The metaverse is a portmanteau of two words: Meta, which means ‘beyond’ in Greek and Verse, which is suggestive of the universe. Although there is no official definition for the word, in simple terms it means a confluence of our physical and virtual world or a parallel 3D universe where we can create our digital avatars that will interact and communicate in virtual spaces.
Luxury labels such as Balenciaga, Dior, Hugo and Louis Vuitton brought the ‘metaverse’ technology into the limelight while Facebook changed its name to Meta, endorsing its support for the new platform. Gucci celebrated its 100th anniversary by selling the ARIA NFT collection at Christie’s last June for a whopping US$ 25,000.
Lately, metaverse has been the buzz word and will be for the next few years to come. Although at a nascent stage, the technology is amassing investor interest with curious buyers and early adopters developing assets that are being valued at prices that can’t be ignored.
Birth of the Metaverse
Our lifestyle changed during the pandemic, pushing us to adopt a prominent digital life, be it in the form of online learning, virtual meetings, concerts, gaming or a highly active social presence. All these events are potential case studies to evolve to the next phase of the digital revolution. Imagine a virtual meeting where your digital avatar, dressed impeccably in a swanky board room, can present a business case and interact with your co- workers using Virtual Reality tools.
As a concept, it has been explored in sci-fi books and films for a very long time. The word ‘metaverse’ was first coined by Neal Stephenson in 1992 with the release of his book Snow Crash. One of the most popular movies that comes to my mind when I think metaverse is Avatar. Here, the protagonist explores the Pandora kingdom by using Augmented and Virtual Reality to adapt to the body and belief system of the Na’vi. A human can interact and communicate with the natives of Pandora.
Metaverse is considered the next frontier for the Internet and is hailed as the Web 3.0 that brings together a unified experience from various platforms using AI, Augmented and Virtual Reality. From a commercial perspective, this creates disruptive opportunities using Virtual and Augmented Reality to create a new parallel world and a digital economy. This means that there won’t be just one, but many metaverses that will integrate and collectively create a virtual space.
Every individual will also experience the metaverse differently based on their preference and this would be totally different from the physical world. The thought of creating a new world that may not have limitations as seen in our physical world but allows us to be immersive and experience a new reality is making the technology an interesting one.
Metaverse is considered the next frontier for the Internet and is hailed as the Web 3.0 that brings together a unified experience from various platforms using AI, Augmented and Virtual Reality.
The metaverse is considered to be an US$800 billion market by 2024
NFTs and the Metaverse
NFTs or Non-fungible Tokens make the metaverse transactional and operational. The parallel world, similar to our physical world, also needs the creation and ownership of assets. For instance, in the metaverse, you may own retail space. This retail space or any other assets in the metaverse is represented by NFTs or Non-fungible Tokens.
To understand the term ‘Non-fungible’, let us first understand the term ‘Fungible’. Fungible implies something that can be exchanged for a determined value. Currency is a perfect example of a fungible asset. You can use your `2,000 currency bill to purchase a dress or a shoe. The same bill can also be used in exchange for a service. Thus, the currency can be traded to purchase or for exchange as per the determined value. Now, whether the currency is a bill or a cheque, it has no bearing on its value. This means you can use either the bill or the cheque to make your purchase, making it fungible.
Non-fungible, on the other hand, means something that is exclusive or unique and is developed to create scarcity of the asset. Any change in the form and look of the asset means a new identity. For instance, a brand creates an NFT of a red shoe for a particular design which will be paid for using a cryptocurrency. The NFT secures the owner of this asset in the metaverse. Now, if the same design is made in the colour green, it becomes a unique NFT again.
NFT can be an image, a video, a Tweet or music that is present in the metaverse or an equivalent platform, for a unique physical product. NFTs determine the value of the asset and secure your ownership of the asset which will be exclusive only to you.
NFT can be an image, a video, a Tweet or music that is present in the metaverse or an equivalent platform, for a unique physical product. NFTs determine the value of the asset and secure your ownership of the asset which will be exclusive only to you. This makes NFTs appealing to luxury brands as both derive value from being exclusive. NFTs are cryptographic tokens that ride on the Blockchain technology which is a digital ledger. For every transaction that takes place, a block is created in the chain and all the transactions are recorded creating transparency and also in determining the source of the transactions.
Over the last two years, the fashion industry has witnessed huge losses on the backdrop of supply chain issues, changes in consumer sentiment and migration of workers. The industry also faces a bad reputation for its impact on climate change. The metaverse presents a unique opportunity for brands to create value while not creating a single physical product.
Pandemic and the Fashion NFTs
As the physical world was crippled by travel restrictions, social separation and the work-from-home culture, the gaming industry thrived. Brands started associating with the Gen-Z culture to create new experiences and continue their legacy with the new audience. House of Louis Vuitton launched ‘Louis the Game’ to mark the 200th birthday of its founder. The game could be played on mobile phones and had 30 embedded NFTs created by the digital artist Beeple. The NFTs, however, were not for sale.
