Andrew Steinwold, managing partner at Sfermion, and John Egan, CEO at L’Atelier BNP Paribas, discuss NFTs and debate the characteristics of the metaverse. Show highlights: 

  • their backgrounds and how they got into NFTs
  • how they each define the metaverse
  • what NFTs have to do with the metaverse
  • how John and Andrew’s depiction of the metaverse differs
  • what John thinks about Facebook’s entrance into the metaverse
  • whether Second Life is a metaverse game
  • how blockchain technology allows for an open metaverse (and why Web2 is “communist”)
  • what NFTs currently unlock for the metaverse
  • whether the metaverse will necessarily have to be experienced through augmented reality
  • whether there will be multiple metaverses across different blockchain platforms
  • why John thinks NFT maxis and crypto maxis are destined to clash
  • how the metaverse is changing how people generate income 
  • how to make the metaverse more accessible
  • whether regulators will force the metaverse to be siloed
  • how the metaverse will handle jurisdictional disputes
  • what happens when someone’s Web3 avatar/identity is stolen in the metaverse
  • what John and Andrew predict will happen in the metaverse over the next 6-12 months. 

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NFT Research

John Egan

L’Atelier 

Andrew Steinwold

Laura Shin:

Hi, everyone, welcome to Unchained, your no-hype resource for all things crypto. I’m your host, Laura Shin, a journalist with over two decades of experience. I started covering crypto six years ago and, as a senior editor at Forbes, was the first mainstream media reporter to cover cryptocurrency full-time. This is the October 19th, 2021 episode of Unchained.

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Laura Shin:

Today’s topic is the metaverse. Here to discuss are Andrew Steinwold, managing partner at Sfermion, and John Egan, CEO at L’Atelier BNP Paribas. Let’s start by having each of you briefly describe your background in the space, how you came to your current position, and how you became involved in NFTs and the metaverse. Andrew, why don’t we start with you?

Andrew Steinwold:

I first got involved with Bitcoin in 2013. I attempted a few blockchain-related startups in 2014 and 2016. Those didn’t work out. In 2017, I launched a long-short hedge fund that was focused on liquid crypto assets. Then in 2019 launched a Sfermion, which is focused entirely on the NFT asset class. So that is a very brief overview of my background.

John Egan:

It was a VC in London. Around 2015, 2016, we began to see more and more references within pitches to blockchain and blockchain-based businesses. And that was the initial exposure that I began to see. And at the time, I was cynical about a lot of it as well. We began to see companies who were looking for $2 million in funding, in VC funding, doing an ICO and raising $25 million when they couldn’t get it off us.

At that point, for me, it was a personal experiment, where I was beginning to engage with the space and understand how the mechanics have to work. And my background is as an economist. I think from that point of view, I found it a fascinating space. Moving forward, I’m the CEO of the BNP Paribas. A lot of what we focus on is emerging markets. In particular, over the last couple of years, we’ve been looking at emerging digital markets and digital assets, digital jobs. Our core focus has been on what we refer to as the virtual economy, including the metaverse. So from my professional and personal point of view, it has been a large part of my kind of daily constituency of work for the last six or seven years now.

Laura Shin:

All right. So we’re going to now switch to our topic, which is kind of an interesting one because we often toss this word around, metaverse, but I don’t know if people really have a good grasp on what that is if it even exists yet or if we’re just working towards this or what’s going on here. So let’s start with some definitions. How would you define the metaverse? And then let’s also break that out into what you think the metaverse currently looks like or whatever its incarnation is, and then where it’s going. So who wants to start?

Andrew Steinwold:

Me and John always tease each other because it is such a hard term to define. It’s almost like saying the internet. It’s very, very broad. But I try to simplify it as much as possible. I basically say the metaverse is just a virtual environment that people live, work, and play in. I keep it very, very simple — high level. I think that we were able to kind of work inside the metaverse. We were able to kind of live inside the metaverse, via zoom, by remote work. And we were able to play into the metaverse through online gaming. Really what’s enabling it to come to fruition now is NFTs, which are just property rights because no one wants to live inside of a virtual environment that they can not own their livelihoods and their stuff.

And so for me, I think the metaverse, currently, in its form is now just getting started because of NFTs. And I think that right now it’s very, very rudimentary. It’s only been out for let’s call it two years max. It’s all these things combined. It’s a little bit of OpenSea, a little bit Zoom, a little bit of Facebook, unfortunately. But it’s all these kinds of things together. Where we’re headed towards is a world where really the value paradigm is shifting from value extractive of users to value additive. And that’s the metaverse that we’re working towards at my firm. But that’s my definition. I’m sure John is going to have somebody totally different. So I’m excited to hear.

Laura Shin:

Yeah. Well actually, before we go to that, I do want to ask you, like you keep saying Zoom is part of the metaverse, I’ve never thought that myself. I’m on Zoom a lot and I never feel like I’m in the metaverse, but you were saying that that is part of the metaverse.

Andrew Steinwold:

I think that any sort of activity that we do online is somewhat part of the metaverse. Communicating online — is definitely part of the metaverse. But in order to actually have the quote unquote, true metaverse, the full vision, you need property rights, you need ownership of your stuff. So that’s a part of it. It’s not like obviously the main part but as a way for people to communicate very easily. So it is a important piece. But going forward, it’s going to be all sorts of different platforms, protocols, products that allow people to really earn value from their activities online. So right now we’re not earning, I’m not earning anything from using Facebook. I’m not earning anything from using Google. Those platforms are extracting value for myself as a user. And so where where we’re headed, is a internet or a metaverse, if you will, where users are getting value in return for their activities online.

John Egan:

Where I differ from Andrew is not necessarily philosophically, but it’s the timing of it. So I don’t believe the metaverse exists yet. And I don’t believe that NFTs are by definition a part of the metaverse. I don’t believe that even Web3 is actually part of the metaverse. I believe in the metaverse as this aspirational concept that we are working towards. And in that way we can actually define it a little bit more clearly because we can see it in the future. I resent some times the ambiguity and the opacity that comes with many definitions for this thing, many different use cases for it.

