Here's what crypto investors need to know about the metaverse

The internet is expected to see strong growth in virtual 3D reality settings.

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A boy wearing a virtual reality headset opens his arms in wonder

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Crypto investors have been on another wild ride this week.

After hitting all time highs in November, both Bitcoin (CRYPTO: BTC) and Ethereum (CRYPTO: ETH) have tumbled.

In the past 7 days, Bitcoin, the world's biggest crypto by market cap, has lost 14% (as at Friday afternoon). Ether, the number 2 crypto, is down a less painful 8% over the full week.

There are numerous forces impacting the price of these leading tokens and other altcoins.

Longer-term, Josh Gilbert, analyst at multi-asset investment platform eToro told The Motley Fool, the metaverse will be a big one amongst those.

What is the metaverse and how does it impact crypto?

The metaverse, in a nutshell, refers to nascent online 3-D virtual environments.

"The noise around the metaverse was accelerated by Facebook changing its name to Meta, but this has since helped to grow the interest around the metaverse," Gilbert said.

As for the metaverse's impact on cryptos, and vice versa, Gilbert told us:

Cryptoassets are an integral part of how virtual reality and the metaverse will be constructed. Users will be able to buy, sell and trade virtual assets using cryptoassets through the metaverse. We are already seeing high profile sales of virtual assets through MANA, which is the cryptocurrency of Decentraland.

Which may have you asking, outside of spiritual energy, what exactly is mana?

Gilbert explains:

The MANA coin is used to purchase digital real estate within the Decentraland platform, known as LAND. LAND is essentially a non-fungible digital asset maintained in an Ethereum smart contract. MANA can also be traded with other users for goods and services hosted within the platform.

If you develop your land well enough, companies may even advertise on it. And if your land becomes popular with digital foot traffic, it can even become the 'virtual version' of a New York Times Square.

Who wouldn't want to own land in Times Square? Even virtually.

But can't the metaverse exist without crypto?

"There is, of course, the potential for a metaverse without crypto," Gilbert said. "We already have virtual reality games without cryptoassets. But for the full experience, including buying and selling digital assets, then a digital asset such as crypto will be required."

Why is blockchain a fundamental part of the metaverse?

"Everything on Decentraland is backed by the Ethereum blockchain," Gilbert told us. "Without blockchain and, therefore crypto, the metaverse doesn't exist how we imagine."

Gilbert continued:

So far, blockchains such as Ethereum have proven to be unhackable. This is critical if users are expected to immerse themselves in a wholly digital world, and for the metaverse to reach mainstream adoption. On top of this, we will also need to see instant transactions with the ability to translate 24/7. This is something crypto and the blockchain can offer.

Decentraland itself is a virtual reality blockchain platform that aims to enable users to purchase, build and monetise virtual reality applications, to incentivise a global network of users to develop and operate a shared virtual world.

So, can investors in Bitcoin, MANA or any of the range of altcoins expect a big lift from the rise of the metaverse?

"We have already begun to adopt crypto payments globally, with names such as Visa and Mastercard allowing merchants to accept crypto payments," Gilbert said.

He added:

Rather than the metaverse reflecting the future of crypto, the metaverse needs crypto to deliver on what we are being told the metaverse will be. So, it's more the metaverse relying on crypto rather than the other way around. Crypto has a vital role to play in any metaverse.

I feel that this helps provide more use cases for crypto, as critics often argue about what is the 'real world' case for some cryptoassets. Here we see just how easily they can enter huge markets, like multi-billion-dollar industries such as music, sports and art, to name a few.

How has the MANA crypto been performing?

Many readers won't be familiar with MANA. But crypto investors who bought the token a year ago are sitting on gains of some 3,000%.

"2022 will act as a sounding board for further growth with metaverse cryptoassets and of course, the metaverse," Gilbert told us. "But it will likely be a few more years until we really see the full potential of the metaverse."

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Bitcoin and Ethereum. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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