a16z: 7 Basic Elements for Building the Metaverse

Original title: "7 Essential Ingredients of a Metaverse"  

Original author: Liz Harkavy, Eddy Lazzarin, Arianna Simpson

Original compilation: Hu Tao, Lian catcher

There has been a lot of talk about the Metaverse since its creation in the 90s, but especially during the pandemic (given the surge in online activity), and even more so after Facebook rebranded to Meta.  

Is this just an opaque marketing statement? What exactly is the Metaverse? How does one define the term, and where does one draw the line between the metaverse and another virtual world? These are common questions people ask about the Metaverse, so we thought it would be appropriate to outline how we see it and how the Metaverse interweaves with web3.  

In many ways, the Metaverse is just another name for the evolution of the Internet: more social, immersive, and economically sophisticated than what exists today. Broadly speaking, there are two competing visions of how this can be achieved: one that is decentralized, generous property rights and new boundaries, interoperable, open and owned by the community that builds and maintains it; The other is centralized, closed, subject to the rise of corporations, and often extracting painful economic rents from its creators, contributors, and residents.

The key dimension to compare these two visions is open versus closed, and the difference between them can be conceptualized as follows:

An open metaverse is decentralized, allowing users to control identity, enforce property rights, align incentives, and ensure value is captured by users, not the platform. An open metaverse is transparent, permissionless, interoperable, and composable (others are free to build within and across metaverses), among other standards.  

Achieving a "true" metaverse—both open and closed—requires seven basic elements inherent to this much-loved state. We believe these are necessary to meet the minimum requirements known as the Metaverse. Our goal is to clear the fog of misinformation for builders and potential participants about what is and isn't a real metaverse, and to provide a framework for evaluating early metaverse attempts.

1. Decentralization

Decentralization is the general governing principle of the proper Metaverse, and many subsequent features depend on or derive from this main concept.

Decentralized means not owned or operated by a single entity, nor at the mercy of a few power brokers. Centralized platforms tend to start out friendly and cooperative to attract users and developers, but once growth slows, their relationship becomes competitive, extractive, and zero-sum. These powerful intermediaries often abuse user rights and deplatforming, and they host captive economies at aggressive rates. On the other hand, decentralized systems exhibit fairer ownership, less censorship, and greater diversity among stakeholders.  

Decentralization is important. Without it, anyone can become "dumb" at any time - an unstable situation that prevents people from building on it, thereby hindering innovation. Since centralized platforms cannot make the same strong code-controlled commitments that blockchains can, their commitments can be revoked or changed at the whim of leaders or organizations about certain arrangements. The most powerful way to prevent such abuse and protect the Metaverse is to ensure that control is decentralized.

2. Property rights

Most successful video games today make money from the sale of in-game items such as "skins," "emotes," and other digital goods. But people who currently buy in-game items aren't actually buying the items -- they're renting them. Once someone leaves to play a different game -- or the game in question unilaterally decides to shut down or change the rules -- players lose access.  

People are so used to renting from web2's centralized services that the idea of actually owning things (digital objects that you can sell, trade, or carry elsewhere) often feels strange to people. But the digital world should follow the same logic as the physical world: when you buy something, you own it. Just as courts uphold these rights in the real world, codes should be enforced online. As it happens, true digital property rights were not possible before the advent of cryptography, blockchain technology, and related innovations such as NFTs. In short, the Metaverse turns digital serfs into homesteaders.

3. Self-Sovereign Identity

Identity is closely related to property rights. If you don't own yourself, you can't own anything. As in the real world, people's identities must be able to persist throughout the Metaverse without relying entirely on a small set of centralized identity providers.

Authentication is about identity: proving who a person is, what they can access, and what information they share. On today's web, this requires doing so on behalf of a man-in-the-middle through popular one-click login methods such as social login or single sign-on (SSO). Today's biggest tech platforms, like Meta and Google, use this method to collect data to build their businesses: monitoring people's behavior to develop models that serve up more relevant ads. Furthermore, since these platforms have complete control, attempted innovations in the certification process rely on the honesty and willingness of the companies behind the platforms.

The cryptography at the heart of web3 enables people to authenticate without relying on these intermediaries , so people can control their identity directly or with the help of a service of their choice. Wallets such as Metamask and Phantom provide ways for people to authenticate themselves. Standards such as EIP-4361 (Login with Ethereum) and ENS (Ethereum Name Service) allow projects to coordinate around open-source protocols and independently contribute to a richer, more secure, and evolving concept of digital identity.

4. Composability

Composability is a system design principle, specifically the ability to mix and match software components such as Lego bricks. Each software component only needs to be written once and can be reused easily afterwards. This is akin to a compound interest interest in finance or Moore's Law in computing -- some of the most powerful known economic forces -- in that it unleashes exponential power.