From Facebook’s articulation of it, which is murky and loose and poorly constructed, right through to people who use terms like metaverses as a plural term. So for me, which is when you think of it, that is a meaningful difference.

So when you have a panel and some people are talking about metaverses and some people are talking about the metaverse, that is a vastly, vastly different approach to everything we’re looking to do. So for me, I hold it up as this aspirational concept that we’re striving towards. It is a dimension within which can exist endless and infinite creativity. It is the moment in time where we arrive as a species at of place where anything we can imagine can now be created within an immersive environment.

And I think those parameters are really important. I think the metaverse necessitates a level of immersion. That immersion can come through that pseudo physical immersion, in the sense of optics and on VR on brain computer interfaces. But it can also come in the “digi-physical” landscape that you can interact with through lens wear.

So whether that’s mixed reality contact lenses or mixed reality glassware, I think that is absolutely essential for us to begin to say the metaverse is here. I will, however, say that when we do arrive at that point, there will be a lot of derivative places that exist halfway between the internet, as we know it now, and the metaverse that are clearly reliant on our derivative to that construct, but not necessarily part of it.

So I’m sure we’ll come to it, but in my mind, I’ve always had this kind of anecdote that I will look to. And I will know that when this thing happens, that’s when we know conclusively the metaverse has arrived. But for me now, it’s still an aspirational concept or construct.

Laura Shin:

Okay. So one quick thing I want to get out there is a disclosure that I do write a newsletter for Facebook. So if we’re going to keep talking about Facebook’s metaverse, like you did mention you didn’t like their murky definition as you called it, but I don’t know what that definition is. So what is that definition? What do you not like about it?

John Egan:

You’ve just summed it up. I don’t think anybody knows. I think it’s very, very work-orientated. Any VC will tell you that about 10 years ago, all of the decks that that came across their desk had the words AI in it. And then a few years later, they all had the word blockchain in it. Recently they all have the word metaverse in it. These are, at this point, jargon that adds premium to proposals. That’s kind of a lot of where it exists in the investment space. When Facebook started talking about a metaverse, they didn’t explain what they were talking about aside from to say, this is a labor orientated environment that people can exist within. And I’m sure over time, Facebook will expand on that greatly.

But right now, there’s very few people in this space who are not aware that Facebook are actively speaking about the metaverse. But there are also very few people in this space who understand what Facebook are actually talking about when they refer to the metaverse. That’s a problem. So when I said murky and ambiguous, that’s what I meant. Facebook has kind of spoken about it at shareholder meetings. They’ve spoken about it publicly, but as yet, it is not clearly defined. And I haven’t spoken to anybody who understands what they mean by it, but it certainly makes it a more significant conversation when a company the size of Facebook are talking about us.

Laura Shin:

And just for both of you, actually from things that you were saying, it made me wonder, oh, so then would you guys consider something like Second Life to be a metaverse, because Andrew kind of said, oh, metaverses don’t exist until you have NFTs. And then John, you were saying that you felt nothing fits that definition now, and it needs to be immersive. And something like Second Life is pretty immersive as far as I understand. So it was curious if he would consider something like that, just not part of it at all, or what?

John Egan:

For me, I think Second Life is the best case example that has ever been created like as a preamble to the metaverse. I still think Second Life is extraordinary from a digital point of view. It’s an incredible construct and something I think we will study for decades. It’s really an amazing achievement. And the people who participate in that are certainly the people I think who are closest to achieving that because there are people who get up for work every day and they go to work in Second Life. I know people who are Second Life entrepreneurs and they’ve bought their homes. They’ve raised their families on the income. They have employees within Second Life, and they’ve been there for years as millionaires who have made their fortune in Second Life. And I think that’s a really important part of this.

This is the paradigm is that people can go to work in this environment. They can distill a value. I want to pass it to Andrew now, because there’s one very important consideration here. Philosophically, for most of the discussion about the metaverse since the sixties and William Gibson through the nineties and Stephenson, to now with Ready Player One, has always being centralized. But what’s happened in the last couple of years, what’s really important is that the conversations become an open metaverse. And I think that’s probably a good place to hand this over to Andrew, because he is an authority voice on that distinction.

Andrew Steinwold:

I agree with what John was talking about about Second Life and how it is an extremely important platform that we can look at and say, Hey, this is incredible that people were able to earn a living, make friends, socialize, attend events, basically live their full lives just on this platform. And John pointed out that that platform is centralized, but it is also very important, just kind of historically.

Basically my whole thesis is essentially that we’re headed towards a world where Second Life type of environments will be ubiquitous. Whether they be immersive, whether it be through Zoom or whatever, it’s really about having the ability of ownership and the ability to earn and be able to pay your rent, buy your groceries, from your activities online. I think the open metaverse, it’s basically a virtual environment, virtual world that utilizes blockchain or distributed ledgers in some sense.

And that allows people to, again, own their stuff, own their lives, on their data, own their whatever. That simple aspect about having ownership. What it does, is it has a huge psychological impact on people because essentially they say, okay, now I feel secure in this environment. So, because I feel secure, I’m confident, and I’m going to spend even more time, money, and effort into this environment than it would if it was a centralized version.

I always use this analogy, which I don’t know if it’s that good, but I say that like the internet today is communist in the sense that, again, we’re adding value to the central entity and we’re not getting anything in return. But if you had the option to go add value to a capitalistic system where you know that the value is accruing to yourself and your family and your friends and whatever — people would rather in live in that environment. And really the open metaverse and blockchain-based metaverse and NFTs are enabling that world. So the internet is now enabling property rights through NFTs. And that’s the biggest paradigm shift we’ve had since since forever.

Laura Shin:

And so each of you has a different take on kind of the current status of the metaverse or these multiple metaverses. And I think  Andrew is probably saying, okay, maybe we have a few mini metaverses going, or there’s like glimpses of the future metaverse. And John is saying like, we’re working toward it, but it’s not quite here. It’s sort of different phrasing for kind of this current state.

But like going back to Andrew’s definition about how the metaverse will be where we work, play, and live — how would you characterize what we have now? Is it more of a work of universe or a play metaverse or a live metaverse? What do you think will drive the development of this space?

