Bitcoin Unlocks The Economy Of The Metaverse
Lightning Network, enabling instantly settling bitcoin transactions, is the secret ingredient.
The online generation
At 15 years old, Paulo’s life in Rio de Janeiro approaches an important crossroads. Teenagers falling into the sphere of street crime is all too common in Brazil, and job opportunities are limited within his age group. But Paulo has a unique skill: he’s a gamer. He saved all his money from a dishwashing job to buy the fastest laptop he could afford, and in six months became one of the top Counter-Strike: Global Offensive (CS:GO) players online. Paulo also transformed his gaming excellence into financial standing—he now pays the electricity bill for his family with his earnings. Thanks to CS:GO’s bitcoin integration powered by ZEBEDEE, gamers all over the world can earn the increasingly omnipotent online global currency that no government or company controls, without any restrictions. Age, location, and banking status matter nothing to Bitcoin. Paulo’s fictitious life is embodied by real gamers in Brazil today because of the solution-hungry industry blossoming around Bitcoin, driven by a united mission of global financial empowerment.
Once a month, Paulo sells his bitcoin (BTC) for Brazilian real (BRL) and takes the cash to the local utility office to pay his family’s monthly electricity bill. While the currency he earns can’t currently be used to pay the power company directly, he easily liquidates his BTC via Brazil’s vibrant peer-to-peer bitcoin exchanges. Paulo is empowered by his skillset because bitcoin is money. The exchange rate varies, sometimes violently, but he doesn’t care. Paulo is a participant in a global financial network, one completely free from the boundaries of age, jurisdiction, and banking status. Today’s youth, always online, is in the process of escaping the legacy financial architecture and opting into the power of bitcoin as the ultimate online denomination because it anchors digital truth and property.
Paulo and his online opponents will never meet in person. But they are part of something larger, a collection of virtual worlds empowered by the internet. Many have come to call this complex the metaverse. In science fiction, we see the metaverse portrayed with VR headsets, but it’s more a way to describe our online experiences, whether anonymous viewer, content provider, or gamer. And we are already living in one, seldom relinquishing the clutch of our phones to constantly remain inside. Our social network handles, media consumption, and online presences are all networked, and we’re marching forward into a global pseudonymous economy. We each are already part of metaverse, with or without the headset. And bitcoin serves as the gravitational center around which the metaverse rotates.
Defining the metaverse
When most people think of virtual worlds, massively multiplayer online games (MMOs) like World of Warcraft that have millions of active players often come to mind. But anybody that logs into a social network or watches YouTube videos is part of a virtual world. Currently, five billion people use the internet, and four billion of them participate in social networks. All of these people contribute to the online economy.
The gaming industry, with over two billion players, has taken virtual economies to the next level. Between the multitude of MMOs and popular games such as Minecraft and Fortnite, there are over a hundred million participants in virtual economies where people buy and sell virtual clothes, weapons, and vehicles—a virtual Gucci bag recently sold for over $4,000 on gaming platform Roblox. Players virtually engage in other ways: Travis Scott performed a virtual concert within Fortnite to 12 million players and reportedly earned $20 million for the show (paid by Epic Games, not by individual Fortnite users).
The metaverse brings these worlds together. It’s a way of referring to the internet’s economy; a borderless bazaar of the weird and wonderful that can only exist virtually, and which may prove, in time, larger than the global economy itself. People who create content for the internet—bloggers, podcasters, YouTube personalities, Twitch streamers, and TikTok phenoms—are participants in the metaverse, as are their followers. What then is the potential size of the metaverse’s economy? Today, online commerce is still shackled by banking relics, but the limit has no bounds with bitcoin.
Roadblocks to the metaverse vision
At present, a gap inside the internet’s architecture prevents its infinite expansion into a metaverse originally envisioned by sci-fi authors and recently by Mark Zuckerberg, who now proclaims Facebook is transitioning from a social media company to a “metaverse company.” The gap is a common currency for the metaverse’s participants. This barrier stands intrusively in the way of humanity’s technological evolution, and the timely arrival of its wrecking ball is the moment financially disenfranchised people everywhere have been waiting for.
Most people don’t pay money to use their favorite websites, but it almost seems as if technology companies had to make their online services free because internet money transfer was so difficult and limiting. The original architects of the internet anticipated what was then known as “cybercurrency” and reserved HTTP error code 402 for payments. However, if people had to enter a credit card number to access Twitter or Instagram so that money could be pulled from their accounts, widespread adoption of these social networks wouldn’t have happened. Online payments injected friction into virtual interaction and therefore weren’t perquisites to interface with the world’s most popular websites.
