The Metaverse and Me

Actuary wearing VR goggles, created using Midjourney

This blog post was first published in the October 2022 edition of The Actuary magazine.

The term “metaverse” first appeared in the science fiction novel, Snow Crash. In Neal Stephenson’s seminal novel published in 1992, the metaverse is a “computer-rendered imaginary place” that users access by wearing “goggles that wrap halfway around the head”. What was once a niche nerdy term has exploded into mainstream consciousness. Hitherto 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 web3 – 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”. He foresees a future in which the metaverse is the dominant computing platform. Based on my word frequency analysis of 70 papers on the metaverse published by various venture capital firms and consultancies, “thought leaders” seem to have reached a broad consensus that the metaverse is a “new virtual/digital world”.

Word frequency analysis of 70 papers written about the metaverse

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 (MMOG), and shop online. What these digital 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, 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 learn, work, play, socialise, and shop. A crucial feature is digital property rights – users will be able to truly own digital assets and put them to use as they see fit. The investment thesis for companies like Meta (née 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.

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?”

Mark Zuckerberg in Lex Fridman Podcast

This vision for the metaverse is far from reality. The metaverse exists today in primitive forms. Experts have cited children video game platforms such as Roblox and Minecraft as early prototypes of the metaverse. 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, this technological shift is real. The advancement in hardware and software, and more importantly, the shift in human behavior and demographics – offline to online – has made the metaverse ever more viable.

What does it mean for actuaries?

When attention and economic activities shift to the metaverse, we can be sure that wealth will increasingly be in digital assets. Similar to wealth in the physical world, these assets need to be insured against loss, or invested for returns. Insurance and financial products fit for the digital economy need to be designed and their risks managed.

To play a role, actuaries need to understand and lead the conversation on this technological shift. 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 it was impossible to predict, in the 1990s, how pervasive the internet would be in our daily lives. However, we can be certain that the metaverse, in all its glory, will be stranger than fiction.

The bottom line: The metaverse, while years from coming into fruition, is a real technological shift. As attention and economic activities shift to the metaverse, wealth will increasingly be in digital assets. To play a role, actuaries need to understand and lead the conversation on the digitisation of money and wealth.