons, but almost for moral ones. One key question is something called interoperability . In layman's terms, that's the idea that your avatar and virtual possessions could be ported between different virtual worlds seamlessly and securely — you buy a shirt at a virtual mall in let's say, I don't know, the H&M-verse, and then enter the world of "Fortnite" and your avatar is wearing it. There's no specific reason this has to be done on the blockchain. Meta and Roblox and other virtual world-builders could just agree on some norms and make property interoperable between those platforms, or not. But a lot of metaverse idealists want to see virtual worlds built more like the original internet — not controlled by any one company, and with value firmly resting in the hands of the users, rather than the world-builders. These people view blockchain technology as a necessary backbone of the metaverse. Blockchains are decentralized ledgers that exist outside of any one company, so anything of value stored on the blockchain will be really yours, not Mark Zuckerberg's or Bill Gates's. A blockchain-based metaverse would look very different from one built by the modern tech giants. There are already nascent examples of both kinds. There's Roblox, with its in-game currency, or Facebook's Horizon Worlds, both essentially walled gardens controlled by one company's platform. A counterpoint is the popular online world Decentraland, an Ethereum-based virtual world in which virtual "real estate" deals are reported regularly. Buyers there have spent millions of dollars in cryptocurrency on virtual "land" authenticated by NFTs . It sounds great, in principle. But that idea also comes with complications. I talked about this with Yonatan Raz-Fridman, the founder and CEO of metaverse games company SuperSocial, and co-host of Bloomberg's "Enter the Metaverse" podcast. He described how as natural a solution as blockchain might be for interoperability, it also opens an entirely new vista of potential uncertainty and complication. "Can you imagine a world where the entire internet is programmable money, and people need to deal with, 'Oh my God, my virtual avatar asset just declined by 70 percent in value? What does that mean?'" Raz-Fridman said. Raz-Fridman believes that the future of the metaverse will likely be a hybrid of the two models, with the big established platforms making concessions to interoperability that might be enabled by blockchain technology. "If you think about companies like Apple, and Snapchat, and Meta, they understand that there's something going on with blockchain and decentralized technology," Raz-Fridman said. "Each of them are going to work on finding a way to integrate that school of thought." A hybrid virtual future would be pretty weak tea for Web3 enthusiasts who view blockchain technology as a revolutionary force that could supplant corporate tech giants, the financial system and even current methods of governance. As with most pioneering technologies, that culture has an obviously libertarian bent. Regulators worry about the potential for anonymized criminal transactions and financial fraud in an economy meant to evade centralized oversight. But just as they purport to be looking out for the "little guy," so do the Web3 cowboys — the premise of decentralization being it's guaranteeing users' rights and autonomy from corporate tech-world power. It's still not clear which of these philosophies will win out, but the metaverse is a high-profile arena in which they'll both be tested. A message from FTX: FTX guiding principles promote safe and equitable access to digital assets, creating strong investment opportunities for Americans. The FTX US application before the Commodity Futures Trading Commission (CFTC) is intended to expand access to digital-asset products for all investors, promote competitive markets in the U.S., and better position the U.S. as a marketplace for digital assets globally. Get the facts on our application here.   Clearing the air Some interviews are easier to sit for than others. Hoan Ton-That, Clearview AI's CEO and co-founder, most likely knew he wasn't exactly going to get the Oprah treatment when he participated in a live panel with Washington Post reporter Drew Harwell. Clearview's facial recognition technology, deployed recently in Ukraine to identify Russian soldiers, has earned the ire of U.S. lawmakers who fear its privacy-smashing use in law enforcement. Clearview has been fined by European legislators to the tune of tens of millions of dollars for the same thing. Critics "feel like you're kind of using this tragedy as a way to advertise, or potentially to launder Clearview's reputation," Harwell said. "What do you say to people who suggest that you're using this war as a promotional tool?" Ton-That mostly demurred at the question , pointing out PR-friendly uses for the tech like nabbing child predators or tracking down Jan. 6 offenders. As U.S. regulators have looked to Europe for models of how to rein in powerful new technologies, the difference between Clearview's infamy in Europe and its