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Legal IT

Has the metaverse failed?

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In November 2021, we did an article on what lawyers needed to know about the metaverse. Since then, the buzz around the metaverse has largely died. In this article, we start off with an overview of some of the predictions and expectations. Then we do a reality check. Next, we look in extenso at possible reasons why the metaverse failed. We conclude with some observations on how to move forward with a new vision of an immersive future.

Predictions and expectations

The concept of the metaverse really started drawing attention when Facebook Inc. changed its name to Meta in October 2021. The metaverse was seen as the inevitable evolution of the internet—a virtual space where the physical limitations of the real world did not apply. Proponents envisioned a realm where digital avatars would seamlessly transition between experiences, carrying their identities and assets with them. This digital utopia was expected to revolutionize how we interact with technology and each other, by offering unparalleled opportunities for connectivity and commerce.

Quite a few companies established a presence in the metaverse. Architects started designing virtual buildings, and real estate developers started developing and selling virtual real estate. There was talk of virtual cities, etc. The metaverse was predicted to be the big next thing, and its proponents urged everyone to get on board.

Reality Check

The reality of the metaverse, however, has been far less impressive. The metaverse has failed to live up to the excessive hype that built up in 2021 and early 2022, leading to a “metaverse winter” in 2023. This was mainly due to cooling interest, economic obstacles, and the immaturity of the required technologies. Despite the grand vision, the metaverse has faced significant challenges that have hindered its widespread adoption and development. We will have a closer look at those reasons below.

Financially, the metaverse has seen significant investment, with over $120 billion flowing into the sector in 2022 alone. McKinsey research had suggested that the metaverse could generate up to $5 trillion in value by 2030. However, these figures contrast with the current user experience, which clearly falls short of those expectations. The costs associated with developing metaverse platforms and the technological limitations have led to a gap between the envisioned economic boom and the actual value delivered to users. The metaverse has also been criticized for being a hype-fuelled fad, appealing mainly to gamers and celebrities, rather than the public at large.

By now, “peak metaverse is firmly in our rearview mirror. According to Google Trends, Facebook’s announcement of rebranding to Meta on October 21, 2021, was the catalyst for the upward trend in metaverse. Four short months later, we hit peak metaverse.” (Brian Christner). In other words, the hype lasted for four months only. “Far from being worth trillions of dollars, the metaverse turned out to be worth absolutely bupkus. It’s not even that the platform lagged behind expectations or was slow to become popular. There wasn’t anyone visiting the metaverse at all. The sheer scale of the hype inflation came to light in May [2023]. In the same article, Insider revealed that Decentraland, arguably the largest and most relevant metaverse platform, had only 38 active daily users.” (Brian Christner). Decentraland had invested 1,3 billion US dollars in the metaverse.

Reasons why the metaverse failed

Despite significant investments and extensive hype, the metaverse has faced numerous challenges that have hindered its widespread adoption and success. One of the main issues was – and is – the lack of a unified definition or understanding of what the metaverse actually is. While some early adopters can describe it clearly, many people still struggle to grasp its concept and purpose. Moreover, the technological infrastructure required to support a fully-realized metaverse is still in its infancy. Issues such as interoperability between platforms, user privacy, and the economic model are yet to be resolved.

Let us have a closer look at the reasons why the metaverse has failed thus far. The authors of the articles listed at the end of this article mention the following reasons for the metaverse’s shortcomings.

Overhyped and unmet expectations: the initial excitement surrounding the metaverse was immense, with many envisioning a revolutionary digital landscape. The bold promises from people like Zuckerberg set a high bar that current technology and market readiness could not meet. Many initiatives fell victim to massively inflated expectations, leading to expensive failures and a general sense of disillusionment. This decline in enthusiasm has been a significant factor in the metaverse’s inability to meet expectations. The metaverse’s close association with cryptocurrencies and NFTs, which have also faced their own set of challenges, further compounded these issues.

Immature technologies and tech limitations: the development of the metaverse relies heavily on technologies such as augmented reality (AR) and virtual reality (VR). However, these technologies are still immature and have not reached the level of sophistication required for a seamless metaverse experience. The lag in VR headset adoption, for instance, has been a significant barrier to the metaverse’s growth.

