Key risks and uncertainties

Many elements of Web3 and the metaverse are already unfolding, enabling innovations and opportunities, and revealing the risks and uncertainties inherent to this disruptive shift.

Successful blockchain implementation are advancing, moving from proof-of-concept to deployments to serving customers.22 But many Web3 solutions are highly technical, there are many vulnerabilities from immature implementations, volatility and asset inflation from investors and scammers alike, and a good deal of noise clouding the market.23 There is fragmentation among crypto wallet and identity providers and a growing need for stability and liquidity guarantees in crypto markets. There’s also a need for coherent payment rails across crypto and fiat currencies, and thoughtful regulation to support innovation within an allowable framework. Additionally, high energy consumption from proof-of-work blockchains could slow adoption while raising operational costs and environmental impacts.24 Energy use could be addressed by the pending shift to more efficient proof-of-stake blockchains, as well as an increase in green energy supply to power these protocols.

Establishing user-centric identity, asset portability and interoperability, and shifting to hybrid models of centralization and decentralization could take several years to scale. Or they could simply empower a patchwork of early adopters and disruptors building a new competitive flank. In the near term, there could be more change driven by disruptors as leading incumbents work to reinforce their platforms. This posture can help leaders defend their current business but could cause them to fall behind if they don’t jump in now. Ultimately, they will likely need to cooperate and build alignments to create the interoperability that is so critical to the metaverse.

Arguably, the early advancement of the metaverse has been hampered by too much hype and critique, unclear definitions, and a tendency to insist on VR and AR as a precondition. Like the web, the interface to the metaverse should be device-agnostic. With extensive use cases on mobile devices, for example, augmented reality has advanced without having achieved adoption of AR glasses.

Threats, complexities, and much more data

Business leaders face many challenges with cybersecurity, trust, brand reputation, and digital rights management.25 Web3 and the metaverse may require new implementations across networks and partner ecosystems. This can expand the surface area of vulnerability and data risk for businesses that are already very concerned about these disruptions.26 With added layers of complexity, malevolent actors may find new and more advanced ways to attack organizations.

Layered blockchains and bridges can be compromised. Crypto custody can be broken, validity of NFT transactions compromised, and a user’s real identity can be teased out of transactional data. Immersion and embodied digital interactions could create much more data about users, revealing new threats and security concerns. Organizations may need to advance security policies, processes, and technologies that cross between physical and digital domains, while evolving identity management, threat detection, consent and content management, data protection, and compliance. Yet, there are now many use cases and lessons to learn from, and a wide range of experiments to study that can help address the challenges.

Amplified challenges, blurring jurisdictions, and unexpected outcomes

Many of these challenges point toward the next generation of internet regulation.27 There is an increasing dynamic of new cryptocurrencies and tokenized economies evolving at a faster pace than regulators can respond to. Scaling decentralized identity (“self-sovereign”) could introduce vulnerabilities, instabilities, and unintended consequences.28 Data collection, transit, storage, and sovereignty could take on new shapes and scales. There are also unknown tax and compliance implications of decentralized organizations whose members are anonymous and potentially scattered across the globe.

Metaverse experiences could face much greater challenges with the scope of data collection enabled by advanced interface hardware while reckoning with new forms of content, speech, and reach. Social networks and immersive entertainment could become even more engaging and influential, potentially amplifying existing challenges. And unforeseen innovations, exploits, and the side-effects that come with scale could drive more discontinuities across society. There is a critical need to carefully consider how Web3 and the metaverse could exacerbate existing societal problems and enable new ones. If this next internet platform becomes as transformative as the visions suggest, then its architects will be responsible for how it impacts democratic ideals, human rights, self-determination, and the very real consequences of industrialization.29