Adoption of Metaverse innovations and new business models is facing “reputational risk,” which will only be overcome when the broader population experiences its value and its benefits.
At the beginning of the twentieth century, the progressive journalist Walter Lippmann published a book that would revolutionize our understanding of collective decision-making: Public Opinion (1922). Despite the fact that Americans had access to more information than ever, Lippmann observed, the quality of deliberation seemed to be going down. His explanation? Faced with ever-increasing complexity, humans need stereotypes and simple narratives to make sense of the world. Those simplifications need not be bad, so long as they offer a roadmap that remains accurate enough to navigate reality. The problem, for Lippman, was that stereotypes often turn into irrational prejudices against groups of people, places, or new technologies – acting as an obstacle for progress across the board. While Lippmann’s Public Opinion is 100 years old this year, his account of reputational risk can help us understand the adoption difficulties that crypto and the Metaverse are facing.
Paul Krugman, Warren Buffett, and other prominent figures have long presented crypto as a worthless fraud driven by pure hype. While these comments capture the most dysfunctional parts of web3, they make a mockery of the groundbreaking achievements and promise of the space, which former Coinbase CTO Balaji S. Srinivasan captured in a recent essay. Why do influential voices choose to focus on the bad? What can defenders of the ecosystem do about it? Lippmann offers a unique perspective into these key questions.
Public opinion, as in the past, is being shaped by prejudices and over-simplifications.
Lippmann opens Public Opinion with a passage from Plato’s Republic in which prisoners in the cave take shadows for substance. As Americans, we are all prisoners of the fictions, narratives, and stereotypes through which we see the world. To make sense of the world’s complexities, to bind our communities together, and to create a reassuring sense of certainty, we have erected a series of unconscious filters that help us interpret our surroundings. Never do we engage with external reality as it is. From class consciousness to national identity, we rely upon a myriad of grand narratives that (over)simplify the way in which we interact with one another. Worse still, we base most of our “thoughts, feelings, and actions” upon these convenient fictions. In short, not only do we not have access to the same facts, but even if we did, we would still struggle to interpret the world in a coherent way.
Public opinion does not come from the spontaneous aggregation of individual minds; nor is it some kind of reasoned consensus, deliberative synthesis, or collective judgment. At best, public opinion reflects the dominant narratives of the era. At worst, it constitutes a fabricated illusion that “powerful newspaper proprietors,” thought-leaders, and demagogues ingrain in the minds of the uneducated majority. In both cases, public opinion is “a codified version of the facts,” not “a moral judgment on the facts.” To its credit, Pew Research Center – a well-respected think tank – is monitoring expert perspectives on the Metaverse from a range of disciplines and attempting to provide the public with a balanced view.
Emerging technologies like those inspired by the Metaverse often suffer from an individual’s fear of change and an inherent prejudice toward anything new.
This general account of public opinion underpins Lippmann’s more specific account of reputational risk. For Americans, the same pattern often results in irrational prejudices against new technologies. First, we collectively encounter a new technology, which (by virtue of its being new) is imperfect. Both opinion-leaders, who suffer from status-quo bias, and incumbents, whose success the new technology threatens, choose to focus on the bad and neglect the good. As a result, people develop a negative view of the technology and neglect its potential. Only when a large enough group of people see the value of the new technology early on, fights an early battle, and eventually overcomes irrational stereotypes does progress ever occur.
Sounds familiar? Perhaps because it is. This exact process matches the way in which people rejected the internet in the 1990s, as well as social media in the 2000s. In both cases, the press and incumbents focused on the worst of examples to disqualify what would become a life-changing technology. Today, crypto and the Metaverse are the new targets.
As an example, Charlie Munger recently made news when he blasted cryptocurrency at Berkshire Hathaway’s annual shareholder meeting. As he colorfully put it: “I don’t welcome a currency that’s so useful to kidnappers and extortionists and so forth, nor do I like just shuffling out . . . billions of dollars to somebody who just invented a new financial product out of thin air.” Nevermind that other technologies are used by nefarious actors all the time, Munger chose to focus on the most immoral use-cases to cast doubt on the whole ecosystem. And he’s not the only one to do so.
