Researchers at the Bank of England (BoE) on Tuesday warned that “robust consumer protection” would be required if cryptocurrencies achieved widespread use within the metaverse.
In a blog post published on Tuesday, BoE researchers Owen Lock and Teresa Cascino said that a fully-realized metaverse could host huge volumes of transactions conducted using cryptocurrencies. The researchers mentioned that the larger the volume of such transactions, the greater the risk.
“The importance of crypto assets in the open-metaverse means that if an open and decentralized metaverse grows, existing risks from crypto assets may scale to have systemic financial stability consequences,” the researchers wrote in the blog post.
The researcher further stated that regulators, therefore, need to adopt crucial measures to address risks from the use of cryptocurrencies within the metaverse before they reach systemic status.
Lock and Cascino stated if large-scale use of the metaverse comes into reality, then consumers could hold a larger share of their wealth in crypto to make payments or investments in the metaverse.
The researchers, however, warned that if people are increasingly employed in jobs in metaverse-based settings, their employment outcomes may be affected by risks from crypto assets. For instance, the blog post stated that a loss of confidence in the crypto asset ecosystem could result in reduced metaverse-based activity and subsequent job losses.
Apart from that, the researchers said the metaverse remains a vague concept despite the hype that comes with the new technology. They explained that the technology required to provide an immersive experience that metaverse proponents envision is still years away.
However, the researchers noted that had not kept firms like Meta, Microsoft, Alibaba and Ikea from launching subsidiaries that deal with figuring out what the metaverse is.
Why Central Banks Are Unease with Metaverse
In October last year, Facebook’s announcement that it was rebranding to itself ‘Meta’ was the moment the metaverse was brought into the spotlight.
The surge of metaverse platforms has caused a mixture of excitement and speculation about the possibilities of a new digital world among banks across the world.
In May, JPMorgan considered the metaverse as a $1 trillion yearly market opportunity and forecasted that in-game ad spending will reach over $18 billion by 2027. Morgan Stanley said the metaverse has the potential to generate $8.3 trillion in total consumer expenditure in the US alone, identifying it as a $50 billion revenue opportunity for luxury brands.
However, the idea of the metaverse does not sit well for most central banks because payments in the metaverse are already heading towards some form of private virtual currencies, bypassing the use of fiat currencies.
In December last year, China expanded its crackdown on crypto into the metaverse and nonfungible tokens (NFT). During that time, Gou Wenjun, director of the Anti-Money Laundering (AML) unit at the PBoC, pointed out that the risks associated with the new trends of the crypto ecosystem, such as NFTs and the metaverse, are a threat if left unregulated.
The executive said while consumers would use digital assets for privacy and wealth appreciation, such virtual currencies are prone to be used for illicit purposes like money laundering and tax evasion.
Wenjun stated that the crypto landscape’s rapid innovation requires higher risk supervision and governance requirements. He added that the isolated nature of crypto, NFTs and metaverse-based items can be used as a money-laundering tool.
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