As it happens, this was also the next big thing in 2003. That’s when Philip Rosedale and his then-company Linden Lab launched Second Life, an immersive digital platform in which users can build worlds, create art, and buy and sell digital goods. After a spike of interest, Second Life faded into the background of internet culture, but it has maintained a loyal following of people who for whatever reason prefer its virtual reality to their own meta-space.

In many ways, the metaverse being pitched by Facebook—er, Meta—and other companies isn’t so different from Second Life. And yet Rosedale’s creation never came close to reaching the world-conquering scale that gets the likes of Mark Zuckerberg out of bed in the morning. What could make this time different?

Rosedale, who went on to found the spatial audio company High Fidelity, recently returned to Linden Lab as a strategic advisor as the company looks to leverage its early claim on virtual existence. He spoke to WIRED about how to avoid a dystopian metaverse, the true value of purely digital goods, and why VR headsets suck. The interview has been condensed and lightly edited.

WIRED: We’re talking about the “metaverse” because Mark Zuckerberg started talking about it. Facebook, now rebranded Meta, makes all of its money from advertising. Is it inevitable that the more time people spend in virtual worlds, the more their attention is going to be tracked and monetized through advertising?

Philip Rosedale: If Facebook is successful at building a metaverse with behavioral ad targeting, it’s just a very, very bad outcome. But it’s not inevitable at all. I’ve been saying this to everybody that will listen: Second Life makes more per person who uses it, per year, than YouTube or Facebook does. Second Life is free for basic access, just like Facebook or Gmail or YouTube. But the way Second Life makes money is through fees.

We didn’t really have the advertising business as a temptation when we were building Second Life, which I started doing in 1999. That was before Google introduced the world to the idea of this crazy ad auction market. So Second Life makes some of its money from charging people what’s basically a property tax if they choose to own land in Second Life. And then the rest of its money it makes from small fees on transactions. So if somebody sells an NFT, if somebody sells digital goods to somebody else through the Second Life marketplace, there’s a small fee that Second Life charges the seller.

You say NFT, but you’re not talking about something relying on a blockchain, correct?

Correct. Every “primitive” in Second Life, which are the atoms from which things are made, has a stamp on it, not in a blockchain but in a public database. And that information contains who created it, who presently owns it, and, if it’s for sale, what the price is and what you’ll be able to do with it once you buy it. So it’s very, very similar to the metadata associated with an address on a blockchain. But we store it in a central database, so people have to trust that Linden Lab is going to keep that database up to date.

Transparency really can amplify trust if it’s done right. I think a lot of the things that are being bandied about as what you need a blockchain for might actually just be things that you need a public database for.

And how does Second Life handle digital currency?

The cryptocurrencies we have today, the way they work is that there’s basically a scarce number of tokens, and there’s a mechanism to essentially give away the majority of those tokens to lucky early adopters on the basis of them using their computers to collect coins or buying in early. Second Life, however, was very different. We didn’t want the price of the Second Life currency to go up because we observed that it wouldn’t be usable as a day-to-day trade currency unless its value was stable, not increasing. If it was increasing in value, then you’d have hoarding and not spending.

So what we did was we printed new currency and sold it on the open market, and we did so transparently. That was essentially our Fed desk. And in doing that, we increased the amount of money in circulation with the intention of holding the exchange rate between the Linden Dollar and the US dollar roughly constant. And it was very successful. Over the last 10 years, I don’t think the currency price against the dollar has fluctuated more than 10 percent or something. It’s about 250 Linden Dollars to the dollar, which is the same as it was in 2006.

Are we sure this virtual economy is really better than an ad-based model? I guess I’d challenge you to describe what the inherent value is of an NFT in Second Life or another metaverse, versus people just wasting money on useless tokens.

I think the underlying value of clothing that you would wear to a meeting or a concert or whatever—wearing some cool clothes that you bought from a designer—is similar to the value of buying clothes in the real world. Right now, because of the speculative, tulip-bulb type thing going on, it’s impossible to separate the speculative noise from the value of the underlying assets. But if you ask what is the actual value of a digital painting that you can hang on your wall in your digital house, or a digital pair of shoes you can wear on your avatar? I think Second Life provides at least some guidance, which is to say that the value of those things is, sensibly, lower than it is in real life, but it’s certainly not zero. The average Second Life transaction is about $2. I think it gives evidence that there’s a value to NFTs. But right now, the average price of NFTs—it’s something crazy like $1000—is substantially higher than what I would guess is its long-term value.

Second Life has had a pretty stable following, but it never got huge. Does that tell us something about the limit of demand for people who want to spend serious time in a virtual reality, in an alternate reality?

Yes. Second Life is still only about a million people. Obviously, Facebook is in the billions: three orders of magnitude larger. I think the main thing to be observed, and Covid has taught us more about this, is that the decision to live your life in a digital world versus the real world is a very big, serious decision. It’s certainly not for everybody. Second Life users are proof that there are people who, for a variety of different reasons, have chosen to mostly live in a virtual world and not live in the real world, or who put significantly more of their time and energy into the virtual world.

A big question seems to be whether the fact that the biggest companies are throwing their weight behind this leads to a lot more people spending serious time in virtual spaces.

Well, in answering that, let me go back to the word “metaverse.” I think when people say the word metaverse, they are typically thinking about one of two pretty different things. The first one is the idea of transitioning the internet from 2D to 3D. The internet is mostly 2D today, and part of the idea of the metaverse is that the internet might become more three-dimensional.

