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Asset or Liability? Digital assets and the Metaverse paradox

Capgemini
2022-02-08

NFT is one of the several digital assets that are taking the metaverse by storm. Before we go down the rabbit hole, a primer on metaverse and digital assets may be in order.

Enter The Metaverse

We are all aware of Marvel and DC universe. Is Metaverse a similar collection of superheroes? Well, those who hobnob there would consider themselves special. So, what’s all the fuss about Metaverse?

When Mark Zuckerberg rebranded Facebook as Meta, the world noticed. Metaverse is a virtual reality that exists within the physical world, created, and accessed by people in the real world. Anyone remember the VR and AR based cartoons like Johnny Quest? That is now a reality.

So, is Metaverse just another simulation? According to Meta CEO Mark Zuckerberg, the Metaverse is “an embodied internet, where instead of just viewing content—you are in it.” Basically, you can go to a virtual concert, buy a virtual gift, or even enjoy a virtual vacation in Bora Bora.

Did anyone say virtual concert? Will BTS appear in hologram? With the pandemic throwing as many variants as the number of letters in the Greek alphabet, not many might risk attending live concerts with thousands of probable carriers around them. Metaverse concerts though are all a rage. In August 2020, Canadian singer The Weeknd performed a live version of his “Blinding Lights” (The TikTok Experience), featuring an animated version of the artist with people’s real-time comments appearing as flashing lights and fireworks in the background. Many participants claim that it was close to a real-world concert.

Closer home, Indians witnessed the first metaverse concert featuring the celebrated Sardar, Daler Mehendi. The popular singer dedicated songs like Namo Namo and Jaago India to the Prime Minister. The experience was enhanced as he dropped a few NFTs. Gamitronics, a Hyderabad-based game studio, created the blockchain- powered metaverse. His booming voice reverberated across the metaverse as he crooned India.

Now that we have got a glimpse of Metaverse, it is time to learn about Digital Assets.

A digital asset is anything that is stored digitally and is uniquely identifiable that organizations can use to realize value. Examples of digital assets include documents, audio, videos, logos, slide presentations, spreadsheets and websites but not limited to them.

Asset Section of The Virtual Balance Sheet

Blockchain technology is responsible for proliferation of several valuable assets. Here are five main types of digital assets that exist on blockchain – Cryptocurrencies, crypto commodities, utility tokens, security tokens and hybrid tokens.

For starters, the concept of cryptocurrency seems cryptic. To put it simply, cryptocurrencies are digital currencies that are issued and transferred electronically. They have an inherent value, provide a means of exchange and function as a unit of account. Some of the prominent cryptocurrencies are Bitcoins, Ethereum, Litecoins, and Dogecoins.

Why Digital assets? It is estimated that the digital asset market is set to grow from $1.24bn in 2018 to $6.9bn by 2024. Besides, digital assets add value to every organization.

A fungible commodity is replaceable by another. What’s the fun in fungibility? Let’s talk about NFTs or Non-fungible tokens. NFTs are a new way of creative expression, allowing artists, brands, and companies to provide authenticity and originality in the rising digital age. They are blockchain-based certificates of authentication for digital objects, which could allow proof of ownership of goods in the metaverse. NFTs are unique, irreplaceable and provide exclusive ownership on the blockchain and hence there is so much interest around it. Essentially, you get to own a piece of digital work that no one else can possess. Depending on its value in the NFT space, you can choose to keep it as a collectible or trade it for a profit. No wonder, a collage of images titled “First 5000 Days” sold for $69 million at a Christie’s auction!

How The Twain Meet…

One requires digital assets such as NFTs to enter the metaverse. They are required to create identity, become part of community, and immerse in virtual social experiences. Individuals can sell or buy items in metaverse and transfer them through the internet. Let’s just say that digital assets are the currency required to lead a life in the virtual metaverse with great real-world potential.

Who Is Watching?

Every asset market is regulated. Should digital assets be an exception? Certainly not. So, what are the regulations around them? Currently, there is no regulation over the virtual assets. China is the only country which has criminalized possession and mining of cryptocurrencies. Governments are likely to err on the side of conservatism. Even the founder of Twitter, Jack Dorsey, has cautioned, “Know what you are getting into”. There are concerns on the possible “hyper-financialization” of everything, as a result of the tokenization culture.

The Indian government has signaled it will soon implement official laws and regulations to govern the marketplace. The proposed bill titled “The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021” likely to be introduced gives India a chance to bring in a progressive regulatory framework that could propel the country to the forefront of blockchain technology. However, the central bank/RBI has red-flagged risks from cryptocurrency to the financial system. But the announcement of new digital rupee to be issued by the Reserve Bank in 2022-23 and the finance minister announcing taxes on gains from digital assets should lend legitimacy.

In conclusion, digital assets will only proliferate further. Also, we will see more inhabitants in the metaverse. Regardless of the side you choose, many believe this is the future. It would be a huge opportunity missed not to jump into the rabbit hole of metaverse and digital assets but also very important to tread with caution. The metaverse might be virtual but the fun will be real!

About the author:

Padmini Talagavaram
Vice President – Capgemini Invent India
Head of Enterprise Transformation