Arriving home from work, you log on to your favorite website, take control of your avatar — a version of yourself in virtual reality — and rush through the metaverse over to Snoop Dogg's mansion where he's about to perform live, sort of.
In truth, it's really you and your avatar watching Snoop Dogg perform through his avatar, and you're in a Web3 world at a virtual replica of his mansion. But some of your best friends are there, also in virtual form.
It's just one of many scenarios at Sandbox, a creator of 3D virtual reality worlds where users can buy a plot of digital real estate, build a home or even open up a casino. They can explore creations of digital art and visit strange new worlds.
There are countless other metaverse companies like Sandbox. And it's all made possible thanks to so-called Web3, which some see as the next technology frontier. The initial idea for Web3 was presented eight years ago yet it remains in the early stages of development.
While entertainment plays a big role in Web3's development, not all of it is fun and games. A number of business-use applications are coming into play involving metaverse companies.
After the Snoop Dogg concert, you might pick up some sneakers for your avatar at the virtual Nike store and pay with cryptocurrency. Why shell out money for an avatar? Because you want your virtual self to be fashionable. For some, it's worth the money.
Then the transition from the metaverse back to the physical world begins. When the evening ends, your avatar might pop into a local restaurant and order some takeout for home delivery to your real self. Don't worry, the food is real.
Envisioning A Multitrillion-Dollar Economy
Definitions of Web3 differ, but it's generally seen as a path to a third generation of the internet. It's also where the metaverse, championed by Facebook owner Meta Platforms, will take root. Facebook changed its name to Meta Platforms in October as it set the company's direction into the metaverse. Analysts expect to see investments in Web3 and the metaverse in the tens of billions of dollars. They believe it could become a multitrillion-dollar economy.
On the other hand, what some see as the next big thing might become the next big flop, taking hundreds of millions out of the pockets of unaware consumers.
"Every 10 to 15 years we have a shift on how technology is used," said Allan Cook, who oversees virtual reality and augmented reality consulting at Deloitte. "We are going through another one now and we're just beginning to scratch the surface."
The idea for Web3 was presented in 2014 by Gavin Wood, a co-founder of the Ethereum cryptocurrency. It was called Web 3.0, and later shortened to Web3.
Wood believed the current generation of the internet, known as Web 2.0, was overly controlled by Big Tech companies such as Apple, Amazon, Twitter and Google owner Alphabet.
He felt they collect large amounts of personal data on consumers, used for profiling and enabling targeted advertising and monetization. Consumer privacy breaches and censorship also raise concerns.
A Lack Of Trust In Big Tech
Big Tech could not be trusted with protecting consumer privacy or avoiding abuse of that data, Wood said at the time.
Moreover, he felt industry regulators might not be effective at maintaining public trust in the internet or data security. Many others share his concerns today. Congress is threatening Big Tech with antitrust actions.
Wood and other early supporters of Web3 set out to give control back to consumers. To do that, they envisioned a decentralized internet that would loosen the central control Big Tech had over users' personal data. In fact, Web3 would enable users to make money off their personal data, as well as their creations, such as a game or artwork.
As to why Web3 is happening now, Cook says the right technologies are coming together at the right time.
Not everyone thinks Web3 will work out this way. Venture capital giants and Big Tech will not stand still while their Golden Goose is being cooked.
Kevin Werbach, author of "The Blockchain and the New Architecture of Trust," has said that "many so-called 'Web3' solutions are not as decentralized as they seem, while others have yet to show they are scalable, secure and accessible enough for the mass market."
That may change, but it's not a given that these limitations will be overcome.
Using Disruptive, Cutting-Edge Technology
For the Web3 metaverse to work as envisioned, it requires the use of blockchain ledgers, cryptocurrency and non-fungible tokens. NFTs are unique digital assets — often works of art, game characters and other creative products — documented on a blockchain, or persistent digital ledger.
Web3 also will rely heavily on the expansion of 5G wireless, edge computing and cloud storage to bring data as close and as fast as possible to the user. When augmented reality and virtual reality gear is added to the mix of technologies, it provides users a gateway into the metaverse.
