The Bank of England (BoE) cautioned on Tuesday that “strong consumer protection” would be essential if cryptocurrencies become widely used in the metaverse.
In a blog post published on Tuesday, BoE academics Owen Lock and Teresa Cascino said that a fully realised metaverse might host massive amounts of cryptocurrency transactions. According to the experts, the bigger the number of such transactions, the greater the danger.
“Because of the centrality of crypto assets in the open-metaverse, present risks from crypto assets may scale to have systemic financial stability effects,” the researchers stated in a blog post.
According to the study, policymakers must take critical steps to address dangers associated with the usage of cryptocurrencies in the metaverse before they become systemic. According to Lock and Cascino, if large-scale usage of the metaverse becomes a reality, consumers may store a higher portion of their income in crypto to make payments or investments in the metaverse.
However, the researchers cautioned that if individuals are more employed in metaverse-based contexts, their employment prospects may be influenced by crypto asset risks. For example, the blog post noted that a lack of trust in the crypto asset ecosystem might lead to lower metaverse-based activity and, as a consequence, job losses.
Aside from that, the researchers claim that despite the hoopla around new technologies, the metaverse remains a hazy idea. They highlighted that the technology needed to create the immersive experience that proponents of the metaverse imagine is yet years away.
However, the researchers added that this hasn’t stopped companies like Meta, Microsoft, Alibaba, and Ikea from building divisions devoted to determining what the metaverse is.
Why Are Central Banks Concerned About the Metaverse?
The revelation by Facebook in October that it was rebranding itself ‘Meta’ was the moment the metaverse was thrust into the forefront.
The rise of metaverse platforms has sparked enthusiasm and speculation among banks throughout the globe about the possibility of a new digital universe.
JPMorgan estimated that in-game ad spending will exceed $18 billion by 2027 in May, citing the metaverse as a $1 trillion annual market potential. According to Morgan Stanley, the metaverse has the potential to create $8.3 trillion in total consumer spending in the United States alone, representing a $50 billion revenue opportunity for luxury companies.
The concept of the metaverse, however, does not sit well with most central banks since payments in the metaverse are already moving toward some type of private virtual currency, circumventing the usage of fiat currencies.
In December last year, China extended its assault on crypto into the metaverse and nonfungible tokens (NFT) (NFT). During that time, Gou Wenjun, head of the PBoC’s Anti-Money Laundering (AML) section, said that the hazards connected with emerging crypto ecosystem developments such as NFTs and the metaverse constitute a concern if left uncontrolled.
While users will utilise digital assets for privacy and wealth appreciation, the executive said that such virtual currencies are prone to being exploited for illegal objectives such as money laundering and tax evasion.
Wenjun noted that the crypto landscape’s fast innovation necessitates more risk monitoring and control. He went on to say that the isolated nature of crypto, NFTs, and metaverse-based things may be utilised as a vehicle for money laundering.