The metaverse, along with NFTs, is a quickly evolving field that appeared after the 2021 crypto bubble. The metaverse is being embraced by a lot of individuals, including investors and businesses. In light of this circumstance, the Bank of England has made the decision to raise awareness of the possible risks associated with cryptocurrencies in the metaverse. Learn why.
Cryptocurrency Use in the Metaverse: Risks
Researchers Teresa Cascino and Owen Lock, both of whom work for the Bank of England, issued the alert. Owen Lock and Teresa Cascino warn of “systemic hazards” in crypto and the metaverse in a blog post. Their issue with cryptocurrency is its price volatility. The dangers of a price crash increase as more cryptocurrencies are involved in the metaverse.
- “The importance of cryptocurrencies in an open metaverse means that if an open, decentralized metaverse develops, existing cryptocurrency risks may evolve to have systemic consequences for financial stability. (…) All other things being equal, the larger the size of the cryptocurrency market, the greater the risks and the more systemic they could become. An important step is therefore for regulators to address the risks associated with the use of cryptocurrencies in the metaverse before they reach systemic status. » Owen Lock and Teresa Cascino, Bank of England “
Are the metaverse’s applications built on cryptography?
The two Bank of England experts attribute their anxiety to the widespread use of cryptos in the metaverse. It’s true that a huge number of metaverse applications utilize a blockchain and cryptocurrency. The Ethereum blockchain is now the one that the metaverse uses the most. It is conceivable that the majority of industries could one day be connected to the metaverse given the metaverse’s increasing popularity.
As a result, people will spend more cryptocurrency on metaverse applications. We must not lose sight of the fact that, if the metaverse is a digital universe, the goal is to be able to build real services on it. Companies and banks will also participate more in the metaverse. For instance, you should be aware that JPMorgan purchased a counter in the metaverse. For its part, the New York Stock Exchange has submitted applications to provide services in the metaverse as well.
Additionally, there is little doubt that there would be substantial effects if crypto values crashed. For this reason, a “systemic” danger is suggested by Teresa Cascino and Owen Lock. The ramifications of a significant crypto meltdown wouldn’t just be “virtual,” but would also have an adverse impact on actual finance.
The development of the metaverse on crypto platforms alone is not yet certain, though. The growth of the metaverse is still unpredictable, and the [predicted] scenario is more of a possibility than a guarantee, as Owen Lock and Teresa Cascino remind us. In other words, the widespread use of cryptos by the metaverse is currently likely but not guaranteed. It’s also important to keep in mind that major IT firms are developing “non-blockchain” and/or “non-crypto” metaverse solutions. Meta, for instance, is a case in point (ex Facebook).
