Creator Economy in the Metaverse

Announcer:

Today on building the open metaverse...

Neal Stephenson:

On the one hand, we all share that excitement over what these systems can do. On the other hand, we're committed to the idea that none of this works unless creators can get credit and money for their contributions.

Announcer:

Welcome to building the open metaverse where technology experts discuss how the community is building the open metaverse together, hosted by Patrick Cozzi from Cesium and Marc Petit from Epic Games.

Marc Petit:

Hello everyone and welcome to our show Building the Open Metaverse Podcast, where technologies share their insight on how the community is building the open metaverse together. My name is Marc Petit from Epic Games and my cohost is Patrick Cozzi from Cesium.

Marc Petit:

Patrick, how are you today?

Patrick Cozzi:

Hi Marc. Well, we have a fantastic guest so I'm doing amazing.

Marc Petit:

Yeah, no, I think you are as excited as me to welcome Neal Stephenson to the show. As many of, you know, Neal coined the term metaverse in his book, Snow Crash, which was published back in 1992. Neal, it was great to have you speak at our panel at SIGGRAPH and we really wanted to share your insight and vision with our audience. So welcome to the podcast.

Neal Stephenson:

Thanks. I really enjoyed the experience at SIGGRAPH. And so I'm looking forward to talking about this stuff more with you guys today.

Patrick Cozzi:

Thanks Neal.

Patrick Cozzi:

So you have a really fascinating background and could we start off by you sharing what led to your interest in computer graphics and what was happening in the industry in the early '90s that ultimately led you to write Snow Crash?

Neal Stephenson:

Yeah. So, I've been programming computers since I was 14 years old in one way or another. And I was always interested in graphics. So I got a Mac as soon as they were available.

Neal Stephenson:

Anyway, in 1988, I started a graphic novel project with an artist friend of mine named Tony Sheeter. And to make a long story short, the project didn't really go anywhere commercially, but we wanted to use computer graphics to generate some of the imagery. And I ended up doing a lot of work in 1988, '89, '90, programming a Mac two souped up with some boards to do image processing. And as part of that, I went to SIGGRAPH in 1990 and got exposed to a lot of what was happening in the space then. So the conclusion I came to was that computer graphics was right on the threshold of becoming just a fascinating new communications medium.

Neal Stephenson:

And even though what we had then was primitive compared to what we have now, you could see how it was going to develop. You could see that, for example, with RenderMan, it was possible to write a few lines of code that would generate a three-dimensional rendering or a two-dimensional rendering of a three-dimensional scene. And there were a lot of other early precursors there that didn't take a lot of insight to see that it was all going to add up to a new medium. And the only question in my mind was, how can we make it cheap and ubiquitous? Because I had spent a lot of money buying equipment and it was hard to use and I had to write all the code myself. And so I was asking myself, if you look at television, for example, in the thirties, it was similarly kind of a primitive expensive laboratory curiosity, but a couple of decades later, televisions were a ubiquitous appliance in people's homes.

Neal Stephenson:

And how did that transformation happen? Well, it happened because there was programming that people wanted to enjoy. And so because of, I Love Lucy and The Ed Sullivan show, and other programs like that, millions of people went out and bought these things. The cost of producing them went down. The level of quality went up. We got color TV. We got bigger screens. So the question was what could trigger a similar transformation that would make computer graphics into a ubiquitous medium? And my guess, at the time, was this idea of the metaverse. And since the graphic novel project had come to an end, by that point, I just sat down and wrote a new book, Snow Crash, in which the metaverse obviously plays a central role.

Marc Petit:

Yeah. It was interesting to know that you thought about that before a game like Doom even existed. I mean, there was a lot of foresight right there.

Neal Stephenson:

Yeah. Doom came out the year after Snow Crash was published and it shocked me, in a good way, because I had done enough playing around with rendering to know that Carmack and company had achieved something incredible by making the hardware of that era actually render convincing three-dimensional graphics. I wouldn't have thought it was possible in 1993.

Marc Petit:

So at SIGGRAPH, you mentioned that the key to bringing billions of people into the metaverse is to create engaging experiences. And you said something interesting and I quote you there, you said, "The basic problem to be solved in creative industries is how to get artists to make art in a coherent and coordinated way." And then you went on and talked about the tug of war between artists and the suits, the investor, the executive, and how it impacts the rich reward, often at the expensive creativity. I thought it was a fascinating topic, but the re-enablement of the creative. So how do we achieve that?

Neal Stephenson:

So, yeah. As you'll understand, given your position at Epic, these experiences that we call video games are huge collaborations. I mean, there's indie games, there's even some games that are made by one individual who does everything, but a lot of games involve hundreds or more of collaborators with different areas of specialization. You have texture artists, you have animators, sound people, music writers, and just like in making a movie, all of those people have to work together in a coherent way and they have to get paid. So we have a system for doing that in the film industry and it works. I mean, we have movies, but it's unwieldy and it's expensive. And it requires financing. I mean, you need to find investors who are willing to place bets on projects that might take years to get finished. And then it's what they call hit-based investing.

Neal Stephenson:

Regardless of how successful it is creatively, it might be a huge hit at the box office, or it might completely fail and nobody knows why. Nobody can completely predict it. You have to invest in a lot of movies, then spread the risk out over a lot of projects. So how do we solve the financing problem for games and for metaverse experiences? The old system in Hollywood... I should say, I'm in Hollywood now. I'm in Beverly Hills at the code conference. So you can see the palm trees and the Beverly Hills rising up above me. In the old system, you've got studio executives who have tried to read the tea leaves and look at the financial box office numbers and figure out what movies are people going to want to watch next year. We'll invest our money in that. And that's because the data stream is a very thin one.

