The Emerging Layer of Trust in the Metaverse

We are early.

We will create infinite personalized experiences in the Metaverse. We will witness economies and interactions beyond the imagination of science fiction. We may realize our interconnected world through virtual worlds.

Still, we have the illusion that our virtual actions are divorced of consequence in the physical world. Possibility may never be divorced of accountability. Every choice has a real world effect… even in the Metaverse.

At this beginning stage, we will weave our biases into the fabric of the Metaverse by the decisions we make on the protocols that underpin its existence.

In the founding of nations, we take great caution not to repeat the mistakes of our past, and yet we often fail in difficult to predict ways. The details are difficult to predict, however, the cycles are not. We have the opportunity to do something unprecedented: we can break the cycles.

In the founding of new virtual worlds, we must realize that we create these spaces in our own image, and much of this is either unconscious or limited. Our creations reflect back to us a self-enforcing reality: an echo chamber of perception. It would be naive to think that the immersive influence of the Metaverse will not affect our beliefs and behavior in the physical world. On some level, we will not know the difference.

And so, we must be deliberate in the opportunity. Beyond the sovereignty of a nation state, the sovereignty of our minds and the future structure of a global society is at stake.

Background

Behavior in complex systems arises from iterations of simple rules or incentives. We see this in the whirl of sunflower seeds or the efficiency of honeycomb. Certain patterns repeat in nature because of their efficacy and efficiency. Other influences conflict and threaten the integrity of emergent phenomena. While gravity is a potent force driving plants towards efficient architecture, it is also a force that renders structural demise. This brings a dynamism to life. We see this in all complex systems whether they are biologic, mechanical, or virtual.

As integrity is essential for physical structure, trust is a fundamental principle for human relationships. Through time every scale of relationship has risen and fallen on the incentives to support or undermine trust. Historically, we developed the ‘ledger of accounts’ to enable trust at scale, and this capacity supported more complex social structures. With the advent of distributed ledger technology (DLT,) we have removed the need to trust a central party and created a distributed public record that empowers new levels of social access and complexity.

To remove trust in a central party we have to address the incentive to undermine trust for personal gain. The Nakamoto consensus underlying Bitcoin presented the first way to do this at a reasonable scale. Yet, we have found that it is not scalable for all use cases. If we call the proof-of-work (POW) systems built on the Nakamoto consensus DLT 1.0, we could refer to proof-of-stake systems (POS) which followed as DLT 2.0. In both DLT 1.0 and DLT 2.0, competition and fees secure the network based on incentives in game theory.

In short, one could say DLT 1.0 and 2.0 are secured by self-interest. This may lead to collusion and greed, and then inequalities that result in revolutions. The cycle repeats.

Systems relying solely on competition and fees lead eventually to centralization as those with more earn more and eventually possess a controlling stake in the system.

The competition and fees in DLT 1.0 and DLT 2.0 are not only designed to secure the network, but also to distribute the limited resources. Even if a protocol could theoretically process infinite transactions per second, it would still be limited by the throughput of the physical hardware. CPU’s, GPU’s, and ASICSs can only go so fast. Hard drives read and write at fixed speeds. Internet connections have limited megabits per second (MPS.)

Unfortunately, competition and fees distribute the limited resource at the expense of open access. If you do not need open access, DLT 1.0 and 2.0 work fine. One might say that there is open access now, though we are very early in the adoption curve. We are also very early in the iterative process where stake centralizes and token prices escalate. Eventually competition and fees will edge out those with less resources.

We need to ask the fundamental question of whether there is a ‘common good?’

There is a common good, however, like any principle in a complex system, it is dynamic. We see how air pollution in one area affects health in a neighboring population. We see how industry leads to pollution of natural resources downstream. We see how over harvesting fish disrupts entire ecosystems. Competition and fees without a balance of collaboration and stewardship leads to an extraction mentality that ultimately undermines the system. Again, one cannot divorce opportunity from accountability.

And so, we return to the underlying incentives. Competition and having some ‘stake in the game’ incentivizes tremendous innovation through profit motive, yet often done with blind regard to the common good. These incentives may jeopardize the very foundation upon which the system is built. There is a dynamic balance.

We have seen the rise and fall of empires. We have yet to witness a stable global system other than the persistent efforts of humanity to survive amidst change. History repeats, and we are still here. We are now facing global challenges on an unprecedented scale, and are struggling as a world community to act in meaningful ways. Multiple systems are stressed, and the survival of humanity is not guaranteed.

We must realize that protocol level decisions which underpin the Metaverse and Web 3.0 will either support or undermine our human capacity to thrive in the physical world.

How do we support innovation and open access in a healthy distributed system? You are likely beginning to see that this is not a new question. We see various experiments throughout history and many versions at play in the world politic today.

In designing DLT 3.0 we need to keep this dynamic balance in mind. We already see the fight for the virtual worlds of the Metaverse. Will it fall under the dictator of centralized control or will it be born into a democratic, distributed, permissionless, open-access system. Will central entities own their silos of proprietary Metaverse, or will we foster a community commons? For it to be the later, the underlying DLT must reflect these values in its incentives, or otherwise it will lead to just another centralized equivalent on an unprecedented scale.