It is easy to get pulled under by the “doubter” wave swirling around crypto (specifically NFTs), but its growing presence and position is currently winning the day.
Last week, the video game giant Minecraft rejected the use of NFTs and blockchain technologies on its platform. In a public statement, the company wrote that “NFTs and other blockchain technologies create digital ownership based on scarcity and exclusion… the speculative pricing and investment mentality around NFTs takes the focus away from playing the game and encourages profiteering, which we think is inconsistent with the long-term joy and success of our players.”
This statement captures three important narratives about NFTs and crypto more broadly. First, those technologies create artificial scarcity. Second, they bring no real value-add. Third, and consequently, their value is strictly speculative and hype-driven. Yet we can easily point to counter-examples for each of these statements. Take the idea of artificial scarcity: Mona, a Metaverse platform for creators that recently raised $14.6M, doesn’t sell virtual land or tokens precisely to avoid artificial scarcity; it doesn’t charge creators for anything upfront, and it is building tools, systems and protocols for the open Metaverse. As for the broader idea that these technologies bring no real value add, Chris Dixon has put this argument to bed in his well-known primer on decentralization.
Of course, there are many cases in which NFTs and crypto do act as hype-driven scams that create artificial scarcity without adding real value. The point, however, is that these cases by no means represent the potential of the technology at its best. As with every new technology, web3 comes with a period of experimentation during which malicious and incompetent actors harm the reputation of the sector as a whole. The question then becomes: why does Minecraft – and so many others in the media and beyond – choose to focus on the bad, instead of the good?
The Metaverse – together with its innovations, new business models, and looming changes to the very way we live our lives – is our future and we can either be fearful and hesitant, or remain open and embrace it.
For a sense of scale, in 2021, over $16 trillion was settled through blockchain/cryptocurrency networks - more than 50% more than was processed through Visa. NFT’s virtually doubled the sales of art work in the United States. The city of Orlando estimates that the Metaverse has brought in over $2 Billion in new jobs in the last 12 months. Tim Sweeny, founder of Epic games stated, “This Metaverse is going to be far more pervasive and powerful than anything else. If one central company gains control of this, they will become more powerful than any government and be a ‘God on Earth.’” Aptly characterized by Sweeny, It is a force to be reckoned with, not ignored.
When it comes to the Metaverse, three core reasons explain why people choose to focus on the bad rather than the good. First, Minecraft and other incumbents see their business model threatened by web3. How do platforms that enjoy absolute control deal with a new environment in which users own and create their own digital assets? For some, it may seem easier to reject the technology altogether than to adapt. Second, commentators are vulnerable to status quo bias, much like everyone else. As Marc Andreessen puts it in a debate on technological progress, the New York Times spent a decade bashing the internet as a useless fad. Why should we expect opinion-shapers to diverge from their techno-pessimist track record when neither their profile nor their incentives have changed? It is, after all, always easier to generate clicks on negative stories.
Unlike the first two, the third reason has to do with the structure of web3 itself. Because web3 is more decentralized than previous waves of the internet, it is harder for well-intentioned actors to police and distance themselves from malicious actors. With social media giants, bad actors would lose the competitive race and be replaced by better platforms. With decentralized organizations, however, a handful of bad actors suffice to damage the reputation of the platform as a whole.
Ultimately, for those who believe in web3 and lament unfair criticisms, this is the most important task of all: creating systematic ways to identify, isolate, and deal with those who endanger the reputation of the sector as a whole. Purists may view this kind of self-regulation as a betrayal of web3’s promise. But realists understand that, for the sector to reach mainstream adoption, early adopters must embrace the self-discipline necessary to overcome irrational stereotypes championed by hordes of critics. As Peter F. Drucker said, “We can embrace change, or risk atrophying in irrelevancy.”