Bad user experience: the abovementioned technical difficulties also resulted in a subpar user experience. Early iterations of the retail metaverse, for example, were plagued by technical glitches and clunky interfaces. These issues have made it difficult for users to fully immerse themselves in the metaverse, leading to disappointment and frustration. Add to that, that many people think Zuckerberg’s version of the metaverse is goofy, with characters that look like Nintendo Wii characters. (“You want me to wear this uncomfortable headset to be able to see myself as a badly drawn cartoon character?”)

Limited User Engagement: because of the bad user experience, user engagement has been minimal. We mentioned the example above of Decentraland, which is one of the largest and most relevant metaverse platforms, only having 38 active daily users at one point. This stark reality highlights the gap between the envisioned metaverse and the actual user adoption and engagement.

High cost of entry: the metaverse may be too expensive for some people to access. You need a VR headset, a fast computer, an up to par broadband connection, etc. Add to that, that most platforms based on blockchain — like The Sandbox and Decentraland — require the exchange of cryptocurrency for full functionality.

Privacy and safety concerns: the metaverse raises significant privacy and safety concerns that have yet to be adequately addressed. The amount and type of data created and collected through metaverse technologies result in major privacy challenges. Ensuring the safety of users, particularly children, in these virtual environments is a complex issue that requires new approaches and regulations. And then there’s the cybercrime aspect: criminals could use voice recordings from metaverse platforms against someone, or behavioural data could be mismanaged and sold to interested parties.

Economic and ROI Challenges: from an economic perspective, the metaverse has struggled to demonstrate positive returns on investment (ROI). Meta’s Reality Labs, for example, recorded a loss of $3.73 billion in one quarter alone in 2023. Retail metaverse initiatives have also largely failed to deliver truly unique, must-have shopping experiences. This makes it difficult to justify the high costs associated with developing and maintaining these platforms.

Shifting Focus to AI: finally, there is the impact of AI. Even companies that heavily invested in the metaverse are now shifting their focus to other technologies. Meta, for instance, has turned its attention away from the metaverse to AI, which is seen as the next big thing. This shift indicates a broader industry trend away from the metaverse as a primary focus.

Moving forward with a new vision of an immersive future

In summary, the metaverse’s journey has been fraught with challenges, from technical and user experience issues to economic and privacy concerns. However, by tempering expectations and adopting a more realistic and focused approach, there is still hope for the metaverse to find its place in the digital landscape. Several authors believe there still is potential for its future development. A more modest, grounded, and niche-driven approach may be the key to its next chapter. Lighter-weight, frictionless AR shopping interfaces accessible from smartphones, for example, could sidestep VR’s adoption barriers and provide more practical applications.

The journey of the metaverse probably is not over yet, and with all the investments that have been made, it is likely that it will continue to evolve. The key to its success lies in addressing the current shortcomings and aligning expectations with reality. As the technology matures and more people become familiar with the concept, the metaverse may yet find its place as a significant part of our digital lives. It will require patience, innovation, and a clear vision to bridge the gap between what was promised and what can be realistically achieved.

 

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Legal IT

Web3 for Lawyers

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In this article, we have a look at Web 3 for lawyers. We answer questions like “What is Web3?” and “What are the promised benefits of Web3?”. We look at the concerns about Web3 and at how Web3 and the Metaverse relate to each other. We also pay attention at the relevance of Web3 for lawyers.

What is Web3?

Web 3 (web3, web 3.0) is the name used for what could be the next version of the Internet. Proponents claim it will be based on concepts like decentralization and blockchain technologies. The Wikipedia also includes the concept of token-based economics as a third pillar of web 3. (Think of non-fungible tokens (NFTs) as an example of token-based economics. A future article will be dedicated to token-based economics. In the past, we have already published articles on blockchain and on how it is relevant for lawyers).

