a16z: The 7 Fundamental Elements of the Metaverse

Original Authors: Liz Harkavy, Eddy Lazzarin, Arianna Simpson

Original Title: “7 Essential Ingredients of a Metaverse”

Translated by: Hu Tao, Chain Catcher

Since the term "metaverse" was coined in the 1990s, there has been much discussion about it, especially during the pandemic (given the surge in online activities) and after Facebook rebranded itself as Meta.

Is this just an opaque marketing term? What exactly is the metaverse? How does one define this term, and where do we draw the line between the metaverse and another virtual world? These are common questions people have about the metaverse, and we believe it is important to outline how we view it and how the metaverse intersects with web3.

In many ways, the metaverse is just another name for the evolution of the internet: more social, immersive, and economically complex than what exists today. Broadly speaking, there are two competing visions for how this can be achieved: one is decentralized, with generous property rights and new boundaries, interoperable, open, and owned by the community that builds and maintains it; the other is centralized, closed, subject to the rise of companies, and often extracts painful economic rents from its creators, contributors, and residents.

The key dimension for comparing these two visions is openness versus closedness, which can be conceptualized as follows:

An open metaverse is decentralized, allowing users to control their identity, enforce property rights, adjust incentives, and ensure that users (rather than platforms) receive value. Among other criteria, an open metaverse is also transparent, permissionless, interoperable, and composable (others can freely build within and across the metaverse).

Achieving a "true" metaverse—open versus closed—requires seven essential elements inherent to this widely popular state. We believe these are necessary to meet the minimum requirements known as the metaverse. Our goal is to clear the fog of misinformation about what constitutes a true metaverse and what does not, and to provide a framework for assessing early metaverse attempts.

1. Decentralization

Decentralization is the overarching governance principle of an appropriate metaverse, and many subsequent features depend on or stem from this core concept.

Decentralization means that it is not owned or operated by a single entity, nor is it manipulated by a few power brokers. Centralized platforms often start off friendly and cooperative to attract users and developers, but once growth slows, their relationships become competitive, extractive, and zero-sum. These powerful intermediaries often abuse user rights and de-platform, and they host captured economies at aggressive rates. On the other hand, decentralized systems exhibit fairer ownership among stakeholders, reduced censorship, and greater diversity.

Power decentralization is important. Without it, anyone can become "clumsy" at any time—this instability prevents people from building on top of it, thus stifling innovation. Centralized platforms cannot make the same strong commitments controlled by code as blockchains do, so their commitments can be revoked or altered whenever leaders or organizations have a whim about certain arrangements. The most powerful way to prevent such abuses and protect the metaverse is to ensure that control is decentralized.

2. Property Rights

Most successful video games today monetize through the sale of in-game items, such as "skins," "emotes," and other digital goods. However, those who purchase in-game items are not actually buying them—they are renting them. Once someone leaves to play a different game—or if a problematic game unilaterally decides to shut down or change the rules—players lose access.

People have become so accustomed to renting from centralized services in web2 that the idea of actually owning something (a digital object that you can sell, trade, or carry elsewhere) often feels strange. But the digital world should follow the same logic as the physical world: when you purchase something, you own it. Just as courts uphold these rights in the real world, code should enforce them online. Coincidentally, true digital property rights were impossible before innovations like cryptography, blockchain technology, and NFTs emerged. In short, the metaverse turns digital serfs into self-sufficient farmers.

3. Self-Sovereign Identity

Identity is closely related to property rights. If you do not own yourself, you cannot own anything. Just like in the real world, people's identities must persist across the entire metaverse without relying entirely on a small group of centralized identity providers.

Authentication is about identity: proving who a person is, what they can access, and what information they share. On today’s web, this requires doing so through intermediaries, such as popular one-click login methods like social logins or single sign-on (SSO). The largest tech platforms today, like Meta and Google, use this method to collect data to build their businesses: monitoring people's behavior to develop models that provide more relevant ads. Moreover, since these platforms have complete control, attempts to innovate in the authentication process rely on the honesty and willingness of the companies behind the platforms.

The core cryptography of web3 enables people to authenticate without relying on these intermediaries, allowing individuals to directly control their identity or control it through services of their choice. Wallets (like Metamask and Phantom) provide ways for people to verify themselves. Standards like EIP-4361 (Ethereum Login) and ENS (Ethereum Name Service) allow projects to coordinate around open-source protocols and contribute independently to a richer, safer, and evolving concept of digital identity.

4. Composability

Composability is a system design principle, particularly the ability to mix and match software components (like Lego blocks). Each software component only needs to be written once, after which it can be easily reused. This is akin to compound interest in finance or Moore's Law in computing—some of the most powerful known economic forces—because it can unleash exponential power.

