Original Article: forkast《Why culture and ownership are critical to the metaverse: Opinion》

Author: Animoca Brands Yat Siu

Translated by: Odaily Jessica

About five years ago, CryptoKitties and Ethereum sparked widespread interest in NFTs and revolutionized digital ownership. Today, Bitcoin is finally having its own NFT moment with Ordinals, which are engraved assets on the lowest denomination (Sat) of Bitcoin, considered as Bitcoin's NFT.

Just as the strong interest in NFTs caused Ethereum's network to be overloaded in 2017, the demand for Ordinals is now causing disruptions to the Bitcoin network, sparking intense debates about the value and applications of Ordinals.

Disruptive changes drive innovation. This disruption brings new innovations and network effects, whether in the market, games, or other aspects of the decentralized world.

In short, Bitcoin introducing Ordinals ultimately provides the most valuable crypto community (by market cap) with something meaningful for expansion: a way to store not only digital value but also digital culture.

For years, the interaction between NFTs and culture has been a focal point of my attention. I often say that Bitcoin is a means of storing value, while NFTs are a means of storing culture. Now, I want to rephrase that because Ordinals allow Bitcoin denominations to serve as cultural storage.

In this article, I want to focus on the importance of culture to the global economy and the digital economy.

Culture, Ownership, Network Effects, Business Creation

Culture - the expression of our collective identity, creativity, and customs - is a frequently underestimated force in both the virtual universe and the real world. Culture is a key factor in the thriving development of society and an important component of any economy. Culture is also inherently linked to ownership, such as the attribution and commercialization of intellectual property.

Ownership of something grants us corresponding economic freedom: the ability to trade and use it freely. Ownership also allows us to participate in network effects associated with ownership. 

Take cars for example, the enterprise network associated with car ownership - such as insurance, spare parts, audio systems, rental, and ride-sharing services - forms a larger, more valuable, and more influential ecosystem than the car industry itself. Due to these network effects, the utility of having things like cars significantly increases, making the experience of owning a car more valuable. Each new business or service associated with the things we own adds to the network effects of those things. 

Another powerful impact of ownership is that it allows us to contribute to our identity (culture) in ways that go beyond the utility of the object itself. For example, in our fashion choices, the cars we drive, heirlooms, or wedding rings - the ownership of these items may carry deep intrinsic meanings that are shared within small communities without direct economic expectations but still shape our entire identity, heritage, and stories.

Digital Cultural Store in the Open Metaverse

NFTs can serve as the storage of digital culture, as Web 3 enables true digital ownership, allowing digital items to carry personal meaning. Considering that a significant portion of our lives is spent online and, for many of us, our digital presence may be as valuable and important as our physical existence, the discussion on culture and digital ownership in the virtual universe is highly relevant. 

Many people are surprised by NFTs and Web 3 because they see the prices as "unreasonably high." They look at BAYC and say, "How could it be more expensive than my Birkin bag? A real item that I can use in the real world?" But this is a misconception. People don't buy expensive Birkin bags for practical purposes. Pure utility is not the point. The value of a Birkin bag comes from the network effect generated by all those who believe that owning a Birkin bag contributes to their social status. The pure practicality of the bag is far behind in importance. It's about owning a story and being part of a culture and community that aligns with one's identity.

The same applies to digital culture in today's metaverse: ownership, identity, and related network effects are often more important considerations than mere utility. In a sense, social identity has become a new practical tool for digital items, just like the case of physical items such as Birkin bags or high-end fashion in the real world.

The evolution of digital items is perhaps one of the most fascinating aspects of the metaverse. It is based on the development of a new virtual economy within the new ownership framework supported by Web 3. Considering that users from around the world have already spent billions of dollars on virtual goods in Web 2 video games and virtual worlds, the items they purchase are not actually owned but rather licensed. Skins and cosmetics have no specific utility, but they enable users to express their culture and identity. This allows these items to generate billions of dollars in revenue each year, with the virtual goods market projected to exceed $200 billion by 2028, according to a report by Credence Research.

Cultural TVL: Powering the Physical and Virtual Economy

In the real world, culture has become a major contributor to the economy, both in terms of creating employment opportunities and in terms of consumption and purchasing of goods. All of us interact with different aspects of culture every day—whether emotional, economically utilitarian, or otherwise—and these interactions drive a significant portion of the economy.

Without culture, there would be no entertainment. Without entertainment, there would be no TV, movie theaters, or video games. Without video games (and digital culture in general), there would be no PlayStation, Xbox, Nintendo, or gaming computers. And without advancements in gaming technology, we might not have the graphics processing technology that supports other industries. Display technology is a great example of how cultural demand drives better technology for us: within a few years, we've transitioned from bulky and limited CRT monitors to flat/curved panels and mini marvels in our phones.

The United States is one of the world's major cultural exporters, and culture (including the arts) contributes significant value to the GDP. In 2021, arts and culture accounted for over $1 trillion of the US economy, growing faster than other industries. This comes as no surprise, as culture drives consumption, thus impacting nearly all aspects of trade and retail.

Think about one aspect of culture, imagine whether utility is the main driving force behind its consumption - in many cases, this is not the case. We can choose to wear clothes only for covering the body, but this practicality is far behind the cultural aspect of fashion. People make fashion choices based on their identity and who they want to be. This personalized expression need explains why there are so many fashion choices.  

Cultural expression is not limited to fashion; it translates into purchases in other real-world aspects, whether it's cars, real estate, jewelry, or even "surface meaning" purchases like tattoos and piercings.

Because culture is already an important driver of the real-world economy, creativity, and innovation, it has a similar impact on the metaverse. Due to the popularity of Web 3, the open metaverse is forming around us every day.

In cryptographic terms, cultural phenomena in the real world represent one of the main TVL (Total Value Locked) of any economic entity. The same cultural phenomenon has appeared in the virtual world: buying skins or cosmetics in your favorite game is equivalent to buying fashion in the virtual world, and culture is the driving force.

NFT stores digital culture, given the economic power of culture, it is easy to understand why NFT is driving the adoption of various forms of Web 3, including avatars, video games, education, music, and many other industries. Culture is a key pillar of economic growth and sustainability for the new virtual economy created in the open metaverse.  

Open Metaverse

Unlike the mainstream emphasis on interface technology to access proprietary "walled garden" experiences, the open metaverse is built on ownership and culture. Despite the crypto winter and various macroeconomic challenges, the open metaverse is still an incredibly exciting space. In the first quarter of 2023, NFT sales totaled $4.7 billion, which is impressive in itself, but even more so for an industry that was supposed to be "dead."

Perhaps the most notable fact is that digital culture stores (NFTs) created over $24 billion in revenue in 2022, with 90% or more of the value shared with creators and participants.

But this is just the tip of the iceberg as we are still in the early stages of virtual world property rights. According to McKinsey's research, virtual universes have the potential to create $5 trillion in value by 2030.

As Web 3 continues to mature, become more popular, and easier to access, the most significant impact of culture will be manifested in the open metaverse in a more powerful way, as we truly enter the era of digital ownership, driving demand, consumption, and utility.