But why call it web3? To understand the name, we need to look at the history of the Internet. Before the Internet was accessible to the public in the form of the World Wide Web, there was ARPANET (sometimes referred to as DARPANET). Military strategists had come to the conclusion that centralizing strategic information on just one or some computer servers could leave one vulnerable. So, instead, they built a network of computers that were connected and that replicated crucial information. The information became decentralized. As long as one server remained up and running, essential information would remain accessible.

From this came the first incarnation of the public Internet, the world wide web, which was later also referred to as Web 1.0. It was the Internet of mainly static pages, where the users were in charge of the information they put online. In this setup, the information remained decentralized, where websites were on specific web servers. Then, slowly, we saw the rise of ‘Big Tech’. When social media arrived, they dramatically changed the Internet. Facebook, e.g., became like a privately owned Internet. In this new Internet, which people started referring to as Web 2.0, the information became centralized again in the hands of the Big Tech companies. Microsoft, Google (including YouTube), Meta (Facebook, Instagram, Whatsapp), and Amazon, e.g., are responsible for most of the traffic on the Internet. These companies have tremendous amounts of information on their users, and that information is centralized on their servers. More importantly, users no longer exclusively own what they put on these social media. The Big Tech companies are in control and can use that information. One of the things they do, is monetize this information about their users for marketing purposes, where these users typically do not share in the profits.

With the arrival of cryptocurrencies, the idea of Web 3.0 was born. The purpose of cryptocurrencies was mainly to break away from the power of centralized financial institutions. Similarly, the idea for web3 was to decentralize information and to put users in charge again of their own information, while maintaining their privacy. This would be done by cutting out the Big Tech middlemen and by using the same blockchain technology that had made cryptocurrencies possible. The idea appealed and led to the creation of the Web3 Foundation.

What are the promised benefits of Web3?

By now, billions have already been invested in Web 3 and the underlying technologies. People are enthusiastic because the promises and benefits it holds. Let us have a look at those.

Web 3 will give control back to the users and let the users monetize their information instead of Big Tech. In the article in Livewire, Jeremy Laukkonen writes, “It will represent a transition from big companies controlling and monetizing content on the internet to individual creators and consumers sharing content and interacting through decentralized networks.” NFTs are an example of this, where the creator of a digital artwork is able to sell some rights to his digital artwork. This is done by assigning a unique digital token to the piece of artwork, and all transactions with regard to this token are registered in a Blockchain ledger.

Web 3 will offer increased privacy-protection

If the information is no longer shared with Big Tech companies, users are back in control over their personal data. If you make digital artwork and sell it as NFTs, e.g., the buyer does not need to know anything about you. They just need to know that the token that refers to it is authentic.

Decentralization

With decentralization, the information gets distributed over the Internet again, instead of being in the hands of a handful of Big Tech companies. Dion Hinchcliffe, in ZD Net, describes decentralization as, “the notion that instead of large sections of the Internet being owned and controlled by centralized entities, ownership is instead distributed among its builders and users.”

Technological innovation

The technologies that form the basis for Web 3 already have changed the landscape of Internet technologies. Blockchain is a prime example of that. Web 3 comes with its own set of challenges (see below), and for some of those innovative technological solutions are being proposed. These include solutions to make the Internet more environmentally friendly and sustainable energy-wise. The link between web 3 and the Metaverse also is responsible for the innovations in visual communications, network speed, etc.

Opportunities for enterprises

Commentators identify seven key areas in which Web 3 creates new opportunities for enterprises:

  1. The Metaverse is often cited as an implementation of Web3 technologies, where all its virtual marketplaces rely on them.
  2. Distributed (or Decentralized) Autonomous Organizations (DAOs). “The concept of a DAO is embodied in a smart contract, with the rules posted for all to see. Tokens are issued, and stakeholders have a well-defined decision-making process. Essentially a new type of digital corporation, DAOs can be used in an enterprise context for everything from open innovation and investment to IP-based professional services or industry-scale consortiums.” (Dion Hinchcliffe).
  3. Web3 Apps
  4. Creator Economy for Web3
  5. Crypto & Digital Assets
  6. Blockchain and Distributed Ledger (DLT)
  7. Decentralization

(For more information on this, see the article on ZD Net listed below in the sources, on how decentralization and Web3 will impact the enterprise).

