Metaverse-Web3 convergence is a huge opportunity – but there are blockers in the way

Posted 19 Jul 2023

What are the blockers to Web3 and metaverse convergence?

Our research found that there’s a fair understanding of Web3 concepts while the metaverse is seen as vague and hyped. But the future demands that companies build in both. How can we overcome the perceived obstacles and move towards convergence?

Digital Catapult’s recent report on the state of convergence in the UK found that some Web3 concepts such as blockchain, decentralisation, cryptocurrencies and ownership are becoming familiar, along with NFTs and AI. And Web3 is perceived as a coherent field in general.

When asked about the metaverse, however, our responders were more fragmented, revealing that a vagueness persists around the term. People understand the metaverse as immersive, and accessed via VR, and they see it as an opportunity for connection and collaboration. But some say it’s confusing and not defined – and maybe even a pipe dream.

Real change will not come simply through greater adoption of immersive terminology and tools. Metaverse applications will need to converge with Web3 technologies that can disrupt existing models.

Our report looked at the issues that are preventing companies from building in the metaverse and Web3:

1. The law around digital assets is not mature

Although digital assets were introduced to UK law in 2022 (enabling inheritance, for example), much of the legislation is not yet common knowledge for legal service providers. Company initiatives are stalling without access to competent legal advice and sufficient legal protection.

2. There are legacy issues with government support

This is a byproduct of the legislation issue. Our respondents had experienced problems with applying to Enterprise Investment Schemes and Seed Enterprise Investment Schemes because of their organisation’s evident focus on Web3 as their core business.

3. It’s seen as a significant risk

When a company commits to decentralised and cryptographic initiatives, this is seen as a risk by external guarantors, and their business can be perceived as a significant risk by insurance companies, who respond by increasing premiums to unsustainable levels.

4. There’s a lack of reliable workforce for hire

Because of a shortage of domestic expertise, companies need to reach out to contractors online, but there is a fear of getting ripped off by ‘cowboys’.

5. It’s a challenge to integrate new revenue models with existing walled gardens

Building tokenised access to content is currently prohibited in the predominant mobile app and digital gaming stores. This makes it impossible to gain access to mainstream audiences via Web3 transaction models.

6. The general state of the ecosystem and market

“No one knows anything and most things will fail,” said one of our workshop participants, comparing the current state of the market to the early days of the dotcom boom 20 years ago. There are few proven success stories with sufficient data about return of investment and best practices. The market is at times a ‘wild west’ and at other times a bear market, due to the coverage of catastrophic frauds in the news.

7. Lack of established terminology and focus

This creates unnecessary noise, communication challenges and confusion when proposing and delivering projects, especially when a client wants ‘a metaverse’ or ‘some NFTs’.

What can be done about it?

Collective action

Digital Catapult’s report highlights the need for collective action to boost the UK’s immersive tech and Web3 sectors, or risk stifling innovation and investment. For the UK to be a global leader in these convergent technologies, further national and international collaboration is key to remove blockers that risk stalling innovation and opportunity.

Technologists and businesses building the metaverse and Web3 need to strive for high interoperability, otherwise the improvements that Web3 promises will be incremental at best.

We encourage hypotheses on product and service market fit and suggest that the highest reach with most impact is found in concepts with the greatest convergence.

Further national and international collaboration is key. We need a healthier tech ecosystem that fosters better connection between supply and demand of the underpinning technologies, reducing risk for the end user. We also need proven business models that encourage more innovators to get involved, not just current big tech and global luxury brands.

Centralisation vs decentralisation

The tension between centralisation and decentralisation is a key focal point for examining developments around the metaverse and Web3, in order to understand where their convergence might lead.

Historically, the world’s information was managed by a handful of centralised entities: from national libraries and publishing houses to media trusts and the large corporations amassing today’s digital data. The original vision for the internet in the 1960s was information decentralisation, and a number of networks were developed to allow computers to talk to each other.

However, as the internet grew in popularity, it started to become increasingly centralised, partly due to the rise of the large tech companies that now dominate the online landscape. These companies, namely Google, Meta (formerly Facebook), Twitter and Amazon, have essentially formed the current iteration of the internet, Web 2.0.

Web3 is expected to bring huge changes in the coming years, including a return to decentralisation and with it the potential for enhanced privacy and security for users.

The back-and-forth between decentralisation and centralisation can be likened to a pendulum changing direction. After Web3, it’s likely the world will seek a new system again, predominantly characterised by the use of a centralised internet that makes the metaverse truly interoperable and part of everyday global life.

Business models emerging through convergence

When a Web 2.0 or immersive company starts pursuing business ideas that tap into the metaverse or Web3 principles, they need to adjust their ways of operating or pivot completely.

Building connections between these two sets of phenomena and their related technologies is where opportunities for new business models and user and community empowerment lie. We encourage thinking about practical ways in which the metaverse-Web3 convergence can become tangible as products and services, for example:

Starting to build or use decentralised services
Adopting generative AI tools to assist in metaverse-related content production processes
Adopting technologies such as the internet of things to connect data from the physical world with immersive interfaces, for example on a factory floor
Bypassing traditional payment methods for direct sales via cryptocurrencies
Adopting smart contracts and tokens to manage assets
Launching a distributed autonomous organisation (DAO) which operates with consensus mechanisms in line with Web3 principles.

Digital Catapult’s report provides a framework against which to map metaverse and Web3 convergence, and aims to provide companies looking to innovate in this space with some initial guidance. This is only a starting point, and for a healthy ecosystem to emerge and thrive, more guidance and opportunities to innovate are needed.

Through further practice and collaboration, the innovation, regulatory and policy implications can be better understood, allowing the UK to become a world leader in a metaverse and Web3-enabled future that is secure, ethical, responsible and interoperable.

If you are interested in finding out more about Digital Catapult’s active role in boosting the development of cross-sector, national capability in cyber-physical systems, contact our team on [email protected]