The metaverse is coming – what is it,and why does it matter for actuaries? Zhixin Lim explains
The term ‘metaverse’ first appeared in Neal Stephenson’s seminal 1992 science fiction novel Snow Crash. Stephenson depicts the metaverse as a “computer-rendered imaginary place” that users access by wearing “goggles that wrap halfway around the head”. What was once a niche, somewhat nerdy term has now exploded into mainstream consciousness. Previously the domain of science fiction, the metaverse is slowly becoming a reality.
What is the metaverse?
As the metaverse is still being built, there is much confusion around what it is and what it will be. Notably, it is often conflated with Web 3.0 – a decentralised form of the internet enabled by blockchain technology. Blockchain is a useful building block of the metaverse, but may not be necessary.
Mark Zuckerberg, who pivoted Facebook to the metaverse, has touted it as the “successor to the mobile internet” and foresees a future in which the metaverse is the dominant computing platform. Based on my word frequency analysis of 70 papers on the metaverse that have been published by various venture capital firms and consultancies (Figure 1), ‘thought leaders’ seem to have reached a consensus that the metaverse is a new virtual or digital world.
We already spend the bulk of our time in digital spaces; we collaborate on Microsoft Teams, meet on Zoom, interact on social media platforms, play in massively multiplayer online games and shop online. What these experiences lack is presence – that sense of being with people and being in a physical space. The vision for the metaverse is an immersive virtual world: an extension of reality, where any experience is possible and limited only by imagination.
Future and current state
Just as the internet has a multitude of websites and applications, the metaverse will consist of a wide array of interconnected and interoperable digital environments where we can learn, work, play, socialise and shop. A crucial feature is digital property rights – users will be able to truly own digital assets and use them as they see fit. The investment thesis for companies such as Meta (formerly Facebook), which is pouring a significant amount of capital into building the metaverse, is that this new virtual world will have a thriving digital economy, with a GDP exceeding that of the physical world.
Speaking on The Lex Fridman Podcast earlier this year, Mark Zuckerberg said:
“I would imagine the economy for virtual clothing, as an example, will be just as big (as in the physical world) – why wouldn’t I spend almost as much money in investing in my appearance for important meetings (in the metaverse) as I would in the physical world?”
This vision is currently far from reality. The metaverse exists today in primitive forms; experts have cited children’s video game platforms such as Roblox and Minecraft as early prototypes. An open, interoperable metaverse with digital property rights is at an early experimental stage, held back by a lack of standards. Crucially, there is no compelling reason for users to return to these nascent digital environments once the novelty wears off. As it exists today, the metaverse has no killer applications.
However, the technological shift is real. The advancement in hardware and software – and, more importantly, the shift in human behaviour and demographics from offline to online – has made the metaverse ever more viable.
What does this mean for actuaries?
When attention and economic activities shift to the metaverse, we can be sure that wealth will increasingly be in digital assets. Like wealth in the physical world, these assets will need to be insured against loss or invested for returns. Insurance and financial products that are fit for the digital economy will need to be designed, and their risks managed.
“When attention and economic activities shift to the metaverse, we can be sure that wealth will increasingly be in digital assets”
Actuaries need to understand and lead the conversation on this technological shift if they are to play a role. Reject change at your own risk, because in the future, companies will have access to a wide pool of talents in a borderless virtual world, and preference for in-person collaboration will be laughable.
Of course, no one can predict the full impact of the metaverse – just as, in the 1990s, it was impossible to predict how pervasive the internet would become in our daily lives. However, we can be certain that the metaverse, in all its glory, will be stranger than fiction.
Zhixin Lim is actuarial head of projects at HSBC Insurance. He writes about technology and business on his personal blog, odds-and-ends.net