Virtual worlds

Virtual worlds championed by Mark Zuckerberg threaten financial system, Bank of England warns

The “metaverse” technologies championed by Mark Zuckerberg pose a threat to financial stability, the Bank of England has warned.

A Bank report found that financial problems within metaverses – a catch-all term for virtual worlds where people interact via digital avatars – could have serious financial consequences in the real world if the controversial crypto technology is related to their operations.

He warned that in a future where people have jobs and own swaths of assets in virtual worlds, moves in highly volatile crypto markets could spread.

Crypto assets have been rocked by strong selling over the past few months, with investors suffering heavy losses amid what has been dubbed “crypto winter”. Bank Governor Andrew Bailey has warned that crypto assets have “no intrinsic value”.

Researchers say a crisis within a ‘significant’ crypto-asset metaverse could hit households and businesses, lead to job losses and force some investors to ‘fire sell’ assets .

These assets include cryptocurrencies such as bitcoin and non-fungible tokens (NFTs) – a form of collectible verified through a digital ledger.

They warned in a post for the Bank Underground blog: “The prominence of crypto-assets in the open metaverse means that if an open, decentralized metaverse grows, existing crypto-asset risks may evolve to have systemic consequences. on financial stability”.

Mr Zuckerberg has thrown the weight of his social media giant Meta, formerly known as Facebook, behind the development of a metaverse platform. Several other major tech companies, including Microsoft, Apple, and NVIDIA, are also developing products related to the Metaverse.

There is no clear definition of what a metaverse entails, although concepts highlighted by developers include virtual workplaces, galleries, and shopping malls.

No consensus emerged on whether metaverses should be linked or siled, and whether they should be developed centrally by companies or as an “open metaverse” developed by the community.

Bank researchers Owen Lock and Teresa Cascino said crypto-assets could be “enablers” of an open metaverse by allowing digital items and money to work across different platforms.

Through such systems, households “could hold a greater share of their wealth in crypto-assets,” they said. Businesses may also rely more on Metaverse-based revenue streams, and some people’s jobs could be tied to the Metaverse.

They said, “This evolution of the metaverse is uncertain, and the above scenario is a possibility rather than a certainty.

“That said, if these exposures materialize, crystallization of crypto-asset risk could lead to: balance sheet losses for households and businesses, impact on unemployment, sell-offs of traditional assets to non-banks to respond to margin calls on crypto-asset positions, and negative impacts on the profitability of exposed banks.