Andrew Steinwold:

Through NFTs, and blockchain more broadly, the work part was now fully enabled. Because we were able to play through gaming, through other activities. You’re able to live, work and play. And so you’re able to socialize. So that was already possible through Zoom, through Facebook or whatever. But that work aspect, you’re able to use Zoom to work remotely, but you weren’t able to earn natively through the internet.

For Axie Infinity, you can now play a video game and earn value from that game. Right. So that was impossible before. And now that is enabled, it’s like, okay, great, the metaverse can start to be to emerge and to eventually form what is basically going to be the internet of value. So, to speak very broadly, it’s going to be people being able to earn through all types of activities and through that earning they’re able to essentially yeah. Have better lives and be compensated for the value that they’re adding to these platforms. So yeah, again, quite a kind of nebulous definition, but yeah, that’s how I see it.

John Egan:

I agree very strongly with Andrwe. What we’re seeing right now is the early stages of the economic infrastructure and mechanics for the metaverse being creative. For instance, NFTs and emerging NFT protocols are really, really important to be able to construct, to do that world building. And if I take this back to the seductive concept that draws us towards the metaverse, ultimately, is every one of us has found ourselves getting lost in a novel, or lost in a film, you fall asleep at night in another world. That’s the promise of the metaverse. So those worlds can be created. That a Star Wars fun can experience that in a visceral way. And we try that all the time. Anyone who’s been to Disneyland or something. We’ve seen the attempt sto do this in a low fidelity way.

The metaverse promises this in a high fidelity way. For that to be feasible, there’s a couple of things need to fall into place. The first of them is the economic infrastructure. The guide rails need to be put in place for any of that to actually be useful, to justify the investment that’s required to get the rest of the technology up to the point it needs to be to provide that. So I think what we’re seeing now is actually the economic infrastructure, it’s the train tracks being laid.

The problem is the towns that are going to exist along that line have not yet been built and will take some time to be built, I suggest as well. But it’s really important those tracks get laid because without them, there is no future. I think if we were trying to place it in time, for me, that’s where we are now, we’re building the economic infrastructure for an open metaverse and it’s absolutely fundamental. It’s extremely valuable. And the tools that we’re building have mass applications in and out of the metaverse. For instance, digital assets and ownership, unique ownership of digital assets, that is not just a, a metaverse proposition. That’s a very, very real world proposition for most people as well.

Laura Shin:

Yeah. Actually this reminds me of the book Financial Capital and Technological Revolutions or something — maybe it’s the reverse. Like people are financially motivated. And so of course, I can see how the work or earn aspect of this is driving. I mean, we’re seeing it already happening with Axie Infinity and stuff like that, but same with the ICO craze where people thought, oh, well we can get people to throw money at us, so let’s do it. And here it’s similar, oh, I can run into the Decentraland and grab a part of this virtual real estate early, or I can earn Axies and then lend them out. But John, going back to some earlier comments that you made.

You kind of really seem to talk about almost like an augmented reality and you called it like digi-physical reality, and you talked about certain gadgets, like eye wear, that we would need in order to access this world. And so I wondered, like for you, do you feel that the metaverse is really dependent on things like a VR/AR headset? How much of this will be more virtual in the sense that we’ll just be at home and through our avatars will interact in these other worlds?

John Egan:

For me? Yes, for me, it requires some level of immersion. I think what we’re seeing now is a lot of games are being called metaverses when really all they are a blockchain based games that allow for people to derive value from. That’s a very important step forward. And I don’t mean to denigrate them at all. They’re very, very worthy projects and best of luck to them, but that does not necessarily in my view, make it a metaverse or make it even tangental to the metaverse. So for me, it requires some degree of immersion to make it a realistic metaverse in any real sense. We need to be able to interact with a new dimension of digital reality. And I think that the reason I speak about digi-physical is because I use this proxy all the time.

For any gamers who are listening to this, there was a game released by two years ago, called Red Dead Redemption 2, and it is an extraordinary technological accomplishment. It is something just incredible. The detail is phenomenal. It’s an open world environment that people can roam around, but it took seven years for one of the world’s best game publishers to create that. And even at that, it’s still a limited world environment. You can reach the edges of it quite quickly.

So to create something which is fully immersive and generative is still a long, long way away. And to my mind, that’s a real indicator that the first instances of this are going to be, digi-physical. We will interact with the virtual reality that emerges around us. To use the anecdote or the proxy that I’ve I’ve often spoken of is virtual pets. I think when you want to know, if you want to ask is the metaverse here or not. When people have virtual pets that they can interact with through mixed reality lens, where those pets, those semi-intelligent agents, can interact with them, the infrastructure around them, both the physical and digital infrastructure, all their individuals and other virtual agents — hat’s the metaverse. You’ve now created new species of semi-intelligent agents that you can interact with and can interact with you. And that gives rise to a whole new universe of opportunity that we can go into in detail.

Laura Shin:

And, but then just one other thing, is so if I need to be wearing either a VR AR headset, or some kind of eyewear in order to access this world, then how much of this is just kind of a world that I’ve created for myself? Like do do a lot of other people also need to be wearing the same thing at the same time, in order for us to create this metaverse and make it a true world? Or is a lot of it just kind of a self-contained interaction that I’m having with virtual things?

John Egan:

It’s a bit of both. There’s been a real spate of patent registrations in eyewear over the last 10 years, both contact lenses and glassware. You know, I think Google Glass was somewhat prescient of what was to come but it was poorly timed and maybe execution fell short, but they knew what the future looked like and how we would interact with things in an augmented way. Now we see so many patents coming through about this particular technology. The likelihood is there will be a digit physical common space to which we all interact with that’s layered over physical landscapes around us. Ownership of that will be a curious construct. But we’ll also be able to individualize it through the acquisition of very specific data streams, for instance. So we’ll be able to buy data assets that potentially personalize our experience in different ways, but that doesn’t take away from the shared commonality of that environment that we’re interacting with. So if you walk out on the streets, the general common part of it comes from the fact that you might be able to interact with virtual monuments, that you can only see through a lens. The individual layer of it may come from offers that are coming from restaurants or shops directly to you in a specific way that’s catered to you that only you can see that nobody else can see. So a high level of personalization within a common space, because that’s the dynamism that’s offered within that technological environment.

