From Axie Infinity to Bored Apes, the Federal Government is Coming to the Metaverse

The Metaverse is a futuristic iteration of the Internet, featuring a digital economy and immersive virtual environments, as well as other interactive features. This relatively nascent space has gotten so much attention in recent years that conservative estimates suggest its total valuation could exceed his $800 billion by 2024. . Meta (the parent company of Facebook and Instagram), Google, Microsoft, Nvidia, Nike, and others have created a Fortune 100-scale Metaverse splash.

But high valuations come with intense scrutiny from increasingly tech-savvy financial regulators. Unlike traditional technology products, which often focus on growth over revenue, some metaverse projects impose questionable monetization schemes on users before launching a live experience. Metaverse real estate is a classic example of this practice, with platforms like Big Time Games selling land in the Metaverse before opening access to the games.

Normally, the US Securities and Exchange Commission won’t intervene unless retail investors face predatory courtship without full disclosure of what they’re investing in. The lines of what is classified as a security are often blurred, but in the Metaverse, land sale practices should generally be considered collateral under U.S. law.

GameFi platforms like Axie Infinity are demonstrating the speed with which the Metaverse project can generate billion-dollar economies. Its enormous size requires similar internal controls and monetary policies in multinational banks and even small countries. They must have compliance officers who coordinate with government regulators and even get to know their customers for large deals.

The metaverse is intrinsically related to financialization. You can’t do physical harm in the metaverse (yet), but a lot of financial damage has already been done. The company behind Bored Apes Yacht Club’s non-fungible tokens (NFTs) was hacked this year after the community manager’s Discord was compromised. The hacker took away her NFT worth 200 Ether (ETH).

A number of Wall Street banks were recently fined $1.8 billion for using “banned” messaging apps. Metaverse projects like Yuga Labs should face similarly aggressive fines for not implementing secure financial and technical controls.

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An important first step in the metaverse project is to classify the types of assets to be issued. For example, is it security? utility token? Or something else? This may seem like a daunting task, but by the time of the first coin offering in 2017, the groundwork has already been laid. Regulators and protocols must do more to provide clarity and protect consumers.

Once the classification process is complete, the next step is to develop a regulatory framework that can be applied to the metaverse. This may include rules and regulations regarding the offering of securities, anti-money laundering, consumer protection, etc.

Getting the right balance is important. Too much regulation can stifle innovation and adoption, while too little regulation can spread abuse. It’s up to policy makers to work with founders to find that sweet spot.

Despite the concerns, the Metaverse will integrate a set of new technologies such as Virtual Reality (VR), Augmented Reality (AR) and NFTs. All of them together will propel space forward with momentum in the near and medium term.

Risks Associated with Operation in the Metaverse

Cybercriminals are continually discovering new tactics to exploit users of the Metaverse. That means things like hacking schemes and identity theft. The AR and VR wearables associated with these ecosystems generate large amounts of personal data (including biometric information from eye-tracking and body-tracking technologies), making the metaverse an intriguing playground for bad guys.

Besides financial theft, there are many privacy concerns as 3D data sets reveal increasingly sensitive personal information. The European General Data Protection Regulation and the California Consumer Protection Act are overarching privacy laws that require technology platforms to hire data protection officers and data privacy compliance officers. Metaverse platforms will have to play a similar role and may face even greater regulatory scrutiny given the sensitivity of the data they collect.

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As demand for the metaverse continues to surge, so does the need for better internet services, as the former requires more bandwidth (estimated at several orders of magnitude given current internet traffic levels) . As a result, many communication networks and their existing data distribution infrastructure could well be overloaded.

One way to solve this problem is to invest in 5G technology and build a stronger infrastructure. But this requires time, money and resources. Another solution is to develop more efficient data compression algorithms that help reduce the amount of bandwidth required to transmit data within the metaverse.

Finally, aside from all technical risks, an aspect of the metaverse to consider is the potential negative impact the metaverse can have on an individual’s mental health. The ecosystem is unencumbered by criminal law, so users have no recourse when faced with online abuse (such as racism).

Regulatory challenge

A network operator, corporation or business may, on paper, exist outside the proposed regulatory framework if it chooses to do so, limiting its commitment to regulation in a particular country. It only has the effect of

This is because many of the social media platforms we use today, such as Twitter and Facebook, are not based in the United States, but operate in countries such as Ireland and Singapore, where data protection laws are much more relaxed. This is fully demonstrated by the fact that

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The same logic applies to the metaverse. Even if a country were to pass a law that sought to regulate this space, it is doubtful that all businesses would agree to comply with it.

Therefore, unless all participants in the Metaverse agree and agree to the vision of setting a unified governance code, third party entities (such as offshore investment firms) create their own unregulated pockets within the Metaverse. there is no way to stop it. A metaverse that users of other digital ecosystems can access without explicit restrictions.

Towards a decentralized future

The Metaverse is poised to reshape our lives, whether we like it or not. Ultimately, the “move fast and break things” ethos of technology development is still alive and well, and history shows that founders move much faster than regulators can catch up. However, it is critical that regulators act proactively to allow innovation to thrive without causing catastrophic economic damage to retail investors. After all, the choices we make today will determine how this technology will shape our tomorrow.

Huy Nguyen is the co-founder of KardiaChain, Southeast Asia’s first interoperable blockchain infrastructure. Since May 2022, he has been Vice Chairman of the Vietnam He Blockchain Association, an official government agency promoting mass adoption in Vietnam. Previously he was a senior technical at Google where he was a lead where he was a manager and he has over 10 years of experience building large scale distributed infrastructure such as the Google Access Wireless Platform and the Google Fiber Network Infrastructure.

This article is for general information purposes and is not intended, and should not be construed as legal or investment advice. The views, thoughts and opinions expressed herein are those of the author and do not necessarily reflect or represent the views or opinions of Cointelegraph.