On the other hand, Burberry, in partnership with Mythical Games, launched an NFT collection in Blankos Block Party, a multiplayer party game featuring digital vinyl toys known as Blankos. The limited edition NFT Burberry Blanko, a shark named Sharky B, could be traded on the Blankos Block Party marketplace.
Blockchain-based Fashion Brands
Luxury fashion to us has been synonymous with culture, legacy and models sashaying on ramps and fashion products being sold for a very big price tag. But that is not true anymore. Have you heard of Blockchain brands? RTFKT Studios is a digital creator and a Blockchain brand of virtual sneakers that generated US$3.1 million worth of NFTs in just seven minutes. The sneakers were created in collaboration with 18-year-old artist Fewocious. Nike recently bought the brand to create its presence in the metaverse.
So how does the company then make money and what is it that the customer owns? In the metaverse, the customer is not purchasing a physical product but it is symbolic of what the product or the brand stands for. As this product will be unique and rare, the value of this product is deemed to be higher than the actual product. This makes it a perfect fit for the world of art and luxury fashion that rides on the consumer sentiment of owning something that is exclusive and rare. The consumer owns a piece of the brand in the digital space and unlike the physical world, may be the only owner of the asset.
With the passage of time, the ownership of the asset may create more value. Adidas minted all of 30,000 NFTs named as ‘Into the Metaverse NFTs’ in a matter of few hours, earning the company more than US$22 million. The platform is a collaboration between NFT Pioneers, Bored Ape Yacht Club (a collection of 10,000 Bored Ape NFTs that gives access to virtual events and merchandise), PUNKS Comic (a physical and NFT comic book), and gmoney (Popular NFT cultural influencer and community leader). The NFT allows the holder to burn it for exclusive physical products or attend virtual events in the metaverse throughout 2022 and beyond.
Manish Malhotra was the first Indian designer to launch five NFTs on the WazirX NFT marketplace in collaboration with Lakmé Fashion Week (LFW). All five NFTs were sold out in seconds. The ‘Illuminous Showstopper’, a handmade sketch for actor Kareena Kapoor Khan, was the highest sold NFT for a massive amount of 3,000 WRX or approximately US$3,500. The exact value will change based on currency fluctuations.
Designer Raghavendra Rathore converted his personal art to create NFTs that were available on the WazirX platform in collaboration with LFW. The sale from these NFTs was used for social and charitable purposes by the Raghavendra Rathore Foundation (RRF), a registered NGO.
Authenticity, Sustainability and NFTs
Fashion brands have always faced the issue of plagiarism. Assigning an NFT secures the ownership and also creates digital proof of the transactions. Fashion brands mine this as an opportunity to create their own identity in the virtual space that can be tracked and traced.
The most popular NFTs today are based on the cryptocurrency blockchain Ethereum, which uses a ‘proof of work’ system to make a new block. Creating a block uses a lot of energy as many computers work on confirming the block and the path along the chain. Although NFTs are not many in number, they may hold a lesser proportion as compared to the entire blockchain, nevertheless, they may have a significant impact as the consumption of NFTs increases.
On the other hand, several other NFTs support ‘proof of stake’, an environment-friendly blockchain. Most fashion NFTs today are, however, available on Ethereum.
NFTs bring credibility and authenticity to the creator and provide a value that may far supersede the one that may be prevalent in the physical world. Although, as time progresses, not all artwork may derive the phenomenal value that the current market enjoys.
Laws and Regulations around NFTs in India
The recent announcement to tax income from the sale of digital assets is an indirect recognition for the trading of NFTs, although there is no direct official statement. However, the Finance Secretary clarified that Bitcoin, Ethereum and Non-fungible Tokens will not become legal tender.
Future of NFTs and the Metaverse
Currently, brands are milking the opportunity as a branding exercise and to create a new identity for the next-generation of buyers as innovative and future-ready. For investors, it creates a new revenue stream built on amassing value through exclusive assets. The popularity of the brand in the metaverse will be dependent on the positioning of the brand in both worlds.
Most marketplaces such as Decentraland sell fashion products that appear to be far removed from the sophisticated versions of their physical self. As technology improves and competition intensifies, the next level of fashion products will be more advanced.
The metaverse will offer marketing and advertising opportunities that will go beyond developing just the skins in the games. The technology is disruptive, however, from a marketing and revenue generation perspective, it is yet to be seen if it is a bubble or a hype. As the physical world can be changed into a new world with blurring identities and one can just walk out from one metaverse into another by merely wearing a headset, it may create fake personas and also present a new dilemma for human and social interactions. With big brands and technology experts pushing for this disruption, over time it may present a new lifestyle that merges with the digital avatar.
On the background of this conundrum, there is certainly a lot of thought that needs to be given from the security, privacy, physical and mental ramifications of the technology.