Laura Shin:

And Andrew, what’s your take? Are you more into this kind of digi-physical aspect where people do need to be wearing gear to access it? Or do you feel that’s not as necessary?

Andrew Steinwold:

Yeah, so John and I actually differ on this as well. I’m of the opinion that you can have a metaverse come to form just through our computers. You don’t need to have a headset. You don’t need to have the suit, you don’t need to have any of that stuff. It can be happening just through our computers. As long as you can live, work and play inside of digital environments, and you have ownership over your stuff, then that means that the metaverse is there. But saying that, we can look at some trends that are happening hat are just marching towards this world that John’s talking about of kind of deeper immersion and more technologically enabled gear that we will be wearing.

If you look at number one is just screen time. So screen time around the world is on the rise. An average, American’s like around seven hours per day. The average Filipino is around 11 hours per day. And that number is just going up everywhere. I’m at like 13 hours per day, something absurd. But I’m just ahead of everybody, I guess. So that’s number one, screen time, just on the up and up. And then number two is technological immersion. So if you look at kind of our communications technology, it’s constantly gotten more immersive over time. So we start off with a the telegraph, which is Morse code, which is not like not immersive at all. Then we went to telephone. So suddenly you can now hear someone that’s a huge leap up in immersion, because that’s your sense of sense of hearing audio.

And then now we’re doing video calls, so you can see me and hear me. So that’s two senses now, another huge leap. And then in the future, 10, 15 years from now, we’re going to be in some virtual environments. We’ll be able to shake each other’s hands, we’ll feel the handshake and our brains will actually think that we’re there. Our brains will have no idea that we’re actually not sitting in our office or whatever. And so, that is happening regardless of NFTs or whatnot. But really what we did is we just added NFTs along with those trends. And so now we’re able to own, and so now it’s like, okay, well, despite those trends are happening, regardless of NFTs, now, the meta verse can come to fruition.

I differ slightly in John’s views. I think that we’re headed there regardless, but I don’t think that it’s required for the metaverse to actually form.

In terms of digi-physical, I agree with that. I think that we’re going to have our digital lives are intertwining with our physical so much that. Even looking like going back to the screen time example, we’re already spending most of our time on screens online. We don’t really notice it day to day because it just becomes so natural for us, but I’m sure, like most of the people listening to this their screen time is probably 7, 8, 9 hours per day. So that’s the majority of your waking hours are spent online. So in some sense, we’re already living in this virtual world, but when you add in NFTs it is, okay, now we feel confident that we can own stuff, and therefore they’ll spend even more time in these environments and we’ll just go, go, go deeper.

Laura Shin:

Well, so going back to your comments about NFTs and also about how we’re already seeing glimpses of different metaverses in different ways, even if it’s from something like Second Life. At the same time here in the world of blockchain development, we also have all these different competing blockchains. We’ve got layer ones, we’ve got layer twos. And so I was wondering at this moment, just in terms of NFTs, even, it feels like the NFT world is a little bit siloed, and I wondered will that also mean a more siloed development for a metaverses and will that mean, then, we might have a metaverse that’s more like for gaming, and then another one for fashion, another one for real estate. How do you view just from a technological level, how that’s affecting the development of the metaverse.

Andrew Steinwold:

There aren’t really like going to be segmented metaverses. It’s almost like saying one internet for gaming one internet for this, it’s almost just like the whole broad concept is the metaverse, it’s like the internet.

And then in terms of the, the technological development of these different blockchains and whatnot. Most people didn’t know that NFTs existed until January. That’s the vast majority of people. Before that you know, really most crypto people. Cause I remember talking about what I was doing in summer of ’20, two other crypto people, and like most people were just totally destroying the idea they’re like, you’re out, what are you talking about? Nfts are not even a thing. And that was with crypto people, right? So I think this is brand new.

So we’re seeing a lot of kind of people developing experimenting, creating new things and, and trying to test what works. We are just on the very, very, very bleeding edge of kind of all this development. And so there’s going to be just a big explosion of different chains, different technologies, different NFTs, different standards, et cetera, and that’ll happen for a certain period of months to most likely years. And it’ll expand. And then it’ll inevitably at some point start to contract and we’ll end up with kind of three to five, maybe kind of base chains or our base kind of infrastructure components that are really powering most of this — in my view.

And I do agree that with your kind of original thoughts about how maybe it’ll be Solana will be used for gaming and maybe Ethereum will be used for art and collectibles — things that are slower, but more expensive but more kind of decentralized and hardy if you will.

It’s too early for me to kind of predict on how that will end up. And one thing I’ve learned is that my predictions are always way off. I’m not good at that. I think that we’re really early, there’s going to be explosion of activity. We’re seeing that now. And then in five plus years, it will be consolidation and into some core components that, that most people are using.

John Egan:

I think Andrew’s just maybe been a little bit hard on himself there. His fund performance would suggest otherwise. I think he’s pretty good at predictions. I agree with a lot of what he said there is particularly in the sense that there is one holistic metaverse.

Maybe this is a bit of a provocation, and it’s partly because I’m looking at failure from a more neutral point of view, but I see a schism coming between the NFT maximalist and the crypto maximalist, because they are politically and philosophically very different groups. And I’m not entirely sure they’re totally aware of this yet. But it’s to Andrew’s point there. Andrew saw the promise of NFTs and how important the idea of unique digital assets and digital ownership was. That’s a long, long, long way away from the core digital libertarianism, digital anarchism, of crypto maximalists who want to liberate themselves from a kind of state construct, state position that drove a lot of the crypto space.

Clearly the majority of participants in crypto don’t feel that way, but the overarching philosophical philosophy drives it that way. I don’t believe that’s the case for NFTs. And I share Andrew’s enthusiasm about the importance of NFTs moving forward. NFTs are critical. Like they, NFTs, are the great innovation. Crypto and blockchain was a necessary step on the journey towards NFTs, which is the real point of arrival at something extraordinary — the ability to create a whole new class of digital assets. And I think that needs to be understood within the context of the world we’re living in now, which is still the shadow of 2008. The world we live in now has been crafted by the hands of the giant of 2008. That’s the reality we live in, low yield rate, low yield, low inflation environment.