To develop and maintain a community commons, we need the values of collaboration and stewardship.

There is nothing new here. It is just the first time that we have the chance to code it into a new reality. The same old forces are at play. When we see them clearly, we build incentives designed to balance them.

A Collaborative Ledger for a Global Commons

From the beginning, the IOTA team recognized the limitations of DLT 1.0 and DLT 2.0. They understood that transactions needed to be feeless, the consensus needed to be leaderless, and processing needed to be asynchronous to preserve open access to humans and machines of varying resources.

Using a directed acyclic graph (DAG) wherein a new transaction confirms 2–8 previous transactions established a rule of collaboration while also enabling scaling. Instead of competing for blocks, you help others by confirming their transactions and in result also scale the ledger for the common good. Anyone can post a transaction in an asynchronous manner, and so this removes blocks, mining, and race conditions.

While this initial design decision was correct for enabling healthy future economies, it also created unique challenges:

• Feeless transactions open the ledger to other attack vectors: it becomes possible to spam the network and overwhelm the limited capacity of the hardware. Since IOTA is designed as both a DATA and VALUE transfer protocol that allows for data transfer without token transactions, data spam may cripple less resourced nodes on the network fairly easily.
• To enable high throughput, dependability and global scaling, the ledger needed to allow asynchronous transactions. This undermined a global sense of time and total ordering.
• To enable lightweight nodes or low resourced individuals to participate, the ledger had to thrive in a heterogenous network of diverse hardware and network conditions while also having affordable access.

The IOTA team understood they were moving in the right direction. It took a few iterations and a number of years to find a viable solution that balanced the aforementioned incentives. Meanwhile, the DLT space blazed on building decentralized finance (DeFi,) non-fungible tokens (NFTs,) and other innovations while loosing sight of how the incentives of the underlying ledger would eventually drive a centralized outcome.

One has to applaud the innovation that competition and fees can drive. Though, just as we see with the For-Benefit Corporations (B Corp) and Triple Bottom Line Accounting (TBL) movements, we need to bind our efforts to accountability or we will spoil the community commons until nothing can thrive. Limited Liability Corporations (LLCs) may have been an excellent innovation for capital allocation, however in many ways they divorced profit-driven innovation from accountability.

In building a DLT we are constructing a ledger of accountability. We have the opportunity to code the fabric of unlimited worlds: this will affect our economies, social structure, brain structure, and our very perception. Systems secured by greed will not lead to a thriving society, or even a viable humanity.

How do we balance market forces with common good to allocate resources in ways that promote innovation, access, and accountability?

We are already seeing this begin with tokenized fractional ownership, distributed autonomous organizations (DAOs,) and other applications built on DLT. Is there a way to define the resources required for common good and protect them, while allowing market forces to fuel innovation in ways that remain socially accountable?

A Solution

The IOTA team decided on a modular, 2 layer system that would enable the community commons on the base layer and provide great flexibility of innovation on the second layer.

Healthy relationships require more than trust. They also require healthy communication, and mutual respect of sovereignty.

The base layer is a scalable DAG structure secured through collaboration that provides feeless data and value transfer (communication), digital identity (sovereignty), and a fast, robust consensus protocol (trust.) To promote stewardship of the limited resources of the community commons, use of the base layer requires a refundable deposit proportional to your use of network resources. In addition, the more you contribute to network functioning through processing transactions, the more network bandwidth you can use.

The second layer provides total ordering and parallel processing of smart contracts through blockchains which communicate feelessly with atomic composability through the base layer. Extended UTXO functionality on the base layer allows for trustless inoperability of parallel chains without the requirement of third party bridges or fees. Chains do not require ‘crowd loans’ or other competition to secure a slot on the network, but may rather guarantee throughput by contributing a high functioning node to the base layer. Chains on layer 2 may be ‘permissioned’ or permissionless. They may be run by consortiums or DAO’s. The structure is designed for freedom of expression while also supporting the community commons of the base layer.

Other DLT platforms such as Ethereum may run on Layer 2, or utilize IOTA as a bridge to different ecosystems. In this way, the community commons of the base layer promotes ‘cross-chain’ interoperability and collaboration.

It is an elegant, hybrid solution that aligns the incentives of innovation with the common good.

Conclusion

The movement from Web 2.0 to Web 3.0 is toward open access and decentralization. We need to design the underlying protocols to promote this goal, or we will only create a new oligarchy in the pursuit of short-sighted financial gain. Web 3.0 would then fail.

Democracy and freedom are not a given, but are rather a choice made perpetually toward a common good. Our choices in the virtual and physical worlds become habits that form the character of our being and the structures of our collective society. Knowing this, we have an opportunity to code a balance of these dynamic forces into the fabric of this emerging reality. It cannot be overstated how these immersive experiences of the Metaverse will influence the structures of our brains and in result, our very perceptions of both the physical and virtual worlds. On masse, the collective influence will steer the direction of human society.

We must ask where we want to go…. and code appropriately.