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Can Blockchain Growth Really Help Metaverse?
Can Blockchain Growth Really Help Metaverse?

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The global technology landscape is undergoing a paradigm shift. The wave of digital disruptions continues to get stronger as new technologies and solutions based on them keep entering the market. With its perceived potential to impact almost every aspect of modern-day businesses, metaverse has managed to gain a lot of hype among players across industries. Simply put, a metaverse is a virtual shared space, created by the convergence of virtually enhanced physical and digital reality. This space is neither device-independent nor is it owned by a single vendor. Rather, it is an independent virtual space, with key enablers being digital currencies and non-fungible tokens (NFTs). Metaverse can be seen as an amalgamation of various technologies which come together to offer it the capabilities that it is known to have.

 

How does blockchain contribute to Metaverse?

 

While some not-so-new technologies like cloud, artificial intelligence, and AR/VR offer some critical capabilities to metaverse, blockchain alone offers a major chunk of the capabilities. The figure below shows the top metaverse technologies as perceived by the executives (respondents).

Clearly, cryptocurrency, web3, blockchain, and Nonfungible Tokens (NFTs) are some of the major metaverse technologies. Since blockchain is one of the building blocks for cryptocurrencies, web3, and NFTs, it would not be wrong to think of it as one of the key building blocks of metaverse. Hence, some of the future growth of metaverse can be attributed to the flow of investments into blockchain, along with investments into application areas of metaverse, such as e-commerce, gaming, concerts, and social and entertainment events among others. However, the current state of the metaverse market is one of the pressing concerns for both investors and technology providers.

What do we know of the current state of the market?

 

One of the leading innovators in the metaverse space, Meta Platforms Inc., has been registering significant losses in its Reality Labs division. Reality Labs is the unit of Meta that focuses on the metaverse. So far, investors are less than thrilled with the performance of this division.

Meta lost roughly $13.7 billion on Reality Labs in 2022, almost 35% more than what it had lost on the division in 2021. Over the same period, the revenues from the division slipped from $2.27 billion to $2.16 billion.

In other words, the company, through its Reality Labs division, lost more than 6 times the money it generated in 2022. This was worse than the 4.5x loss that it had recorded in 2021. The company expects its Reality Labs operating losses to grow significantly even in 2023. Beyond 2023, the company expects to plan investments in Reality Labs in a way that allows them to achieve their long-term goal of growing their overall operating income.

While this sounds reassuring to some extent, there are still signs that companies are losing confidence in metaverse. In March 2023, Disney sacked its 50-people metaverse team, hinting towards its fading enthusiasm in the project. Earlier in February 2023, Microsoft reportedly laid off its 100-member Industrial Metaverse Core team that it founded in October last year. Very recently, Walmart Universe of Play left Roblox metaverse. While some companies continue to stick to metaverse in order to offer out-of-the-world experience to their customers, fading enthusiasm of some technology providers for metaverse indicates unclear prospects of this market growth.


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Dhiraj Sharma
Principal Analyst

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