And for anybody under the age of 40, it’s probably very, very difficult to access yield, or to buy a home. We’ve seen wage stagflation across the nation, across the world, and we’ve seen significant inflation when it comes to childcare and healthcare, accommodation costs, education costs. As a consequence of that, there are a whole lot of people all over the world who feel like the traditional economy holds no hope for them. There’s no opportunity. They’ve done everything they’re supposed to do. They’ve got a great education. They got a good job. They work hard, but there’s no opportunity for them in the medium to long-term and that’s creating a significant rift.

So I think for a lot of those people, the opportunity to immerse themselves in this new economy, this new reality, that is the metaverse and the primary asset construct, which is not an asset class. NFTs not an asset class, they’re the mechanisms through which we create new assets in this environment, that gives them hope and opportunity unlike anything for the last 30 years. This is the first time now in three decades that people of a certain age profile, a younger age profile, can hope to be middle-class on upwardly social mobile, and it’s not because of traditional economy. It’s because of this virtual economy. And at the core of that is NFTs.

Laura Shin:

This is the perfect segue, because my next questions for you are about financial opportunities in the metaverse, but first, a quick word from the sponsors who make this show possible.

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Laura Shin:

Back to my conversation with Andrew and John. So, we kind of started already discussing this, but why don’t we just talk a little bit more about the ways that you see the metaverse changing the way that people are earning money. Why don’t we just start with that?

Andrew Steinwold:

It’s really exciting because the design space for people to earn — there’s no limits essentially. And what we’re seeing today, though, is again, very, very, very early. I guess the best example would be Axie Infinity, which essentially is a Pokemon type game where you have these creatures, you battle them, if you win the battles, they drop these kinds of potions, which are ERC 20 tokens. You can then sell those potions for Ethereum, which then can sell that Ethereum for fiat currency, to pay your rent, buy your groceries. So that’s very exciting. That’s kind of one very basic way. There’s also ways that you can host events that are ticketed, and then you can sell tickets to those events. Maybe it’s a talk, maybe it’s a concert, all sorts of different things. There’s breeding. So again, in Axie, you can breed these Pokemon creatures together and sell those creatures.

There’s renting land, there’s doing advertisements on virtual lands. There’s making arts, there’s creating collectibles. It’s really an unlimited design space. And what we’ve done through NFTs was we we’ve enabled the gamification of basically everything, which I think on the surface, it sounds kind of spooky, but really it’s very, very kind of… it allows for so much opportunity because now anyone can say, Hey, I have really cool idea, and they can be living anywhere in the world and be like, I have access to the internet, so therefore I have access to this global 24/7 uncensorable economy, which is the crypto economy. I’m going to create a new set of paintings that I’m going to upload. And with that, I can now earn natively on the internet. I think that there’s, today, a plethora of different ways people can earn and there’s going to be just so many more that I can’t even. It’s almost like if you asked me, Hey, like what you know about Airbnb or Uber back in 2002, like I would have no idea how that would work or what that even is. But yeah, I’m sure five years from now, or even less, we’re going to have so many different ways that, that are just very interesting and very unusual that people can earn through their activities online.

John Egan:

If I was to build on that, and Andrew covered most of it, we can already see there’s a not insignificant number of people who are earning their primary income through these environments. So they have already decided to give up on a traditional economy and they’ve got better prospects and better opportunity within this space. Games are a great example of it.

Well, I think this is tangentially related to other, for instance, vice industries. So we see the likes of of OnlyFans and others providing kind of a safe haven environment for sex workers who can now work in a space that’s just far safer for them. They’re more controlled and have a much higher upside for them as well. So we’re seeing people make choices about the way that they earn income, which is markedly different than anything we’ve seen before.

And it’s an enormous shift. Everything from e-sports to streamers to people now in the likes of Axie or in Second Life, earning income through those environments. What we’re likely to see, my expectation, is that we’ll see a greater and greater number of people earning a supplementary income from these environments. Maybe for example, they have a stable of axies and they’re using a scholarship program to allow other people to use those axies and they’re splitting the revenue with them. And now maybe that leads to like a hundred dollars, a couple of hundred dollars extra a month for them and overtime that grows. I think we’re likely to see more and more of that. So there is an increasing necessity or dependency on supplementary incomes, because like I said before, traditional incomes are not keeping up with inflation of major costs. And this is becoming more of a necessity for people, especially those who want to be kind of socially stable and not fall down the latter. So that would be the thing to look out for in the short term.

Laura Shin:

Yeah. When one thing actually that I find a little curious about what’s happening already is that even though play to earn obviously has enabled a traditionally underprivileged population to earn money, as I’m sure you’re all well aware of the price of Axies, which is what you need to get started, has really risen. And I just did a quick search before we started recording and the cheapest Axies are now $166. And so if you need three, at the very minimum, you need $500, but apparently if you get the cheapest ones, like you’re not going to progress very far. So it’s really better to go with ones that are more expensive. And I actually saw the most expensive ones are like hundreds of millions of dollars, which I think is insane. But I just wondered, how do you feel different creators in the metaverse can kind of enable the metaverse to be accessible to that population?

John Egan:

I think there’s a couple of things on this point. The company has indicated that they’re going to provide a much cheaper Axie that doesn’t have breeding capacity. So people will be able to engage with the game. They’ll be able to earn tokens in the game, which then they can use over time to buy the full Axies. That gives people an access point. There are a couple of other things. I think there’s a very reasonable case to be made that you’ve got people in wealthy countries now buying Axies because they can afford them. And then they’re using cheap labor in Southeast Asia in particular to actually go out and work those Axies and earn more money. So it’s a form of rent that they’re deriving in a very pure capitalist way.

