Blockchain technology is spearheading a new technological paradigm. One of the most popular offshoots of the blockchain industry is the metaverse and metaverse gaming platforms. The metaverse and non-fungible tokens (NFTs) were among the biggest drivers of the 2021 bull market. The rise of blockchain gaming and decentralized social media platforms became a catalyst for a surge in crypto adoption. Furthermore, large brands and companies have embarked on a mission to make their presence known in the metaverse. However, anyone new to the crypto realm may still be unsure what the metaverse is and what it does. This has a significant number of people asking the question, “how does the metaverse work?”.

In this article, we’re going to address the question of “how does the metaverse work?”. We explore the key technologies that power the metaverse. Also, we discuss the possible roles that the metaverse could play in our everyday lives and online interactions.

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How Does the Metaverse Work?

The metaverse is a series of interactive and immersive 3D worlds, protocols, and technologies that combines augmented reality (AR) with virtual reality (VR) to create a spatial construct to connect people online. Further, it uses blockchain technology to facilitate decentralized gaming platforms, social media, token economies, and virtual land sales. Some describe the metaverse as “the future of the internet”.

The digital landscape is explored in our "How Does the Metaverse Work?" article!

While the metaverse is still a relatively new concept, some of the biggest names in tech are rushing to develop technologies that allow them to create metaverse offerings. This includes Meta (formerly Facebook), Microsoft, Apple, and Google. In the future, some of our everyday online interactions could take place in the metaverse. For example, you could play chess against your opponent on a virtual island that one of you owns.

Also, players can use avatars to represent themselves in the metaverse. Storing avatars, land, and in-game items on the blockchain in the form of NFTs will also be possible. In addition, the metaverse can create socially engaging workspaces and next-gen marketing opportunities for businesses.

The Key Technology Powering the Metaverse

The metaverse combines numerous components. Each element of the metaverse exists in other areas of the Web3 realm and beyond. However, to answer the question of “how does the metaverse work?”, we need to understand the underlying technologies that power it. Crucially, the foundation for metaverse platforms is blockchain technology.

The elements of the metaverse environment shift daily!

What is Blockchain Technology?

A blockchain is a digital ledger or database of transactions that operates without a central authority. A network of nodes secures each blockchain network. Also, each node has an identical copy of the same ledger of transactions. Instead of storing transactional data in a centralized, siloed server, blockchains distribute data across the network. Therefore, public blockchain networks such as Bitcoin are resistant to attacks, as they don’t have a single point of failure. As such, this makes them ideal for decentralized cryptocurrencies.

Want to be able to answer the "how does the metaverse work?" question with confidence? First, learn how blockchain works.

Despite the common perception that cryptocurrencies are used for illegal activities, most cryptocurrencies are easy to track on-chain. Instead of storing data linearly, blockchains store data in blocks. Once each block reaches capacity, it immutably interconnects with every previous block. This gives transactions a timeline of events that allows the entire network to agree on the legitimacy of transactions. Also, public blockchain networks are transparent. Anyone can view cryptocurrency transactions using a block explorer.

Blockchains facilitate censorship-resistant value generation outside of the legacy financial ecosystem. Anyone with an internet connection can interact with a blockchain from almost anywhere in the world. Plus, blockchains provide security and transaction validation in a way that generates trust without intermediaries. Furthermore, blockchain technology has the power to bank the unbanked, providing an equitable, inclusive alternative to legacy financial services.

How Does Crypto Mining Work?

Blockchain networks validate transactions without using intermediaries. Instead, blockchains require a framework that allows participants to agree on the validity of each transaction. To achieve this, blockchains use a “consensus mechanism”. The most prominent examples of consensus mechanisms are proof-of-work (PoW) and proof-of-stake (PoS). PoW is the consensus mechanism used by nodes on the Bitcoin network. Special nodes called “mining nodes” compete to solve a complex math puzzle using specialized computers built as “mining rigs”.

Staff member building a Bitcoin mining rig.

Mining nodes have to expend a significant amount of energy (work) to complete the puzzle. However, the first miner to prove they have solved the puzzle earns the right to include a transaction in their block, add it to the blockchain, and earn the relevant block rewards. In the case of Bitcoin and various other blockchains, this is the process by which new cryptocurrencies enter circulation.

Also, this mechanism provides financial incentives that ensure nodes act honestly and do not attempt to defraud the network. This is because any bad actors would lose their earning rewards if they were found to be acting in their own interests and not in those of the network at large.

Token Economies

Anyone can create an economy based on a product, service, or community in the metaverse. Content creators and musicians can create their own tokens to incentivize fan engagement. Also, the metaverse features an array of decentralized finance (DeFi) protocols that encourage participation in various token economies through novel investment strategies.