Other benefits

Some advocates of Web 3 also claim it will bring increased data security (because of encryption by default) and increased scalability.

Concerns about Web3

While many people are enthusiastic about the idea of Web 3, there also are some concerns that still must be addressed. A short overview:

Regulation

As most countries by now have Internet-related legislation, the current Internet is largely regulated. That is not the case with web 3, which makes it extremely attractive to cybercriminals. In an environment that is not regulated, the risks of getting exposed to hacking, fraud, theft, harassment and bullying, the dissemination of harmful content like child abuse, unfair business practices, etc., are substantial. An unregulated Web3 is a paradise for criminals.

Environmental Impact

One of the biggest concerns about blockchain technology is its impact on the environment. Blockchain technology requires constant complex calculations that require an exorbitant amount of computing power, which in turn requires a lot of energy. An entire Internet running on Blockchain technology would have a detrimental impact on the environment. Thankfully, new technologies are already being developed that still use the idea of distributed, encrypted ledgers but that require far less computer power. Etherium, e.g., has just moved to such a new technology.

Security

One of the advantages of a centralized network is that typically more attention is being paid to security. (That is why cloud-based solutions typically are safer than technologies that are run on site). In a decentralized Internet, the users become responsible again for security. And that can be problematic. Experience has taught that users still are the most fallible factor in any security solution. (At the moment of writing this article, a hacker made headlines after successfully hacking the Uber network. All he had to was to make one authorized user believe that he was a colleague who needed access).

In a decentralized setup, all the information is in the hands of the users again. Identity theft and identity fraud will be as rampant as it is today, and probably with worse effects for the users whose identities were compromised. In fact, a recent report confirmed that social engineering attacks are already dominating the Metaverse and Web 3.

And there is more. The Pentagon also investigated blockchain technology to see if it could be useful for them. Instead, their investigation found some concerning vulnerabilities on blockchain. Their report revealed that blockchain is neither decentralized nor updated. The market that uses blockchain registered transactions only has a handful of players and it is through them that most transactions take place. On top of that, the report found that it can take a long time for certain transactions to register. That leaves the possibility open for a cybercriminal to, e.g., make a blockchain purchase and then keep on selling the same item several times to different people for as long as the transactions aren’t registered.

Negative impact on innovation

Technological innovation is being touted as one of the benefits of Web 3. But there is another side to the coin. Research has shown that decentralization tends to slow down innovation and progress because it hampers technological standardization. It’s the traditional ‘too many cooks in the kitchen’ problem. E-mail is a classic example of decentralization. After 3 decades of the world wide web, there still are no standards for e-mail encryption. If you look at something like WhatsApp or Teams, which are centralized technologies, they had secure encryption by default, shortly after they were launched.

This slowing down of innovation is one of the main reasons many Big Tech companies are revising their position on working from home.

Other controversies

Several high-profile people within Big Tech are warning that Web 3 is more of a hype or marketing buzz than reality. More importantly, they point out that there won’t be much decentralization, as at present the investments in Web 3 start-ups are all being made by a small group of investment bankers. Instead of control over the Internet being centralized in the hands of just a few Big Tech companies, control over Web 3 would be in the hands of a small group of investors and venture capitalists.

Web 3 and the Metaverse

Web3 and the Metaverse are often mentioned in the same breath. Yet, they are not the same thing. The Metaverse has to do with immersive digital worlds that are typically experienced as a virtual or enhanced reality. Web3 has to do with new technologies and concepts like decentralization and token-based economics. There is a considerable overlap, of course: virtual marketplaces that are part of the Metaverse rely heavily on web3 technologies. But one of the main differences is who the proponents of each are. The Metaverse is being promoted by Big Tech companies who see it as a way of maintaining their control, while Web3 is being promoted by investors and venture capitalists who want to cash in on our digital lives.

The relevance of web3 for lawyers

A recent conference in Austin, Texas, concluded there are nine areas where web 3 and web 3 technologies are already relevant for lawyers.