In order to be composable—a concept closely related to interoperability—the Metaverse must provide a foundation of high-quality, open technical standards. In games like Minecraft and Roblox, you can build digital goods and new experiences using the basic components provided by the system, but it's hard to move them out of that environment or modify its inner workings. Companies that offer embedded services, like Stripe for payments or Twilio for communications, work across websites and apps -- but they don't allow outside developers to change or remix their black-box code.

In their most powerful form, composability and interoperability are possible across a wide range of software stacks. Decentralized finance, or DeFi, exemplifies this powerful form. Anyone can adapt, recycle, change or import existing code. Not only that, but developers can build real-time programs side-by-side in the memory of a shared virtual computer (Ethereum) at their leisure — such as Compound’s lending protocol or Uniswap’s automated market-making transactions. Builders can create entirely new experiences by bringing together powerful new elements of title, identity, and ownership.

5. Open/Open Source

True composability is impossible without open source, which is the practice of making code freely available and redistributed and modified at will. Regardless of degree or kind, open source as a principle is so important to the development of the Metaverse that we break it down as a separate component, despite overlapping with composability above.  

So what does open source mean in the metaverse development environment? The best programmers and creators — not platforms — need total control to fully innovate. Open source and openness help ensure this. When codebases, algorithms, marketplaces, and protocols become transparent public goods, builders can pursue their vision and ambitions to build more complex, reliable experiences.  

Openness leads to more secure software, better understanding of economic terms for all parties, and elimination of information asymmetries. These properties can create a fairer and more equitable system that actually aligns network participants. They could even eliminate the need for outdated U.S. securities laws that were devised decades ago to reconcile the long-standing principal-agent problem and information asymmetry in business.

The power of composability in Web3 is largely due to its open source ethos.

6. Community Ownership

In the Metaverse, all stakeholders should have a voice in system governance proportional to their participation. People shouldn't just obey the edicts of a bunch of product managers at a tech company. If any one entity owns or controls this virtual world, then like Disney World, it may offer some form of escapism, but never reach its true potential.  

Community ownership is the piece of the puzzle that brings together network participants—builders, creators, investors, and users—to collaborate and work for the common good. This marvel of coordination—which was previously clumsy or impossible without the advent of cryptocurrencies and blockchains—is achieved through the ownership of tokens, the network’s native asset.

In addition to the technological advancements that decentralization brings, the philosophical implications of community-owned spaces are critical to the success of the Metaverse. In web3, participants in Decentralized Autonomous Organizations or DAOs have taken this principle to heart. They are eschewing the formal rigidity of corporate structures in favor of more flexible and diverse experiments in democracy and informal governance. This allows communities to be governed, built and driven by their users rather than a single entity.

7. Social immersion

Big tech companies would have you believe that high-performance virtual reality or augmented reality (VR/AR) hardware is an essential — perhaps even the most important — ingredient in the Metaverse. This is because these devices are Trojan horses. The company sees them as a way to become the main provider of computing interfaces to 3D virtual worlds, and thus also become a bottleneck for people to experience across borders.  

A Metaverse does not have to exist in VR/AR. All that is required for virtual worlds to exist is social immersion in a broad sense. Even more important than the hardware is the type of activity the Metaverse enables. They'll let people hang out remotely, work together, connect with friends, and have fun, just like they do today with Discord, Twitter Spaces, or Clubhouse.

The pandemic has highlighted the need for more immersive experiences beyond traditional text-based communication platforms such as email, as the use of other remote conferencing and telepresence tools such as Zoom and others has proliferated. Furthermore, thanks to the economic elements outlined earlier—property rights, self-sovereignty, community ownership—the Metaverse enables people to earn a living, conduct business, and attain status. In the typical knowledge worker workplace, people collaborate using tools like Slack, while outside the traditional corporate world, in the bottom-up organizing movement of DAOs, Discord and Telegram prevail.

The metaverse has nothing to do with the "view" mode (the tool used to view the metaverse). It's a handy meme for those who control manufacturing hardware.  

***

While many companies have begun to build different parts of the whole, if a virtual world lacks any of the above parts, we don't think it can be counted as a fully formed metaverse. We believe - as is evident in this framework - that the Metaverse cannot exist without a fundamental foundation of web3 technologies.  

Openness and decentralization are the pillars of the whole building. Property rights depend on decentralization—they must last despite the influence of powerful adversaries. Community ownership prevents unilateral control of the system. The approach also supports open standards, which facilitate decentralization and composability, properties that are closely related downstream of interoperability.

The development of an ideal multi-dimensional virtual world will gradually take shape. Many issues remain to be resolved, lest we get a dystopian analogue to the IOI-controlled oasis in Ready Player One. However, if builders adhere to these axioms, this outcome is less likely.

When the Metaverse arrives, it should fully embody these principles—with decentralization at its core.

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