widespread embrace by law enforcement in the States reveals a potential philosophical break. "The U.S. sees facial recognition as a tool for law enforcement, and is quite deferential to law enforcement, and Europe just cares more about their citizens' civil liberties," said Jon Fasman, a reporter for The Economist and the author of We See It All: Liberty and Justice in an Age of Perpetual Surveillance. "It goes hand in hand with their data protection laws. They put their citizens' interests first, and the U.S. puts law enforcement interests first in this case." It might not stop there: While European regulators recently called for a ban on the kind of database assembled by Clearview, and facial recognition in public places in general, some U.S. legislators are pushing for its adoption in even decidedly less life-or-death scenarios than crime or war. A member of New York's State Senate recently introduced legislation that would enable facial recognition to be used as ID for alcohol or tobacco purchases. Afternoon Snack Regardless of intent, it's unsettling when a social media app's name can be read as a command. Such is the case for "BeReal," a new quasi-social network recently profiled in the Wall Street Journal as a no-frills, spontaneity-oriented alternative to the curated worlds of Instagram and its competitors. The French app has a deceptively simple premise: At a random time during each 24 hour period, it prompts the user to take and share a selfie and a photo of whatever happens to be in front of them at the moment, a task for which they're given two minutes. The unpredictability of the timing is meant to give users a more "real" look into the lives of their peers; there's no time to primp, or mess with filters, or add a funny GIF. Feel the realness. | via BeReal So, you know, it's more "real." Which is apparently an appealing alternative — according to WSJ, nearly 7 million users have downloaded the app during the two years it's been available. Of course, its "realness" exists within the parameters set by… BeReal. For an app whose function is premised on breaking down the barriers between our digital presence and our "real" life, there are weirdly stringent rules: A user can take a photo outside the two-minute time limit, but if they do, it tells friends that they were late, and by how much time. (It also reduces the amount of time users have to view their friends' photos, as one can only do so after one has made a daily post.) The advent of social media has caused users and critics to develop a near-religious fear and awe of algorithms. An app like BeReal, with all of its rules and built-in assumptions about what is and isn't "real," is a reminder that algorithms are ultimately just sets of manmade rules.   A message from FTX:   The Future In Five Links Caveat emptor: Fidelity is now offering a crypto-enabled 401(k). A cultural critic takes on the world of kid-friendly NFTs. Read a ByteDance employee's account of the Chinese company's automated censorship systems. The UK's Online Safety Bill offers a case study in online user authentication (which a certain mogul is hoping to bring soon to a certain social media platform). An essential battery technology has a big climate cost. Stay in touch with the whole team: Ben Schreckinger (bschreckinger@politico.com); Derek Robertson (drobertson@politico.com); Konstantin Kakaes (kkakaes@politico.com);  and Heidi Vogt (hvogt@politico.com). Correction: Yesterday's newsletter originally misstated the location of the EDHEC Business School campus where Gianclaudio Malgieri teaches. It is in Lille. If you've had this newsletter forwarded to you, you can sign up here. And read our mission statement here.   Looking for in-depth and actionable technology policy news? The Morning Tech newsletter is exclusively available to POLITICO Pro subscribers, please visit our website tolearn more about the benefits of a subscription.     A message from FTX: The FTX US application before the CFTC is intended to expand access to digital-asset products for all investors, promote competitive markets in the U.S., and better position the U.S. as a marketplace for digital assets globally. The CFTC should promote equity and access within the financial system by supporting technologies that enable underserved communities to buy and sell financial products with ease but with the safeguards of U.S. regulation. Cryptocurrency companies are working with non-profits, cities and counties to provide accounts for underserved communities, with many historically unbanked or underbanked. Members of these communities often do not have access to basic banking-type services, for a variety of reasons, including credit histories. Cryptocurrency companies can onboard these members and provide solutions for depositing pay checks and transferring payments, including to loved ones based in other countries. Learn more.     Follow us on Twitter Ben Schreckinger @SchreckReports Derek Robertson @afternoondelete Konstantin Kakaes @kkakaes Heidi Vogt @HeidiVogt   Follow us

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