  1. Copyright laws regarding non-fungible tokens, or NFTs
  2. virtual real estate – lease or buy
  3. virtual event planning
  4. cryptocurrency theft
  5. NFT due diligence
  6. prosecuting crimes in the metaverse
  7. starting or ending a business in the metaverse
  8. metaverse marriage and divorce
  9. web3 skip-tracing / due diligence

It is worth pointing out that there already is a need for blockchain and cryptocurrency lawyers, where the demand outweighs the offer. It should also be clear that having knowledge about Web3 and the Metaverse gives lawyers a competitive advantage.

 

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Legal IT

What lawyers need to know about the metaverse

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In the last few weeks, the metaverse has been in the news headlines on a nearly daily basis. Companies are investing billions in it and are looking to hire thousands of people to build it. In this article, we look at what lawyers need to know about the metaverse. It addresses the following questions: what is the metaverse, what can the metaverse be used for, what concerns have been raised about the metaverse, and how is the metaverse relevant for lawyers?

What is the metaverse?

Rather than starting off with an attempt at definition, it may be useful to first quickly go over the history of the idea or concept. The idea for the metaverse is the result of several technological evolutions that are converging. On the one hand, you have computer games that have created entire virtual online worlds that are becoming more and more life-like, and where people have avatars representing them to interact with others and the virtual environment. Another aspect is the increasing use of virtual reality and augmented reality tools in real life for different purposes like training, education, etc. Think, e.g., of a surgeon or medical students practicing a medical procedure. The pandemic has also created new needs for virtual meetings and conferences and has sped up the process of courts going online. All of these tools rely on the Internet. So, the vision rose to enhance the internet in a way that all these technologies could be combined in one parallel virtual / augmented online world where we can live, work, learn, relax, play, socialize, etc.

There is no commonly accepted definition for the metaverse yet. (There even are alternative names for it like, e.g., the omniverse). The Wikipedia, e.g., gives the following definition: “The metaverse (a portmanteau of “meta-” and “universe” or “Universe” and “Meta”) is the hypothesized next iteration of the internet, supporting decentralized, persistent online 3-D virtual environments.” This Wikipedia definition, however, is limited in its scope. These are some of the other aspects that leaders in the field are using to describe it: “a virtual world connecting all sorts of digital environments”, with “social human interaction at its core”; “a vision for a new place to interact with other humans and bots to play games, conduct business, socialize and shop”; “a fully immersive, partially real life, partially digital experience that runs in parallel with the physical world”; “a vast and immersive digital world that is inexorably enmeshed with our physical world”.

This new online world would, just like the Internet, always be on and accessible. At present, accessing such world requires the usage of virtual reality sets or augmented reality glasses, as well as smartphones, PCs, or game consoles. For the metaverse to become a success, investors and developers realise that they must make it more easily accessible, and that interoperability between metaverse applications is essential.

What can the metaverse be used for? Examples of current and future applications.

The early stages of the metaverse already exist. There are, e.g., well-defined use cases within the video game, business, education, retail, and real-estate sectors.

We already gave the examples of games that are being played in entire online worlds, and where millions of players can simultaneously interact with each other and the environment.

Anybody who worked from home during the pandemic undoubtedly is familiar with virtual business meetings. Many also became familiar with online training.

The same goes for education where classes were suddenly taught online instead of in class rooms or auditoria. In some cases, students can use virtual reality headset to learn to manipulate 3D virtual objects, etc.

There are virtual shops that you can walk around in to choose what you want to buy. Similarly, people looking to buy a house can take a virtual tour to determine whether it is worth visiting the actual house. Developers use 3D models of the projects they want to build and put them online for potential buyers and investors.

There already are early metaverse applications for sports and entertainment and for healthcare. During the pandemic there were live concerts that could be attended virtually, where the musicians physically were in different locations, all playing together.

All of this already exists and would be enhanced further. In the future metaverse, people and companies would have their virtual offices. The online shopping experience would dramatically change, too, where virtual shops become far more lifelike. You could have your avatar customised to match the way you look at present and, e.g., try on clothes in the virtual shop before ordering them.

