Since the Covid-19 pandemic began and society pivoted to online work, school, and play, companies have become increasingly interested in developing and investing in the metaverse. But what is the metaverse exactly? To be frank, it is difficult to fully describe because the metaverse is not fully operational or created yet. There are many competing theories as to what the metaverse will actually be. In general, the metaverse will include virtual reality and augmented reality that can be accessed through game consoles, PCs, and even phones. It will essentially be an online community, similar to the real world, where people will engage virtually in much the same way they engage in real life. Many believe that the metaverse will include a digital economy where users can purchase clothing, goods, and property and own these items just like they do in the real world.
Supporters of the metaverse believe it will be interoperable – allowing users to hop from one virtual platform to another. This would enable them to bring the virtual clothing or goods they purchased on one platform, onto another. Others believe that this interoperability will never be a reality because it would require collaboration on the part of the tech giants FAMGA – Faceboook, Apple, Microsoft, Google, and Amazon. Such collaboration, some say, would not be profitable or desirable for these companies. Still, others believe the metaverse, sometimes called Web3, will be a truly decentralized web where consumers actually own the products they purchase, instead of the current privately-owned platforms that exist now. Those people believe that the FAMGA companies will eventually co-operate and collaborate together or risk being excluded from the Metaverse entirely.
There already are iterations of the metaverse – in Fortnite users can experience VR concerts, and World of Warcraft is a persistent virtual world that exists even when users aren’t logged on. Facebook hopes to one day host a virtual world in which you can go into a virtual house and hang out with friends, while Microsoft is working on creating virtual boardrooms so companies can train new hires and host meetings virtually. There are still significant technological hurdles to implementing the metaverse on the scale needed for it to be part of society’s everyday functioning. For instance, the Oculus headsets that allow users to feel fully immersed in the games they are playing are large and clunky, and often leave users with motion sickness and headaches when worn too long. Just how users will interact with the metaverse is still being worked out but it seems undeniable that a shift in technology and society’s interaction with technology is taking place.
But Why should Insurance Companies Care about the Metaverse?
Insurance is all about transferring risk. The novelty of the metaverse means that users and consumers will be exposed to new risks. These consumers will likely want to transfer some of their risk to insurance companies. So what are some of the risks?
Cryptocurrency presents a unique risk and hackers all over the globe are already using cryptocurrency to do away with peoples’ life savings. Cryptocurrency uses blockchain technology, which means that an owner of a blockchain cryptocurrency, say bitcoin, can see every transaction that each bitcoin has been used in. The problem with blockchain technology however, is that there is no name attached to bitcoin and when a bitcoin is transferred to another person, that bitcoin is completely untraceable.
Consider the recent international case where a 17-year-old from Hamilton, Ontario hacked $48-million in cryptocurrency from a US entrepreneur. Although the teen was eventually caught and ordered to return $2.5-million to the victim, due to the untraceable nature of cryptocurrency, much of the total $48-million stolen may never be recoverable.
Only to compound the increased risks hackers pose, quantum computing is now considered a top security risk. Quantum computing is a hyper-intelligent technology, which allows for sophisticated weather modeling, financial analysis, and research capabilities, but it can also pose a risk to IT-security protocols. It is speculated that quantum computers may soon be intelligent enough to extort one of the vulnerabilities in blockchain technology. For example, with bitcoin, when a transaction occurs two things happen: a public key, available to everyone, and a private key, available only to the purchaser, are generated. These key combinations are then in effect written into the blockchain and the transaction locks. The vulnerability is where the transaction is announced to the world by the public key, but the transaction hasn’t been fully integrated into the block chain. Theoretically, these funds could be re-diverted to a different address within this window of time. The computing technology and algorithms that would be needed to accomplish this are so complex that current supercomputers are unable to perform this. However, that is not to say that quantum computers may not be able to one day.
Another real risk that is posed by the metaverse is that of privacy breaches. For instance, crypto wallets are necessarily public – anyone is able to see what is in a user’s wallet once they have the address to the wallet. But that transparency doesn’t stop at what virtual currency is in a user’s wallet and what transactions have occurred with that virtual currency, it extends to transactions made in the real world because a user’s bank card and credit card are linked to that wallet. Finding a user’s wallet address is simple if someone knows the NFTs in that person’s wallet and can then search for that NFT. While this may not seem like much of an issue, many cryptocurrency advocates are pushing for using NFTs for medical records, social media, and home ownership. The privacy issues that could arise by storing this information in a wallet are glaring.
The ways in which consumers will want to transfer risks associated with the metaverse remain to be seen. If the large-scale adoption of purchasing products and engaging in the metaverse occurs, insurance companies will begin issuing insurance policies for the virtual property, assets, and personal information contained therein. Although the metaverse will need to be significantly more developed and predictable before this happens, when insurance companies do delve into the metaverse, there will undoubtedly be a large customer base eager to transfer some of their online risk.
References
Lou, Ethan, Hamilton Teen Banned from Crypto for a Year after Hacking $48-million from ‘Bitcoin Pioneer’ (June 2022), online: The Globe and Mail
Ravenscraft, Eric, NFTs Are a Privacy and Security Nightmare (April 2022), online: Wired
Ravenscraft, Eric, What is the Metaverse, Exactly? Everything you never wanted to know about the future of talking about the future (April 2002), online: Wired
Ravisetti, Monisha, Quantum Hackers Could Break Bitcoin in Minutes, but don’t Panic Just Yet (February 2022), online: CNET
Sheehan, Matt, Crypto & Quantum Computing Among Top Risks Flagged by Swiss Re (June 2022), online: Reinsurance News
Singer, Andrew, Does the Metaverse Need Blockchain to Ensure Widespread Adoption? (July 2022), online: Cointelegraph