Technologists describe the metaverse as a shared, 3D virtual reality environment. People can meet in a virtual world to engage in work activities, play games or simply visit with friends, among other things. While Web3 and the metaverse are not one and the same, they are complementary technologies. Metaverse hype saturated the CES trade show in Las Vegas earlier this year,
"We're moving rapidly into the future," Gartner analyst Avivah Litan told Investor's Business Daily. "Web3 innovations will take the internet into new realms and give rise to applications not previously possible."
Public Companies Embrace Web3, Metaverse
The Web3 metaverse is in the early stages of development, and use cases and applications continue to evolve. That's evident by the growing number of brand-name companies jumping into the metaverse.
They include Walmart, Disney, Nike, Adidas, Samsung and McDonald's. Fashion icons Louis Vuitton, Burberry and Gucci have also joined the fray.
The area where Web3 and the metaverse are most evident now is 3D virtual worlds created by internet companies such as Sandbox. Sandbox is a proprietor and seller of digital real estate. Users can buy a digital plot of land and do whatever they want with it.
Everything inside the Sandbox is created by the users. But it's not just one giant game. The Sandbox consists of many stand-alone games, environments and other experiences, including virtual reality malls, theme parks and zoos.
"We are just beginning to scratch the surface of this and how to use it better," Deloitte's Cook told IBD.
The earliest version of the internet in the 1990s, called Web 1.0, was simplistic. Users logged in mostly to read content or email. It consisted of rudimentary text and images.
Then came Web 2.0, which had the advantage of wireless technology, leading to a boom in connectivity and interactivity. The Web 2.0 version that exists today started in the mid-2000s.
It enabled platforms like Google, Amazon, Facebook and Twitter, making the internet abundantly useful for connecting and transacting online.
Create What You Want In A Virtual World
In Sandbox, people are creating and selling virtual weapons for gaming, virtual cars, kitchenware for their virtual house, pets and pretty much anything else people might want in the real world.
Purchases are made with cryptocurrency, which is used like cash. An NFT certifies the ownership of a digital asset. This can include items such as artwork, memes, music and digital collectibles. There also are third-party marketers of NFTs, the largest being OpenSea.
The best known example of an NFT is the digital artwork by the U.S. artist Beeple. A collage of his artwork sold for $69.3 million one year ago. An NFT might sell for $100 or $100,000 in cryptocurrency, depending on the object.
Global NFT sales reached $17.7 billion in 2021, up from $82.5 million in 2020, a 200-fold increase, said a study by NonFungible.com and BNP Paribas. The report noted that most NFT transactions — 78% of the entire market — have used the Ethereum blockchain. It said profits soared to $5.4 billion in 2021, up from $12 million the prior year.
Besides Sandbox, other developers of virtual reality 3D worlds include Decentraland, Cryptovoxels, Somnium Space, NFT Worlds and Worldwide Webb.
Users who want to participate in these worlds must sign up for a digital wallet, which holds their cryptocurrency. They also need to create an avatar.
Web3 Skepticism
London-based STA Group, which runs a sports technology business, said public scrutiny of NFTs has intensified and skepticism exists on several fronts.
"Speculation has been rife as to whether this intense growth period is proof of an unsustainable bubble or a booming market that will stabilize over time," STA Group said in an opinion piece posted on its website. "Recent data suggests the latter."
Sandbox is a subsidiary of Hong Kong-based Animoca Brands, a game software and venture capital company. Animoca has more than 150 investments in NFT-related blockchain companies, the company says.
For the six-month period ended Dec. 31, the average price of a land parcel doubled to $12,000 across four main metaverse websites, according to Everyrealm, an investor in virtual land and NFTs.
In June, Everyrealm paid $913,000 for a bundle of land in Decentraland, which it's turning into an entire shopping district. Some large plots, called estates, have sold for several million dollars.
Property values, just like authentic real estate, rise and fall depending on location and size of land, scarcity of plots and population.
Nike, McDonald's File New Trademarks
Nike has filed for several trademarks with the U.S. Patent and Trademark Office that signal its intent to make and sell virtual Nike-branded sneakers, clothing, headwear and apparel in the Web3 metaverse.
