What is the metaverse?

Discover a new type of digital reality, the metaverse.

A player with tech goggles inside the metaverse

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A new reality

The metaverse is a new digital reality incorporating technologies that allow users to interact virtually. It promises to change how we interact with the online world and each other. 

Components of the metaverse include online gaming, augmented and virtual reality (VR), cryptocurrencies, and social and digital media. Touted as the next evolution of the internet, the metaverse represents a new phase of interconnected virtual experience. 

In the metaverse, 3D visualisation software replicates real-world experiences for users, blending the physical world with virtual worlds. 

How does the metaverse work? 

The metaverse doesn't refer to any one type of technology but rather a change in how we interact with technology itself. 

Technologies that make up the metaverse include the infrastructure that hosts its digital 'worlds', the software that drives the creation of these worlds, and the hardware users require to access them. Both physical and digital technologies are involved in the interaction with the metaverse. 

The metaverse has its own digital economy where people make, sell, and purchase goods. Iterations of the metaverse already exist in various forms. 

For example, the multimedia platform Second Life allows users to construct an avatar of themselves and interact with other users and the content they create within an online world. Similarly, online games occur in virtual worlds where players can buy and sell goods and partake in virtual experiences.

Proponents believe many everyday experiences could eventually take place inside the metaverse. Activities such as shopping, business meetings, and educational experiences could all occur in 3D virtual spaces that include all the sensory elements of reality, providing an extended reality. 

Advocates believe the metaverse could become a digital version of the real world, incorporating capabilities that humans cannot perform in real life. This digital experience, taking place within a digital world, will rely on the metaverse platform to create digital spaces where a person can work, play, and rest. 

Origins and evolution of the metaverse 

To understand the evolution of the metaverse, we need to look back at the development of the internet. Initially, the internet comprised static, one-way pages that we passively observed. 

Today, we interact with the internet, actively participating via social media and the like. With the arrival of the metaverse, a whole new level of experience will become available. 

Using technology such as VR headsets, we could be dating, shopping, and working in virtual spaces. Stakeholders have different ideas of what the metaverse will ultimately entail.  

To participate in the metaverse, you need to enter it. This is achieved via computers and other technological devices. Big tech icons, including Microsoft Corporation (NASDAQ: MSFT) and Meta Platforms Inc (NASDAQ: META), along with a host of other companies, are building the infrastructure that will make up the metaverse. 

Meta believes so strongly in the future of the metaverse that it changed its company name from Facebook to Meta in 2021. CEO Mark Zuckerberg claims we'll be able to teleport as a hologram to the office, a concert with friends, or our parent's living rooms instantaneously and without a commute.

Reality Labs, the division of Meta that works on virtual reality and metaverse products, is developing technologies required for augmented reality glasses and virtual reality headsets. These include optics and displays, computer vision, audio, graphics, haptic interaction, full body tracking, perception science, and true telepresence.

New experiences that differ from how we think of computers and phones today will be created, offering a new phase of interconnected virtual experiences. 

The metaverse could revolutionise the workplace. Microsoft co-founder Bill Gates predicts that most virtual meetings will move to the metaverse in two to three years1. Both Meta and Microsoft have recently unveiled visions for this. 

Microsoft Teams' new 'Mesh for Teams' features mixed reality capabilities that allow people in different physical locations to join collaborative holographic experiences. Accessible via VR headsets, mobiles, tablets, and PCs, users can personalise 3D avatars and interact in a virtual environment. 

According to Gates: "We're approaching a threshold where the technology begins to truly replicate the experience of being together in the office."

Major events are already being hosted in the 3D virtual worlds of the metaverse. 

Artist Travis Scott performed a virtual concert in Fortnite, an online game. Real-world brands are starting to participate in the metaverse. Selfridges has announced plans to sell non-fungible tokens (NFTs) in-store. 

Brands such as Estee Lauder, Tommy Hilfiger, and Dolce & Gabbana participated in Decentraland's metaverse Fashion Week, showing collections of looks sold as NFTs. Buyers can utilise the looks to customise their digital avatars. Brands such as Gucci, Nike, Burberry, and Adidas have all announced plans to offer digital versions of their looks for use in the metaverse.

How will the metaverse impact global markets? 

The metaverse represents a $1 trillion revenue opportunity2, according to Forbes. Significant revenue opportunities exist for virtual and augmented reality, software and game developers, social networks, user-generated content, and live events. 