For the metaverse to have composability—a concept closely related to interoperability—it must provide high-quality, open technical standards as a foundation. In games like Minecraft and Roblox, you can build digital goods and new experiences using basic components provided by the system, but it is difficult to move them out of that environment or modify their internal workings. Companies that provide embedded services, like Stripe for payments or Twilio for communications, can work across websites and applications—but they do not allow external developers to change or remix their black-box code.

In their strongest forms, composability and interoperability are possible across a wide range of software stacks. Decentralized finance or DeFi is an example of this powerful form. Anyone can adjust, recycle, change, or import existing code. Moreover, developers can build real-time programs side by side in the shared virtual computer (Ethereum) at their leisure—such as Compound's lending protocol or Uniswap's automated market making. By combining powerful new elements like property rights, identity, and ownership, builders can create entirely new experiences.

5. Openness/Open Source

Without open source, true composability is impossible; open source is the practice of making code freely available and able to be redistributed and modified at will. Regardless of degree or type, open source as a principle is so crucial to the development of the metaverse that we have broken it down as a separate component, even though it overlaps with the composability discussed above.

So what does open source mean in the context of metaverse development? The best programmers and creators—rather than platforms—need complete control to innovate fully. Openness and open source help ensure this. When codebases, algorithms, markets, and protocols become transparent public goods, builders can pursue their visions and ambitions to create more complex and reliable experiences.

Openness leads to safer software, allowing parties to better understand economic terms and eliminating information asymmetry. These attributes can create fairer and more equitable systems that effectively align network participants. They can even eliminate the need for outdated U.S. securities laws, which were designed decades ago to reconcile long-standing agency problems and information asymmetries in business.

The power of composability in web3 is largely due to its open-source spirit.

6. Community Ownership

In the metaverse, all stakeholders should have a voice in system governance proportional to their participation. People should not merely comply with edicts handed down by a group of product managers at a tech company. If any single entity owns or controls this virtual world, then, like Disney World, it may offer some form of escapism but will never realize its true potential.

Community ownership is a piece of the puzzle that unites network participants—builders, creators, investors, and users—to collaborate and strive for the common good. This miracle of coordination—previously clumsy or impossible without the advent of cryptocurrencies and blockchains—is achieved through the ownership of network-native asset tokens.

Beyond the technological advancements brought by decentralization, the philosophical implications of community ownership of space are crucial for the success of the metaverse. In web3, participants in decentralized autonomous organizations or DAOs have internalized this principle. They are avoiding the rigidity of corporate structures in favor of supporting more flexible, diverse democratic and informal governance experiments. This allows communities to be managed, built, and driven by their users rather than by a single entity.

7. Social Immersion

Big tech companies would have you believe that high-performance virtual reality or augmented reality (VR/AR) hardware is an essential—if not the most important—component of the metaverse. This is because these devices are a Trojan horse. Companies see them as a way to become the primary computing interface provider for 3D virtual worlds, thus also becoming the bottleneck for people's cross-domain experiences.

The metaverse does not have to exist in VR/AR. What is required for the existence of virtual worlds is a broad sense of social immersion. More important than hardware are the types of activities enabled by the metaverse. They will allow people to hang out remotely, work together, connect with friends, and have fun, just as they do today using Discord, Twitter Spaces, or Clubhouse.

As the use of other remote meeting and presentation tools (like Zoom) has surged, the pandemic has highlighted the demand for more immersive experiences that go beyond traditional text-based communication platforms like email. Furthermore, due to the economic elements outlined earlier—property rights, self-sovereignty, community ownership—the metaverse can enable people to make a living, conduct business, and gain status. In a typical knowledge worker workplace, people collaborate using tools like Slack, while outside the traditional corporate world, Discord and Telegram thrive in the grassroots organizational movements of DAOs.

The metaverse is not about "viewing" modes (tools for viewing the metaverse). This is a convenient meme for those who control the hardware manufacturing.

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While many companies have begun to build different parts of the whole, we believe that if the virtual world lacks any of the above elements, it cannot be considered a fully formed metaverse. We believe—just as is evident in this framework—that a metaverse cannot exist without the foundational underpinnings of web3 technology.

Openness and decentralization are the pillars of the entire edifice. Property rights depend on power decentralization—despite the influence of powerful adversaries, they must endure. Community ownership prevents unilateral control of the system. This approach also supports open standards, which contribute to decentralization and composability, closely related attributes downstream of interoperability.

The development of an ideal multidimensional virtual world will take shape gradually. Many questions remain to be resolved to avoid ending up with a dystopian analogue like the Oasis controlled by IOI in "Ready Player One." However, if builders adhere to these principles, the likelihood of such an outcome diminishes.

When the metaverse arrives, it should fully embody these principles—with decentralization at its core.