Is that really ethical or moral? I think a lot of capitalists might look at that and say, well, two things. One, is that as long as they’re paying a fair wage as negotiated with the employee, in this case, well, then that should be okay. No one’s being forced to do it. And the second thing is the company. So Axie has no obligation to provide cheap Axies if the market demand establishes a market price for it. That’s not their fault. They’ve done nothing wrong. There will be plenty of other players and opportunities and propositions for people to get into early. It’s a tricky one because I kind of see both sides of this. I think there is a genuine ethical question. Do you feel comfortable hiring people in cheap labor economies to basically farm your asset for you and then pay them what may be a disadvantaged rate? But at the same time, it’s pure capitalism, right? There’s this is the market determining the price of all of this and the company has no obligations do anything else. So there will be plenty more opportunities. And there are a ton of people. We’ve all seen stories of people who got in early to some of these projects and were paupers and are now millionaires. And they themselves will fund some of these projects moving forward as well.

Andrew Steinwold:

Yeah. And then going off what John said, he’s absolutely correct just about market forces. So right now, Axie is the only play to earn scaled game in crypto. And that’s in like crypto scale and like you can’t even scale to regular games cause that’s massive. It’s tens of millions, hundreds of millions of users. We’re talking 2 million users maybe. And so Axie is the only game right now that has their play to earn mechanics really kind of enabled, and there are 50 other games coming out that are going to all include some sort of play to earn mechanics in them. So right now, of course, the demand for Axies and the price of Axies is very, very high, but, as more of these games get launched and as more people come online and start to utilize these platforms, then again, market forces will probably have an impact and things will, will hopefully equalize or become more accessible for people in low wage countries to actually access these assets in order to earn. And I think that that’s what we’ll see. But I’m not certain.

Laura Shin:

And what about the fact that there are different regulations in different countries affecting even things like whether or not a token is a security or an NFT is a security. And I just wondered how that would affect the probability of a single metaverse developing. I’m sure we’re well aware that now in DeFi often we’ll see things like there’s an airdrop for everyone, but Americans. And so how does that affect kind of a virtual world where it’s technically borderless? Will it just be, there’s one metaverse for Americans or one metaverse for the rest of the world? Or how do you see that affecting things?

John Egan:

My side, I don’t think it’ll have any significant bearing. It’ll just mean certain things are not accessible to certain users. But I also think that those things that aren’t accessible are quite rare. So it won’t be a regular occurrence. The security tokens are a really good example. I do feel like security tokens are going to play a major role over the next decade because security tokens are how mass affluent get access to the yield of the super rich. And there’s no other instrument that provides that at low cost. And I think that is a huge opportunity. So security tokens I think are really important, but there is a very blurred line between something that is a security token and something that is another form of token, whether that’s NFT or social token. It’s really ambiguous. And that ambiguity tends to flip to a country by country.

So they will need to be unified regulation when it comes to some of these tokens. And it will be to everyone’s benefit when it is established on. There will workarounds. Things will be wrapped, yields will be sold in other ways to the jurisdictions that don’t have access to a particular token type, in the instance of the US if it’s a security token. I don’t see that being a huge issue.

The other thing is location in the metaverse is kind of a fuzzy idea because if you’re using a good VPN, then your location is yours to choose to a large extent. So if you’re holding those assets in the metaverse it becomes very ambiguous,. There’s a legal fidelity declaring those assets and any revenue you generate from those assets, but the jurisdiction in which those assets are held, the jurisdiction which those assets are acquired, and the jurisdiction in which you engage with those assets is not defined.

Andrew Steinwold:

The current regulatory regime, the current regulatory environment, at least in the states, is not really compatible with DeFi and a lot of things that are happening in crypto more broadly. So I think that we need to update those laws because those are laws or the securities laws are something like a hundred years old and based off of like something to do with like an orange farm in Florida or something like that. Right. We need to update that, that’s number one.

Number two, I think it’s with NFTs specifically, we’re going down an area that is unknown because I don’t think that toys or arts, I mean, most arts or collectibles, baseball cards, are securities. Like they shouldn’t be. They weren’t in the physical world. So why would they be inside these digital environments? And just because you can earn through playing a video game doesn’t mean that should also be a security. In world of Warcraft, you could also earn money by doing, doing missions or doing quests, acquiring gold. You could sell like gold on eBay. That doesn’t mean that your character is a security. So why should your Axie be labeled security? In my opinion, it should not.

Laura Shin:

Right. Yeah. I don’t think that’s Axies, but things like on OpenSea recently, they delisted a project where it was sort of like a DAO. And it was saying, oh, if you’re part of the DAO, then you will get some of the royalties from the sale of these. And so I think that kind of thing is more like a security. But this actually leads me to a broader question was, which was just in general when disputes arise in the metaverse and it’s between people of different jurisdictions, then how do you think those will be handled?

John Egan:

Oh, that’s a great question. And I think anybody’s suggests to have the answer to it at this point is just posturing. There are some jurisdictions that do have some case law on it. For instance, the Netherlands have some case law on digital assets, but it is few and far between, and yet to be determined, maybe Andrew sees it differently. But I think that is a looming cloud that needs to be figured out. Though crypto maxis will tell you, well, there’s no need for that because we’ve got the blockchain and that’s the source of all truth. And we can see how everything works. But that doesn’t moderate or mitigate for theft or for fraud. Or, for instance, we’ve seen it so many times, either market manipulation or money-laundering, which is an enormous issue within this space.

There’s massive amounts of money laundering within the crypto asset space and with gaming assets as well. So all of these things have real world consequences they’re being actively sought out and policed. Law enforcement are not going to stop at the gateway to the metaverse and say, oh, we can’t go in there. We’ve no jurisdiction. That’s not how it was going to work. So there are a lot of questions to be answered at this point and I don’t know if there are any really solid answers to it in large part because out of the constellation of participants within this space, it’s lies and lawyers. Some people might see that as a positive thing for now, but ultimately we’re going to see a need to see a lot more jurisprudence considerations in this space.

Laura Shin:

And let’s also touch on identity. Like, so right now, I have kind of my different selves. There’s my crypto journalist self. There’s my spiritual person, yogi self. There’s my like concert going, dancing self. So in the metaverse, will I just have multiple identities and avatars depending on like what environment I’m in? Or will people always know it’s me? Or how will that how will that work itself out?