In December, Walmart filed multiple trademark applications related to cryptocurrency and the metaverse. McDonald's also filed trademark applications and has plans for a virtual reality restaurant.
Users could order a virtual burger and chat with friends at its virtual fast-food joint. Or, they could place a real order for a burger and fries and have it delivered to their home.
Panera Bread filed a trademark for the name Paneraverse. The food chain intends to develop virtual restaurants and provide food-delivery services.
"We are now at an inflection point, where it seems that not a day goes by without a company or celebrity announcing that they are building a presence in a virtual universe," JPMorgan said in a recent report titled "Opportunities in the Metaverse."
Snoop Dogg Goes All ln With Web3 Metaverse
Snoop Dogg, an early investor in the Web3 metaverse, owns multiple plots of virtual land in Sandbox, including three estates. Among other things, Snoop Dogg built a replica of his own California mansion on his digital plot. He holds exclusive parties and concerts there.
The entertainer also launched an NFT collection of avatars he designed and sold as NFTs. In December, someone bought a plot of land right next door to Snoop for about $450,000. The least expensive plot of land on Sandbox is about $9,400.
Companies exist to handle digital mortgages, such as TerraZero, which also has properties for sale or rent.
In March, TerraZero purchased a 185-parcel estate in Decentraland in a deal it valued at $2.77 million. TerraZero plans to create a massive citylike environment akin to Disney's Epcot Center. It envisions it being a premier entertainment destination, with immersive experiences like virtual concerts, film screenings, shopping malls, museums, cultural sites and educational experiences.
Other companies even provide digital property development services and property management, including rent collection. Success will depend on whether the expected masses come to these digital worlds.
Metaverse Could Infiltrate Every Sector
"The metaverse will likely infiltrate every sector in some way in the coming years, with the market opportunity estimated at over $1 trillion in yearly revenues," JPMorgan said in its metaverse report. "Whether it's large tech players such as Microsoft planning to create realistic workspaces, or Ariana Grande holding a concert in Fortnite, the opportunities presented by interactive, digital worlds seem limitless."
Europe's second-largest bank, HSBC, in March said it will buy land in Sandbox. It plans to "develop, engage and connect with sports, esports and gaming enthusiasts."
The plot of land includes a virtual reality sports stadium.
"We see great potential to create new experiences through emerging platforms, opening up a world of opportunity for our current and future customers," Suresh Balaji, HSBC's chief marketing officer for the Asia-Pacific region, said in written remarks announcing the plan.
Potential Web3 Opportunity In The Trillions
In a video interview produced by Goldman Sachs, analyst Eric Sheridan estimated that global investments made in Web3 and metaverse technology could easily exceed $100 billion and lead to a digital economy that could get as high as $8 trillion on the revenue and monetization side.
"We look at the digital economy today, which is roughly about 20% to 25% of the global economy," Sheridan said. "We see the digital economy continuing to grow. And on top of that we see a virtual economy that will grow within and alongside this digital economy."
A 184-page report from Citi explores numerous aspects of the metaverse, which it says could become a $13 trillion market with more than 5 billion users.
"We believe the metaverse may be the next generation of the internet — combining the physical and digital world in a persistent and immersive manner — and not purely a virtual reality world," said the Citi report, titled "Metaverse and Money."
Citi also says building the metaverse and Web3 requires a computational efficiency improvement of more than 1,000 times above today's level.
Tech Companies Benefiting From Web3
Which companies do analysts think will benefit from the transition to the Web3 metaverse? They include Meta, Apple, Google, Snap and Qualcomm, as well as Roblox and Unity Software. Nvidia is also making a big push into the field.
While companies like Roblox and Meta are focusing on video games, entertainment and casual meetups for the metaverse, Nvidia is targeting business applications.
Microsoft pitched its $69 billion acquisition of game company Activision Blizzard as a metaverse play. Activision Blizzard is the company behind the "Call of Duty" and "World of Warcraft" franchises.
"The NFT market is still very much in its infancy. Now may not be the time for your brand to embrace it, but don't ignore it. It is here to stay," STA Group said.
Please follow Brian Deagon on Twitter at @IBD_BDeagon for more on tech stocks, analysis and financial markets.