Movies could become 3D environments where you can look around and have a 360-degree view of what is going on. Family reunions and gatherings could take place in virtual environments so those who cannot physically be present, can still attend.

The possibilities look endless.

What concerns have been raised about the metaverse?

While many of these evolutions are thing people can get excited about, there also are plenty of reasons for concerns. Here are a few.

Privacy: big tech companies like Google and Facebook already have a bad reputation when it comes to all the data they gather. Many privacy advocates rightfully point out that the situation could get far worse in the metaverse, especially if it is being run by the same or just a few companies.

There is a cluster of interlinked concerns that has to do with the spread of misinformation, alienation from real life through confirmation bias, and the resulting polarization of society. What are we talking about? In recent years, we have witnessed how social media have been abused to spread misinformation, either intentionally or unintentionally. There already is a problem where the algorithms used in social media are designed to provide you with the information you are interested in, which strengthens the phenomenon of confirmation bias. The algorithm does not care whether what it shows you is true; it is interested in showing you want you want to read. If you hold beliefs that are not true, the algorithms will show you information that confirms those beliefs. In other words, the metaverse may further distort users’ perceptions of reality with biased content to keep them engaged. This can lead to an alienation from what is real, and further contributes to an ongoing polarization of society.

Another problem has to do with online addiction. There have been many well-documented cases where people develop online addictions. With a metaverse that becomes more lifelike and more all-encompassing, an increase in addictions is anticipated.

Another set of concerns has legal implications. Who is in control of the metaverse? Who makes the rules and what rules apply? How are laws applied in virtual worlds? Can insults or threats in a virtual environment have real life repercussions? What if the threats are about the avatars, like somebody threatening to disfigure or destroy your avatar, or somebody replacing your avatar with a less desirable one? There also are concerns about monopolies or oligarchies where some tech companies rule and control everything. Many lawmakers already have expressed concerns about the power big tech companies currently have. In the metaverse, that could get worse. What we are witnessing now are the early stages of a battle over who will control the metaverse.

There are criticisms that the metaverse companies are trying to lure in investors with what is at present merely a purely speculative, and over-hyped concept based on existing technology. They are accused of misrepresenting the largest limitation for wide-scale adoption of the metaverse, which comes from technological limitations with current devices and sensors needed to interact with real-time virtual environments.

And undoubtedly, the metaverse will introduce whole new sets of problems, which will raise new ethical and legal questions. There already is a company that sells tailor-made human digital servants. What about digital slavery and prostitution? What about virtual affairs? One problem that is often mentioned is that of currencies: will you be able to use existing ones, or will new ones be created? Will these virtual currencies be usable in the real world (as in, have purchasing power) or will those be limited to specific environments and providers? Many new solutions will have to be found.

How is the metaverse relevant for lawyers?

In a previous article, we talked about the two sides of legal innovation: one side has to do with adopting new technologies for better legal service delivery; the other side has to do with coming up with new legal solutions for new situations. Both aspects apply to the metaverse.

We already mentioned above that there are multiple concerns about the legal aspects of the metaverse. What existing rules can be applied and what new rules are needed? What new solutions do we have to come up with to deal with the abovementioned concerns? Will the metaverse create a whole series of new crimes? All of these are new problems that will need new legal solutions. And hopefully, we will learn from the mistakes that were made with the Internet, where legislation and jurisprudence were lagging far behind in addressing the new problems that arose. If not, the gap between new problems and the needed legal solutions to address them will be even bigger for metaverse.

The other side of the relevance for lawyers is how it will affect the daily operation of law firms. The metaverse with its new technologies will change the way lawyers work. We can expect an increase in and enhancement of virtual offices, where receptionists and paralegals could be bots or avatars of real people. We will see new virtual courtrooms, virtual arbitration, etc. During litigation, experts and lawyers could provide 3D recreations and presentations of their arguments and findings…

In short, the metaverse is expected to open up a whole new world of possibilities, concerns, and issues.

 

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