Andrew Steinwold:

The best thing is that you’re going to have the option. I remember when I first entered the NFT space kind of in a meaningful way in 2019, I decided to use my real name and a picture of myself. And that was very, very unusual in that no one used their real name or picture of themselves back then. Now it’s slightly more common, but that’s how I stood out.

Going forward in the future, people will have the option, which I think is amazing. So if you want to kind of be totally anonymous. You can do that. If you’re a man, you want to pretend like you’re a woman, if you’re a woman, mom, pretend like you’re a man, like it’s whatever you want to do. I think that having that freedom is really, really satisfying to a lot of people and really will enable kind of new types behaviors and all sorts of weird dynamics that pop up in the future that just really are not possible today in our normal kind of identifications system.

John Egan:

It’s like how many Twitter accounts do you have? How many LinkedIn accounts, how many Facebook accounts do you have? You can create as many of them as you want to, but you probably only have one of them. And I think that for most people, it’s going to be the same. They’ll have one avatar base to which a lot of their identity is managed and wallets that are connected to that avatar that make the metaverse more interactive for them. To create and to direct the time and the resources towards creating other avatars that can be useful is is less likely, and it’ll be fewer people who do it. We’ll have a lot of kind of eggs within the metaverse, I suppose, people who are poorly developed avatars that don’t have a lot of assets or capacity to their, to their name, to their handle.

But I think for most people, it’ll be one. And then if they want to make changes to the representation of themselves, the way they express themselves, that’s something that can change any time. In the same way, if you want to change your profile on a social media account, you can change it at any time, but this is a much more immersive and an expressive way of presenting yourself. And I think that people will constantly evolve with that. And they’ll use new NFTs to kind of present themselves and represent themselves. I mean that’s probably the way that people will articulate that view of themselves.

Laura Shin:

But then on the flip side, how do we prevent that from being abused in a way that can lead to some dark things, which already happened in our current web. But things like harassment or deep fakes or misinformation. And I just wonder, how that could worsen quite a bit if these happened in worlds that are already virtual, where already people are interacting through avatars. And I just wondered, like, are there particular ways to set those up where they can incentivize the normal type of behaviors we see in the real world where the vast majority of people are nice and just go about their business, instead of enabling anonymity or pseudonymity to encourage bad behavior?

Andrew Steinwold:

It’s going to be pretty tough, to be honest. I think that right now, there is not a one size fits all solution for that. But what we’ve seen is that people are creating. So for example, Decentraland. Decentraland is a virtual world platform, where you can go in, attend events, socialize, build a house, whatever you want. And right now, it’s governed by a DAO. If I go in there and start building some structure and have hate speech written all over it, then basically people can essentially vote to kick me out and to essentially block that content.

Laura Shin:

And then what’s to stop you from just creating a new identity and doing it all over again.

Andrew Steinwold:

This is very, very early and there is not a one size fits all solution for this. But from my understanding, it’ll block the content. It’ll still be there, but no one can see it. And so that is one kind of solutions kind of you’re able to enforce the societal rules within that structure through people. And that’s one way to do it in a way that’s not highly centralized. But what it will look like going forward. I have no idea. I assume that it’ll become more advanced over time, just because that is the kind of the first iteration I’ve seen that, okay, this is a working MVP. It’s not like the end all be all. This actually works. And we can continue with this until we figure out something better.

John Egan:

I think we’re likely to see a significant worsening of some of the worst parts of what we see on social media, in certain parts of the metaverse, because there is no centralized control in large part. So you, you could also have a DAO that is very much in favor of that. So you will definitely see like DAOs that are created specifically for trolls. I think the game elite dangerous is an example of how, like groups within in that game, you had groups that were malevolent players that just went out to do harm to people. And you also have groups that were kind of philanthropic in nature, and just looking to hurt people. We’ll see a lot of that, but ultimately one of the real issues with this kind of digital libertarianism is that it provides a space for the worst sort of behaviors on very, very few limits or restrictions on that, because philosophically, it doesn’t believe in it unless it’s actually restricting or degrading the value of your property. And I think that philosophically, that’s something that’s very difficult to regulate for us. I suspect that we’ll see, in some cases, awful and very difficult to stop behavior, emerging. But the space is limitless. So it’s very easy for communities to create environments that are much more coherent with their values and their morals and their ethics and hopefully be able to isolate those areas, which become part of no-go areas. But they’re very likely to emerge.

Laura Shin:

And so speaking of, kind of issues that come up when there isn’t a centralized actor that you can go to to get help from, how do we handle things like identity theft in a decentralized world? I mean, if you have built your reputation with a certain avatar or you just have Laura Shin and I’m in all these different metaverses, or in the metaverse, and I have all my reputation, and then somehow somebody gets control of however it is that I access my identity in this world, what can I do? Or what can a person, a victim like that do? Who can they turn to? How do you imagine this will play out? And John, you might have an opinion because your wallet was just cleaned, or one of your wallets, was just cleaned out by a scammer, which I’m sorry to hear.

John Egan:

You go to Reddit and Discord and you make everyone feel sorry for you, I suppose. Then tell them what your new identity is. There are no protections for that. And in my case, we haven’t figured out what happened yet. I tend to practice pretty good security hygiene. I have devices that are dedicated to my crypto activities that don’t do anything else, that don’t touch anything sketchy. I have no idea how this happened. The wallet got cleaned out for NFTs and ETH just a couple of days ago. I’ve no clue yet how it happened. I think the takeaway for me is if this happened to me, somebody who’s active daily in this space and has been for a long time, for a new user, it must be very intimidating.

And of course, people will preach best practices. Like don’t leave any assets in a hot wallet, use hard wallets, et cetera. But that’s ridiculous. The idea that you’re going to use a hard ledger to store all of your crypto assets is a silly idea. And it’s just totally undermines the usability of the whole concept. And it comes back to this idea of crypto versus NFTs. People who are NFT enthusiasts want to see people really immersed in this. Engaged, active, always engaging with other people with other assets and other things. And that means you need constant access to everything you own. Where a lot of crypto maxis believe in taking your cryptocurrency, putting in a hard wallet, burying it in a hole and being ready for the day the government turn on you, and you have to get open flee the rubber dinghy to the closest island off shore.

