Blockchain and the Metaverse

Disclaimer: This article is a final deliverable from Prof. Luyao Zhang’s project entitled “From ‘Code is Law’ to ‘Code and Law’: A Comparative Study on Blockchain Governance,” supported by the 2023 Summer Research Scholarship (SRS) program at Duke Kunshan University. Our Summer 2023 scholars also receive additional support from Wang-Cai Biochemistry Lab Donation Fund. SciEcon wholeheartedly supports DKU’s noble mission of advancing interdisciplinary research and fostering integrated talents. Our support is solely focused on promoting academic excellence and knowledge exchange. SciEcon does not seek any financial gains, property rights, or branding privileges from DKU. Moreover, individuals involved in this philanthropy event perform their roles independently at DKU and SciEcon.

Keywords (#hashtags)

Blockchain #Metaverse #NFT #Immersive Reality #Digital Ownership

Highlights:

Research: Perform interdisciplinary research at the intersection of Blockchain technology and the Metaverse to identify potential synergies and challenges.

Innovation: Understand the potential role of blockchain in the Metaverse and how the technology can foster trust, transparency, and security in the virtual world.

Leadership: Advance the scope of research on the topic of Metaverse on blockchain and provide a comprehensive overview of the existing research space.

Introduction

What is Blockchain’s Role in the Metaverse? The Metaverse can be visualized as a digital embodiment of the physical world. By duplicating the physical world into the digital realm, the Metaverse envisions the internet as an immersive alternative virtual reality (Huynh-The et al., 2023). In recent years companies like Meta (formerly Facebook) have sunk large amounts of money into the idea, with Meta alone spending over 36 billion dollars on research and development (Business Insider, 2022). As the Metaverse begins to take shape, blockchain will be critical in its eventual success (Huhyn et al., 2023; Truong et al., 2023). Several different aspects of blockchain technology can be applied to the eventual Metaverse: decentralization, traceability, smart contracts, and digital asset ownership (fig. 1). Blockchain technology is uniquely positioned to revolutionize how the Metaverse is designed and has the potential to become a fully integrated part of the virtual world.

Figure 1: Applications of Blockchain in the Metaverse (created using Whimsical)

Applications of Blockchain Technology

The Foundation of Trust A successful Metaverse requires a platform that is perceived as both trustworthy and secure. Blockchain’s use of consensus algorithms, specifically including Proof-of-Stake (POS) and Proof-of-Work (POW)[1], ensures the integrity of data and prevents unauthorized modifications (Sriman et al., 2020). Blockchain uses a distributed ledger (World Bank, 2018) [2]. Public and semi-public ledger technology ensures that anonymous actors must be verified (Huhyn et al., 2023). Building the Metaverse using blockchain verification will provide users with a transparent environment where user identities, virtual assets, and transactions are publicly verifiable and lawful (Badruddoja et al., 2022). Integrating blockchain technology into the metaverse empowers participants to control their digital presence confidently. This also encourages trust between individuals and eliminates the need for intermediaries (brokers) (Sathya, 2023). Using blockchain technology to authenticate and verify identities and ownership of virtual assets creates a secure and immutable system (Hoffman et al., 2017), meeting a critical need in the Metaverse.

Digital Asset Ownership

One of the key drivers behind the increasing popularity of the Metaverse is the ownership and exchange of digital assets. These assets can range from virtual real estate (on platforms like Sandbox and Decentraland) to avatars, and other unique virtual items with real-world value (Time Magazine, 2023). Blockchain’s decentralized ledger system can facilitate the creation, distribution, and ownership of these assets, ensuring transparency (Harvard Business Review, 2020). Blockchain technology can be used to verify asset ownership and user identity. Each digital asset can be represented as a unique token on the blockchain (Wang et al., 2022). When these tokens are traded, ownership transactions are recorded on the blockchain and are immutably stored across a distributed set of network nodes (Kim et al., 2019). Decentralized identifiers (DID) [3] also play a role in verifying digital asset ownership (Brunner, 2021). DID is designed to verify user credentials by providing a public key while retaining user control over a private key (Farmer, 2021). Currently, Bitcoin and all other major cryptocurrencies, are built using public-key cryptography, which is used to retain user control over a given crypto wallet (Coinbase, 2023). By using a public and private key, DID provides a secure way to confirm users’ identities while simultaneously keeping the platform decentralized. Digital asset transaction is also facilitated through smart contracts (fig. 2). Smart contracts are self-executing agreements written using code. They are intended to serve as a ‘transaction protocol’ to govern exchange (IBM, 2020). Smart contracts enable the seamless transfer of assets, automating ownership rights and royalties. For example, when a digital artist sells their artwork within the Metaverse, a smart contract can automatically ensure that the artist receives a percentage return on every subsequent sale. Blockchain technology can govern both the sale and transaction of digital assets, ensuring a secure, effective, and decentralized system.