Cryptocurrencies such as Bitcoin (CRYPTO: BTC) and Ethereum (CRYPTO: ETH) are the money of the metaverse. They have already evolved from fringe interest to near-mainstream adoption. 

Blockchain technology powers currency and titles in the metaverse. Ownership is denominated in NFTs, digital ownership certificates embedded on the blockchain. 

NFTs can denote ownership of everything from art to property, whether digital or physical. Significant markets already exist for virtual real estate in various metaverse platforms such as Decentraland and the Sandbox. 

Digital asset investors are far from niche. In 2021, according to Forbes, the value of traded NFTs was estimated to have surpassed $24 billion. Virtual assets that exist only in the digital space are becoming essential to the metaverse experience. 

The metaverse is developing into an increasingly vast and rich environment, encompassing infrastructure, gateways, customers, and service providers. Forecasters predict it will give rise to virtual societies that transact in a decentralised manner. 

More brands are expected to break the boundary between virtual and real life to interact more meaningfully with customers. 

Traditional financial services will converge with newer players as the metaverse brings innovation and integration opportunities.

Payment providers are rapidly developing their cryptocurrency propositions to maximise positioning in the metaverse. The car industry will look to leverage augmented reality in automobiles, blending it with existing technologies to improve the driving experience in both real and virtual worlds. 

The metaverse is also expected to allow for the sharing of educational resources on a global scale, providing an immersive study experience and unlocking new learning possibilities. 

How do you invest in the metaverse?

The easiest way is to invest in one or more companies focused on the metaverse. 

Investment banking group Jefferies Financial Group Inc (NYSE: JEF) recommends that investors focus first on hardware providers, then software providers, and then companies that operate within the metaverse3

Traditional technology companies are well-positioned to benefit from increased demand for processors, cloud services, and computing chips. These include Nvidia Corporation, Intel Corporation, Cisco Systems Inc, and Apple Inc

VR headsets such as Meta's Oculus Quest 2 will be in high demand, with the value of augmented and virtual reality products forecast to hit US$36 billion by 20254, according to IDC. A VR headset is required to enter Horizon World, Meta's virtual reality social universe. 

Meta is not the only tech industry leader leaning into the metaverse. Alphabet Inc is reported to be entering the augmented reality space, as is Snap Inc, the company behind Snapchat. 

Gaming companies such as Electronic Arts Inc and Roblox Corp are also expected to be big players in the virtual and augmented reality space. Epic Games, owned by Tencent Holdings Ltd is the company behind Fortnite, a popular online video game.  

If you don't want to pick individual companies, investors can gain exposure to the metaverse through exchange-traded funds (ETFs). Examples include the SPDR S&P Software & Services ETF, which tracks the S&P Software & Services Select Industry Index

Another option is the Global X FinTech ETF which holds companies in the emerging financial technology sector, such as Block Inc

The Vanguard Information Technology Index Fund ETF includes companies that serve the electronics and computer industries or manufacture products based on the latest applied science. Its top holdings include Apple, Microsoft, and Nvidia. 

The pros and cons of operating within the metaverse 

The metaverse offers new opportunities for communication, interaction, commerce, and the lived experience. But new opportunities do not come without potential pitfalls. 

Much about the shape and form of the metaverse is not yet determined. While many are eager to capitalise on the potential advantages of a seamless virtual world, differing visions and underlying technologies may drive advancement in different directions. 

In simple terms, the metaverse is a vast virtual space powered by blockchain, NFTs, and virtual and augmented reality technologies. These combine to offer immersive experiences in virtual worlds. 

But participation relies on internet connectivity and the use of advanced tools. This acts as a barrier to entry which excludes people from participation. For those who do access the metaverse, privacy and security concerns will arise about the use of the data generated by digital participants. 

As the difference between what is real and what is virtual becomes increasingly blurred, the metaverse will begin to influence how people interact with the real world. 

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Motley Fool contributor Katherine O'Brien has positions in Alphabet and Apple. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet, Apple, Bitcoin, Block, Cisco Systems, Ethereum, Intel, Jefferies Financial Group, Meta Platforms, Microsoft, Nvidia, and Roblox. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended Electronic Arts and has recommended the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, long March 2023 $120 calls on Apple, short January 2025 $45 puts on Intel, and short March 2023 $130 calls on Apple. The Motley Fool Australia has positions in and has recommended Block. The Motley Fool Australia has recommended Alphabet, Apple, Meta Platforms, and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.