If you learn token economics, then you'll understand more fully how the metaverse function.

Also, several metaverse gaming platforms use token economies to incentivize adoption and activity. This can include staking tokens to earn rewards and participating in decentralized governance. In addition, crypto assets help build communities around metaverse applications and blockchain gaming platforms that distribute value to users and creators.

Decentralized Finance (DeFi)

Decentralized finance, or DeFi, refers to an ecosystem of permissionless blockchain protocols and applications that provide alternatives to legacy financial instruments. DeFi platforms often feature borrowing and lending facilities. Also, decentralized exchanges (DEXs) allow investors to swap tokens without intermediaries.

Another defining characteristic of DeFi is yield farming. Yield farming is an investment strategy that involves jumping between protocols to find the best interest rates. Several metaverse gaming platforms feature elements of DeFi to enable players to have “skin in the game”, a prominent feature in play-to-earn blockchain gaming platforms.

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Non-Fungible Tokens (NFTs)

The environmental structure of the metaverse relies on NFTs to provide verifiable ownership for various aspects of each metaverse ecosystem. Fungible assets such as the US dollar, Bitcoin (BTC), or Ethereum (ETH) are interchangeable. For example, when you take out a loan in BTC, you can repay that loan using any other BTC; it doesn’t have to be the exact same unit of account.

"NFT" written on a computer's motherboard in neon colors.

However, NFTs are not interchangeable. Instead, NFTs are on-chain representations of unique or rare assets. In metaverse platforms, NFTs play several important roles. For example, you may have a unique skin or avatar that’s personal to you. That item or asset could be held in a crypto wallet as an NFT and serve as a unique identifier in various gaming scenarios.

Furthermore, NFTs are used for rare and unique in-game assets. This includes items such as weapons, potions, clothing, accessories, and characters. Also, real estate and virtual land ownership rely on NFTs for dividing unique plots of land. Furthermore, NFTs allow artists to create collectible, unique pieces that have a verifiable ownership history on the blockchain.

Blockchain Gaming

Blockchain-based gaming scenarios feature heavily in almost every metaverse platform. The play-to-earn (P2E) model allows players to earn crypto assets for progressing in decentralized gaming platforms. Also, players can verify the scarcity of characters and in-game items on the blockchain. Furthermore, blockchain gaming platforms use NFTs and crypto to incentivize gameplay and introduce game-theoretic mechanics to familiar gaming formats. In addition, metaverse gaming platforms are building new communities that bring together the traditional gaming world and the Web3 community.

Blockchain gaming elements illustrated in cubes.

P2E gaming allows players to earn cryptocurrencies by completing challenges and missions. Also, players can compete against each other in tournaments and earn rewards for their participation.

Virtual Real Estate

Virtual land and real estate are one of the defining features of the metaverse. Users can purchase or rent virtual land and real estate to stake a claim to a specific territory within a metaverse gaming platform. It works almost the same way as purchasing land or real estate in the real world. However, all transactions are immutably held on the blockchain. Therefore, ownership disputes are simple to resolve.

Two individuals wearing VR glasses explores what and how the metaverse works.

Furthermore, owning land in the metaverse has become a fashionable pursuit for companies sector-wide. Virtual land owners can earn a passive income in some metaverse gaming platforms by creating virtual experiences or unique games. Also, users can set up NFT marketplaces in the metaverse to sell a range of rare or unique items.

Social Media

Decentralized social media allows users to interact with their friends and favorite content creators without the need to spy on them. Big tech companies are notorious for harvesting user data and selling it to marketers. However, decentralized social media platforms aim to address this by creating privacy-preserving applications that put users in control of their own online experiences and the data they share.

Furthermore, decentralized social media platforms allow users to participate in token economies by supporting content creators. Fans can tip their favorite artists or invest in their fan tokens. In addition, decentralized social media platforms enable users to see how their data is used and opt-in to share it with specific marketing companies.

How Does the Metaverse Work? – Summary 

The metaverse is an interactive, immersive parallel to the current iteration of the web. Web3 technologies are taking our online experiences to extraordinary new heights by providing new opportunities for engagement and expression. Also, with the use of blockchain, crypto, NFTs, and DeFi, the metaverse offers a compelling alternative to various online interactions. In the future, it could become commonplace for work meetings to occur in virtual chat rooms within the metaverse.

Furthermore, blockchain-based gaming platforms influence the traditional gaming sector as demand for decentralized technologies continues to bleed into the mainstream. Some predict that the metaverse could permanently alter the way we interact and engage online. The next time somebody asks you, “how does the metaverse work?”, you should be able to describe the various technologies that power these virtual worlds confidently.

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