But the second big transformative idea, which, in my opinion, is much more complicated, dangerous, and important, is to move the internet from being lonely and empty to being a place that always has other live people in it. So when we shop and do ecommerce today, that’s an alone experience; there’s nobody else there. But we could turn to our left and right and see other shoppers. Similarly, with many, many entertainment experiences, such as going to a live concert, a critical part of that experience is that there are other people there. So I think the more important meaning of “metaverse” is the idea that we somehow are going to knit the systems together so that it’s always on, so there’s always other people there.

If I take your first example, where I’m shopping for toilet paper on Amazon, I don’t know that in that context I crave the fellowship of someone else who’s also shopping for toilet paper.

I think there are a lot of utilitarian transactions, toilet paper being a perfect example, where that’s true. But there are many things, including shopping at the grocery store, where the experience of doing that in the presence of others is second nature to us.

This metaverse conversation—it’s not just Facebook. The other big factor is simply Covid. What Covid did was it made us say, “Oh my God, we may find ourselves unable to go outside anymore.” And what that means is we’re going to have to move more of our human activities online, in particular things like working, going to school, and entertaining ourselves socially.

And I think that third one, entertaining ourselves socially, in the presence of others, is the one that is really hard to do well. How were those first few sad attempts at happy hours that you did in March and April of 2020? There was something wrong with using Zoom for happy hours with your friends. And I think that really speaks to the challenge here.

So, what are the barriers to making this kind of thing work?

I can give you at least three things. One is that nonverbal expressions, like nodding your head or leaning toward somebody, don’t work very well yet. VR headsets still don’t capture them. Headsets are actually terrible.

A second one is 3D, spatial audio, which is what we’re working on at High Fidelity. You have to be able to hear everybody. You can’t sit and have a productive group conversation unless you hear people’s voices coming from the place around the table where they are, because that’s what enables everybody to talk at the same time, like in a cocktail party.

And then another one is having a lot of people in the same place. There aren’t yet any technologies that enable there to be more than, say, 100 people in the same place at the same time. And many, many human experiences, like a big freshman class, a music concert, or a political debate, require more than 100 people in the same place. Facebook’s product Horizon Worlds, which is the closest thing they’ve got to the metaverse right now, can’t have more than 20 people in a space. That’s just not enough.

So you have to be able to have a lot of people in the same place. You have to have visually expressive avatars. And you have to have spatial audio. And then beyond that, you need the right kind of bottom-up systems for governance and moderation. Because the systems that we have today for things like Facebook or Reddit, they’re not applicable to embodied environments in digital space.

What’s the alternative to the headset as the hardware that enables this?

Your phone. The mobile device, with its forward-looking camera, detecting you and turning you into an avatar and putting you into the world. You don’t need to put the headset on.

When you look at VR headset use, you’re mixing up two different things that are both really cool. One is visual and sensory immersion in space, your ability to have a wider field of view and to look behind you and stuff. That’s awesome.

The other one, though, is being able to communicate to people near you, for example by nodding your head. That can be done using a forward-looking camera or a webcam on a desktop computer. You don’t need to put a headset on for that. I can track your face and animate your avatar with it. And in fact, if you’re not wearing a VR headset, I can see your whole face with the camera. So the optical tracking and AI stuff that you can use to detect people’s faces, they work better if you don’t have a VR headset.

With VR headsets, we’re more than five years away, in my opinion. They still, 25 or 30 percent of the time, make us nauseous. And there’s actually no R&D solution to that yet. The problem has to do with the difference between your vestibular sense of motion and what your eyes see. If you make those two disagree, a significant percentage of people get sick and they always will.

But I think the more nuanced thing is that the VR headset is very divisive. If you put a bunch of randomly chosen people in a room and ask them who’s comfortable basically putting on a blindfold in front of other people, you are going to get a biased outcome, where big white men, for example, are going to be comfortable putting a VR headset on because they would also be comfortable blindfolding themselves in front of other people. But that’s not true for everybody.

I feel like people already spend too much time on their phones, myself included. And so, is it a good idea to be brainstorming how to get people to spend even more time in virtual spaces than they already do?

I couldn’t agree with you more. As I grow up and think about it, I have the same concern. But I don’t know if it’s as much the device as how we use it, the degree to which it distracts us from each other. If machines take us away from the real world, and they take us away from eye contact, and having to talk to strangers, talk to real people, then that’s a very bad direction.

Would I snap my fingers and have there be a billion people doing the same things that they’re doing today in Second Life and thus leaving the real world behind? No, I’m not sure I would. What I do know, though, is that Second Life specifically has had a very, very, very powerful, positive impact on a lot of people whose identities were shaped by being given the freedom to be who they wanted to be inside Second Life. To learn new skills, to make friends in faraway places, to build businesses, to do all these different things. So, it’s complicated.

You recently returned as an advisor to Second Life. What’s next for it?

Well, I’m an advisor, so I’m not back full time. I can’t tell you the road map because it’s not my decision. But what I can say is, it will include things like what I just talked about: expressive avatars, more people in one place, and better performance on mobile. I think a lot of the other stuff, the NFTs and the digital currency, Second Life actually got pretty right. People can make money, there’s a currency that doesn’t have an ecological load, and it strikes a balance between centralized and decentralized, trading some centralization for a lot of transparency. It’s an example of how you can achieve some of these things we’re all wanting to achieve without going to needing to go full Bitcoin with everybody fighting for the next dollar.

Thank you WIRED for the amazing article

Until Next Time Have A Great Day!