Companies now have many ways of monetizing their users, whether by selling products to users directly or selling user information to other parties, but they are reliant on an ancient financial infrastructure, no matter how seamless or instant the front-end might feel. This is because dollars and euros don’t live natively on the internet, so any transaction online must go through the banking system and fintech companies using an antiquated, closed-on-weekends, system; even though PayPal and Venmo might feel instant, they are payment processors that exist within this system. Historically, an online cash that could be pushed without trusting a third-party didn’t exist. Billions of people are prevented from engaging in online economic activity due to age, country, or banking status required to participate in a pull-money system.
For gamers, player identity between virtual worlds is also essential in making the metaverse a cohesive place. At present, player identities are incredibly fragmented, as pseudonymous gamertags reside within walled gardens operated by software companies, not players. Users have no power to authenticate their identity across platforms, making a decentralized world of virtual worlds hard to come by. Nobody can virtually authenticate each other, making trust tricky to establish and preventing the introduction of an identity layer to the internet’s stack of layered protocols.
Bitcoin addresses both archaic online payments and, as a byproduct, also solves for decentralized identity authentication. Bitcoin’s solutions to previously unsolved problems in computer science pave the way for a virtual economic explosion over the coming decade as the post-pandemic global economy entrenches deeper into its already digital state. Let’s look closer at how bitcoin brings flammability to the metaverse economy.
Bitcoin is revolutionary technology
Bitcoin provides a path forward to a seamless and streaming virtual future. It’s the tool our species needed to take the next leap: online push-money. Paper cash is push-money in the physical world, but paper cash doesn’t work for online payments due to its physical nature. Bitcoin solves for online push-payments because the buyer isn’t required to provide any personal account information (like a credit card) to send money. It used to make sense for companies not to charge for things on the internet due to the user friction it caused, but those days are ending. To the virtual economy, bitcoin has arrived exactly on time. For the uninitiated, here’s a brief explanation of how Bitcoin achieved consensus as the internet’s official and universal push money.
Bitcoin has an algorithmic supply schedule established upon its creation in 2009 by its pseudonymous creator. The rules have since set themselves in stone, a remarkable achievement that is owed in part to the equal playing field established by the process of proof-of-work, or consuming computational energy to confirm bitcoin transactions. Proof-of-work is why the often-maligned energy consumption of bitcoin is not only important but essential in establishing a digital cash for the internet that no single entity controls.
Bitcoin’s properties as a virtual commodity attracted market value early on, and many saw its unprecedented value potential. As some of that value was exposed during price manias in 2013 and 2017, bitcoin’s brand as a network strengthened, serving as a positive feedback loop to release even more market value. Today, bitcoin is well-established as a global online cash with tamper-proof issuance and nobody in control. Because there are no people or companies or governments to rely upon and only a network of computers, people believe in bitcoin as a monetary system and denomination. Its primary value comes from the network’s strength itself—the power of bitcoin is its lack of center, or decentralization.
Lightning Network scales Bitcoin
Bitcoin had solved push money, but it wasn’t the ideal currency for instant online transactions, especially small ones. Full transaction confirmation could take up to an hour, and transaction fees paid to bitcoin miners made most small transactions uneconomical. Alternatives to bitcoin, or altcoins, sprouted up to help speed up cryptocurrency, but most succumbed to centralization in order to achieve it. All attempts to unseat bitcoin as the cryptocurrency of largest market value have failed thus far because the market loudly values decentralization. If the market valued speed and customizability above decentralization, another digital currency would have long ago surpassed bitcoin. But bitcoin did what any organism fighting for survival does: adapt.
In 2018, several unaffiliated teams of bitcoin developers created a transaction network called Lightning Network that uses smart contracts to bring instantly settling and practically costless transactions to bitcoin users. Bitcoin visionaries followed the layered protocol (TCP/IP/HTTP) precedent of the internet and built a layered system for bitcoin on the same principles. Lightning Network, now a flourishing ecosystem of instant bitcoin transactions, renders many altcoins useless: bitcoin can maintain unbreakable security while leveraging a second layer of transactions to eliminate delay and cost from the equation. The traditional financial system uses layered money also: a good analogy is when you send money to your friend via Venmo, you aren’t sending an actual bank balance until the parent company PayPal settles an interbank balance days later.
Lightning Network was the secret ingredient for bitcoin that allowed it to transform itself. Previously its blind spot, instant settlement was now a shining strength of the rugged network. Over time, every obstacle for bitcoin eventually strengthens it, as developers and technologists are constantly motivated by perceived shortcomings of the network to create solutions.