Figure 2: How Blockchain Confirms Digital Asset Ownership

Community Governance

Blockchain’s decentralized nature aligns with the democratic principles necessary for community governance within the Metaverse. To the extent that any realization of the Metaverse will remain decentralized (as opposed to corporate-owned), blockchain technology can be widely utilized (Tan et al., 2022). Through decentralized autonomous organizations (DAOs) [4], a blockchain-powered voting system can help empower users to collectively make decisions regarding the rules, policies, and development of the virtual universe (The New York Times, 2023). In a DAO, each member has voting power based on the number of tokens they hold or their contribution to the organization. When someone wants to propose a new project, the proposal is submitted to the DAO, and members can vote on whether to accept or reject the proposal (Wang et al., 2019). The entire voting process is then recorded on the blockchain, making it tamper-proof and verifiable (El Faqir et al., 2020). In other words, DAOs forego centralized leadership in favor of direct member-driven governance (Sing et al., 2019; Zhao et al., 2022). Well-known examples of DAOs include Decentraland, an online world where governance decisions are decided based on democratic vote, and BitDAO, a decentralized investment fund that allows members to vote on how capital is managed (Forbes, 2022). However, while DAOs are a pioneering system of governance, this organizational type can also suffer from a slow decision-making process, as no decisions can be implemented without voting mechanisms (Zhao et al., 2022). While there are some limitations, DAOs have the potential to provide a platform for individuals to vote on proposals, allocate resources, and shape the future of the Metaverse, with all voting being managed by smart contracts (fig. 3). Blockchain-based governance models can prevent monopolistic practices and promote decentralization, supporting a sustainable Metaverse ecosystem.

Figure 3: DAO Organizational Structure (DEV Community)

Conclusion & Discussion

Integrating blockchain technology into the Metaverse holds great promise for transforming the digital landscape, especially as the market grows (fig. 4). Blockchain’s decentralized nature provides security and transparency, allowing users to control their digital presence and verify ownership of digital assets. Smart contracts enable seamless peer-to-peer asset exchange, ensuring fairness and empowering individuals. Decentralized governance through DAOs promotes democratic governance and prevents monopolistic dominance of the Metaverse. Blockchain’s eventual integration has the potential to alter the future and effectiveness of the Metaverse permanently. However, there are a set of research questions that still need to be addressed, including:

what are the potential vulnerabilities and risks associated with using blockchain technology in verifying digital asset ownership in the metaverse? How can smart contracts most effectively govern exchange, ownership rights, and other digital aspects of the Metaverse? What role will NFTs and tokenization play in governing online digital communities? Further exploration of these questions is critical to the success of an eventual Metaverse run based on Blockchain technology.

Figure 4: Projected Metaverse Market Size Global Report (Polaris Market Research, 2023)

Relevant Materials

[1] Proof-of-Stake (POS) and Proof-of-Work (POW)

Proof-of-Stake is a consensus algorithm where validators are chosen based on the number of cryptocurrency tokens they hold, and the likelihood of being selected is proportional to their stake. Proof-of-Work is also a consensus algorithm, but validators are instead chosen based on the speed with which ‘miners’ can solve mathematical puzzles, a much more energy-intensive process. (Insider, 2022)

[2] Distributed Ledger

A distributed ledger records and stores transactional information across multiple distinct nodes/computers in a network. This is one of the key security measures underpinning Blockchain. (National Cyber Security Center, 2023)

[3] DID

DID, or decentralized identifier, allows individuals to verify their digital identity securely and retain control over their data in a decentralized manner. This is achieved through a ‘private’ and a ‘public’ key. (Forbes, 2023)

[4] DAO

A DAO, or decentralized autonomous organization, is a self-governing and decentralized entity that operates using predefined rules (otherwise known as smart contracts), enabling collective decision-making through a voting system. (Crypto.com, 2022)

About the Author(s)

My name is Colden Johnson. I am a rising Sophomore student at Duke Kunshan University. I am considering a major in either Political Economy or Computation and Design with a track in Computer Science. My current research goals lie at the intersection of these two fields, and I am specifically interested in applying artificial intelligence and computation to address questions in the humanities.

Acknowledgments

I am thankful to the following people for their helpful comments on improving this article, especially to Prof. Luyao Zhang for her insightful feedback as my research mentor.

Interim Executive Editors: Xintong Wu, Wanglin Deng

Associate Editor: Xinyu Tian

Chief Editor: Prof. Luyao Zhang

Design: Yixuan Li