The recently published report by the Bank of International Settlements (BIS) sheds light on the potential risks and challenges that an unregulated metaverse could pose to the digital economy. BIS warns of the possibility of fragmentation and domination by powerful private firms within future virtual environments. To counter this threat, the report advocates for the promotion of efficient and interoperable payment systems that align with user demands. In addition, BIS recommends that regulators establish frameworks that provide clarity on data privacy, digital ownership, and consumer protection.
While the report acknowledges the potential benefits of a crypto-fueled metaverse in areas such as education, healthcare, and gaming, it strikes a skeptical tone by highlighting the waning interest in the concept over the past two years. BIS evaluates the advantages and disadvantages of a centralized versus decentralized metaverse. It argues that a centralized metaverse would lack interoperability, allowing for the potential exploitation of users through rent-seeking behavior and the loss of control over transaction data. On the other hand, the report questions the true effectiveness of mechanisms in a decentralized metaverse that claim to empower users, citing a study on voting within the Decentraland game.
The Unsuitability of Cryptocurrencies
BIS contends that the volatility of existing cryptocurrencies renders them unsuitable as the native forms of payment within the metaverse. The report suggests stablecoins as a viable alternative but cautions against centralized issuers potentially acting as dominant banks, highlighting the risks associated with their failure. The institution’s past concerns regarding the fragmented nature and high fees of cryptocurrencies and its skepticism of decentralized finance amplify these reservations.
BIS, known for its role in coordinating monetary policy across leading central banks worldwide, favors central bank digital currencies (CBDCs) as an indicator of blockchain’s potential role in a future monetary system. The organization believes that CBDCs, backed by central bank money, offer a more stable foundation for innovation. In line with this belief, BIS initiated the pilot CBDC project called “Aurum” to explore the privacy aspects of CBDC payments. This project signifies the organization’s commitment to embracing blockchain technology within the regulatory framework.
The Basel Committee and Conclusion
Adjacent to BIS is the Basel Committee on Banking Supervision, which was founded by G10 central bank governors in 1974 and continues to oversee it. While the BIS report provides valuable insights, it is crucial to critically evaluate its findings and recommendations. The report’s skeptical tone and emphasis on centralization raise questions about the true potential of a metaverse under the control of powerful private entities. At the same time, the proposed use of stablecoins and CBDCs introduces different concerns regarding the dominance of centralized entities and the impact of potential failures on users.
The BIS report prompts regulators to consider the future impact of an unregulated metaverse on the digital economy. While the recommendations to promote efficiency, interoperability, and clear standards are commendable, it is essential to critically analyze the underlying assumptions and potential drawbacks associated with centralized and decentralized metaverse models. As the concept of the metaverse continues to evolve, further research and discussion are necessary to shape a regulatory framework that ensures the long-term sustainability and inclusivity of this emerging digital landscape.
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