What is the power of Lightning Network in the context of the metaverse?
It’s all about microtransactions. Microtransactions were recently popularized to some degree by people being able to spend with fingerprint or face recognition technology for digital goods on their phones. Prices of in-app purchases generally have a floor of about $0.70, because below this amount, developers would lose money on each purchase due to platform and credit card processing fees. Yet microtransactions added tens of billions of dollars in new revenue for the gaming industry, birthing the free-to-play phenomenon and catapulting mobile gaming from a niche hobby to over half the market.
Lightning Network doesn’t just enable microtransactions, it enables nanotransactions as small as $0.0001; for example, you can send 0.000001 BTC, or 100 sats (bitcoin’s subunit), which is about $0.05 today, for free to anybody else using Lightning Network. Furthermore, all signs within the gaming industry show that decreasing transactions sizes yield a higher rate of conversion from free to paying users. The combination of bitcoin, Lightning Network, and nanotransactions has the power to unlock novel human behavior.
The Lightning-powered software Sphinx is a perfect example of this. You can now "pay-per-use" or "pay-for-utility" using the platform, streaming money to a podcaster for as long as you are interested; the second you hit pause or step out of an area in a virtual world, you stop paying. It’s seamless and makes a lot of sense in media— Netflix could be free to join but pay-per-second to consume. Newspapers could charge readers per word. If all those Fortnite players paid per second to attend his virtual concert, Travis Scott could have made $20 million directly from players instead of from the gaming company. And these are only examples stemming from centralized platforms. The financial empowerment possibilities are endless; consider an 11-year- old girl in Ethiopia selling digital art for $0.25 per graphic using Lightning Network and a social media to market her work. Lightning Network cements bitcoin as the standard for online currency, but it also brings about the potential that the virtual economy can grow to be as large or larger than the physical economy that we know today, a possibility that warrants our close attention.
A common currency between gamers is a revolutionary concept that would bring sweeping changes to virtual worlds. A player could earn BTC in one game and use it to progress in another. Ultimately, game economies will allow for borderless trade just like the real world, and the price of a digital good in-game will be the same no matter where you are connecting from or what game you’re playing. A health potion will be 100 sats, independent of whether you’re playing DOOM or Zelda. Bitcoin and Lightning Network will bring a price arbitrage mechanism to the metaverse, and BTC will serve as the monetary layer to anchor the limitless number of virtual currencies that are sure to exist in the future. Bitcoin already serves as the base price for the thousands of cryptocurrencies in existence on exchanges, and serving as the reserve currency of the metaverse is merely an extension of bitcoin’s already-established center of gravity. Bitcoin drives metaverse cohesion because it gives global online citizens a common denomination. Because it can be spent in real life, it bridges the virtual and physical world unlike anything digital ever has. Bitcoin is already one of the most globally recognized forms of money throughout the world, making BTC the epitome of intrinsic value inside the virtual world and the mass around which other digital vessels of value orbit.
A quick word on volatility
Many critics of bitcoin continue to use its price volatility as an indicator of risk. They insist that a volatile price restricts bitcoin from serving as a global currency, especially if expenses are locally denominated. While hedging infrastructure is now robust and businesses have plenty of tools to operate simultaneously in BTC and local currency, these critics are missing the forest for the trees. Natively online nyms, handles, and gamertags are joining 100 million people already thinking in terms of BTC and sats. For them, exchange rate volatility doesn’t even exist because bitcoin is their home currency, a trend that will only strengthen over time. Bitcoin bypasses governments and their central banks, and an exponentially increasing number of people are never going to return to the old ways of state-issued money, just like postal services around the world will never regain lost ground to email.
Our Evolving Species
People like Paulo come to games that have growing virtual economies. This type of energy brings freedom to a young demographic making fundamentally different life choices than previous generations. Bitcoin unlocks novel human behavior because this generation can forgo legacy employment infrastructures such as schooling degrees and professional designations and choose to earn bitcoin, or other virtual currencies exchangeable for bitcoin, by providing any virtual good or service demanded by the online public. This generational shift toward a bitcoin-native economy will only accelerate as young people live entirely digital lives and sink further down a metaverse existence.
After two years of CS:GO success and a wise decision not to spend all of his bitcoin earned from his stellar play, Paulo can afford to enroll in graduate school in Madrid to study video game development. He sends a few final transactions from online wallets to his COLDCARD hardware wallet, packs it safely hidden inside a secure compartment in his backpack, and journeys to the international airport with a one-way flight to Spain to chase his dreams. Powered by bitcoin.