So it is two very different philosophies. the way I’ve tried to mitigate for that is having quite a number of wallets, and then spreading assets across those wallets and keeping some on different exchanges where I do bot trading and stuff, but it’s very unfortunate as I have no idea how it happened to me. If anybody else has been experiencing MetaMask issues where their MetaMask got cleaned out. I don’t think it was the browser. I was at an Airbnb at the time when it happened. So I thought maybe it was a security issue what to do with the AirBnB. But the machine doesn’t seem to be compromised, the browser doesn’t seem to be compromised. My seed phrase was not accessible. I haven’t figured it out. So if people have heard any stories with this, I would be very grateful if they sent it my way, because I would just love to know what happened. There’s no chance I’m going to get any of it back, but I would love to know how it happened, so it doesn’t happen again. But at the moment, it just makes me feel cautious about MetaMask in particular, I think.

Laura Shin:

Hmm. But so like so this was you losing your assets, but if we were in a metaphor situation and you lost control of your avatar, then would you just need to revert to traditional social media and say, hey, everybody, this is no longer my avatar. Don’t let it scam you if it approaches you with a business proposition, it’s not actually me. I don’t know how this would work, but what are your thoughts on this? Or is that even a thing? Can you lose your avatar or your, maybe not.

John Egan:

It depends on the avatar, the nature of the avatar. It depends on the platform, but if we assume the avatar is an NFT, for instance, moving forward, well then, yes, it could happen. And if they got control of that wallet they could access all of the assets connected to it, so you could make your public case. In all likelihood, you need to build your reputation from the ground up again. I think there’s two things look, it’s a tax write-off and you can benchmark. So that’s one positive side of it, maybe.

But aside from that, insurance right now don’t cover that. There is no insurance proposition with which I can access that was going to cover that theft for me. So if somebody had broken into my home, and had stolen that money from my home, it would have been covered. If somebody had mugged me on the street and taken it, it would have been covered. If it happened when I was on vacation, it would’ve been covered. But it is not covered if it happens within a digital environment. So it is this kind of gray space at the moment. So I think that is clearly a first step. Because if you have a most significant asset value, at the very least, you want to be able to insure it and the way you ensure anything else. We insure property. If you’ve got expensive jewelry, you you insure it. If you have a house, you insure it. And there’s a ton of people now who have significant enough crypto assets that they could cash out and buy a home with it. You want to be able to ensure that in some way in the same way that your bank deposits are insured or anything else. So I think that’s a really simple, straightforward first step that the industry needs to provide. Maybe it comes from DeFi. Although I suspect it’s much more likely to come from traditional institutions rather than, than DeFi.

Andrew Steinwold:

Yeah. And also to add onto that, I think that, again, we are extremely early and so most people like didn’t know about NFTs up until January. So I think that solutions will be created. Right now, I agree with John that it’s going to be difficult if you’re stuff gets stolen, it’s very low likelihood you’ll get anything back. And also that value is probably just gone. And your avatar in this example is also probably gone and therefore, your identity. So yes, you would have to turn to traditional social media say, Hey, everyone, like my NFT was taken and don’t trust it, whatever. But yeah, people will create solutions for that. Like that is a clearly a very big issue and, and people will we’ll figure out solutions.

Laura Shin:

Yeah. As for the insurance question, I was just realizing since people probably would never sell their avatar, there wouldn’t be a market price that you could easily point to, the way that you can for even something like a profile pic, which is not quite the same thing as an avatar. But anyway, all right. So we’re coming up on time.

John Egan:

So obviously your avatar is not a particular liquid asset. But a lot of the assets associated with that would have a market price or at least a purchase price. So if, for instance, your avatar is wearing certain clothes or has certain accessories, you’ll be able to establish that purchase value, or maybe even a market value for some of those. For instance, if it’s Axies, you’ll be able to show the value you purchased them at. So at least in that instance, you should be able to. But the first two calls I made, was the first one was to my accountant. The second one was to insurance company. The third one was to the police. So none of whom were particularly helpful.

Laura Shin:

All right, so we we’re over time, but let’s just do one last quick question. If you were to make projections for how things will play out with the metaverse or whatever you want to call it in the next six months to a year, what would you expect to see?

John Egan:

Six months is very close. I think, I think play to earn is going to be a really significant part of this because the utility is so obvious, the opportunity is so obvious. I think we’ll see a lot more pay to earn. If we set out a little bit longer over 36 months, I think we’ll begin to see some play to earn emerge in mixed reality environments. So the likes of what Pokemon Go did. And I think that’s the sort of thing that gets really widespread adoption. It’s important to remember that a lot of these propositions don’t have mobile apps yet, so they haven’t gone mobile. So the real scale opportunity hasn’t been touched on. So maybe that’s in the next six months to a year, we’ll begin to see a mobile iteration of some of these propositions. That’s maybe my prediction.

Andrew Steinwold:

To build off that. I would say that play to earn is going to be something that is I agree with John absolutely massive. People are kind of associating play to earn and they’re talking about play to earn as a almost global minimum wage. They think that over a long of time span, there’ll be some sort of global minimum wage because of NFTs and because of play to earn, which is very exciting. I think that artists will continue to create amazing works that are fully, fully digital. I think collectors are going to continue to collect everything from weird looking penguins, to kind of baseball cards on the blockchain, and they’ll be able to nerd out with each other and socialize. And I think that a virtual world platforms, basically experience platforms will continue to get bigger and more exciting and have more people on them, host more events. And I think that basically, they’re just going to be more of everything and it’s going to be coming at a much faster pace than what we see in the past six months.

Laura Shin:

All right. Well, we’ll have to check back at that time and see how well your projections played out. Well, where can people learn more about each of you?

Andrew Steinwold:

People can follow me on Twitter. My name is @andrewsteinwold. And if you want to learn more about Sfermion at sfermion.io.

John Egan:

I am @iamjohnegan on Twitter.

Laura Shin:

Perfect. Thank you both so much for coming on Unchained. Thanks so much for joining us today. To learn more about Andrew and John, check out the show notes for this episode.