Neal Stephenson:

The signal is very weak basically. People, movie goers, either go to the theater and buy a ticket or they don't. And you aggregate all of that data and you look at it. You try to figure out, try to make decisions as to where put your money.

Neal Stephenson:

It seems that in the internet, we now have much richer streams of data coming back from the users and games... Games used to be installed and just played on. They could be played on a computer that wasn't even connected to the internet, but now everything's on the internet and you can instrument your games, the code in your games and all companies do now instrument their games. So they know exactly which features are interesting to players and what succeeds and what fails.

Neal Stephenson:

So it seems as though it ought to be possible to cut the studio executives out of the decision loop and try to figure out a way to directly monetize those aspects of an online experience that the players most enjoy.

Marc Petit:

It feels, at least six months to a year ago, that NFTs and the ability for creators to sell they are directly to consumer onto novel platforms would be a very promising avenue. And actually, some artists made a lot of money through the transition. So today I think I was reading this morning that the volume of NTFs is down 99% on OpenSea.

Neal Stephenson:

It's down 99%? Wow.

Marc Petit:

But still the creators need new platforms. And as you say, being a mercy of studio executives, there is a promise in the metaverse and the creator economy of a direct transaction-driven process that they should be valuable for the artists or the creators. Do you believe in that?

Neal Stephenson:

Well, it seems that as though it should be possible in principle, right? And so that's kind of where we are today. The NFTs, I think, we're the first stab at this and there's a lot. I mean, if you look at the way that those contracts are structured and what's actually being bought and sold, it's a very primitive process today.

Neal Stephenson:

So I've bought a couple of pieces of NFT art and the whole process of setting up a wallet and doing the transaction, and then looking at the NFT after you've bought it is incredibly cumbersome and there's kind of some stress involved in it. You read all the time about various hacks and various data breaches and so on that happen in this world, and no one likes to be sitting there worrying about, "Are hackers draining my bank account because I didn't patch my software at the right time or because I clicked on the wrong link."

Neal Stephenson:

So I think we're in the very, very early days of the NFT market, but it is definitely the case that there are artists who are succeeding at this and they're not just making kind of junk. There are legitimate artists making completely worthwhile pieces of art and selling them into this market. And so I'm hoping that things will resolve themselves and settle out over the next year or so.

Patrick Cozzi:

Switching gears a little bit, let's talk about AI. I mean, thinking back to the open metaverse course at SIGGRAPH, AI art was repeatedly mentioned and, for someone like me who doesn't have any artistic skill, the idea of doing natural language and then having that generated image or a model is very appealing. And then for more advanced content creators using AI to help, it seems like a very exciting direction.

Patrick Cozzi:

Neal, I'm curious, how do you think AI will impact creators and their creator economy?

Neal Stephenson:

We've been talking about this a lot lately inside of the startup I co-founded LAMINA1, because a lot of what... It's a little bit of a mixed picture because on the one hand, we all share that excitement over what these systems can do. On the other hand, we're committed to the idea that none of this works unless creators can get credit and money for their contributions.

Neal Stephenson:

And one of the observations that's been made about these systems is that if I say I want a picture of a palm tree and the style of Leonardo DaVinci, the system is going to go and find a bunch of old Leonardo DaVinci images and it's going to use those to create that image. But if I say that I want that in the style of a living artist, then the system's going to do the same thing by drawing upon the imagery that it can find of work that that artist has performed.

Neal Stephenson:

And at that point there's some serious ethical considerations that come into play. Shouldn't a living artist or the estate of an artist get fairly compensated if their work is going to be used in that way? So my co-founder, Peter Vessenes, is actually got a paper in the works where he instrumented some of this code to actually keep track of the degree of influence that different inputs had on the final result. And it actually works. So I'm hoping he'll publish that on our site pretty soon.

Neal Stephenson:

But the basic finding, which I'm sure could be duplicated by other people if they wanted to try this, is that if you understand how this code works, how it generates these results, you can actually track the degree of influence that any given image or any given input had on the final result. And then if that final result is worth something, then maybe there's a way to give credit and some compensation in proportion to those inputs.

Marc Petit:

I think if we just had tracking secondary sales so that artists can benefit from the resale, it would be already a great step forward.

Neal Stephenson:

Which is a feature that you can build in, as you know, so you can build that into a smart contract and many NFT artists kind of rely on that as a long tail of possible revenue.

Marc Petit:

That would be such a huge progress. So let's talk a little bit about LAMINA1. Just for the record, you wrote Cryptonomicon. This twas explicitly about cryptocurrency. When was that?

Neal Stephenson:

1999. So it was pre-blockchain.

Marc Petit:

So you must have thought a lot about those cryptocurrencies. And where we are today, here's a lot of negative opinions about crypto, even some hostility. So what is your take on that and how do we turn the tide around? Because there seems to be value in the concept behind crypto, discussing the value for creators. And so how do we turn the tide here?

Neal Stephenson:

Yeah, there's definitely value. I mean, I think Bitcoin, prior to the crash, was something like a trillion dollars of valuations. So I think of it in terms of signal to noise ratio.

Neal Stephenson:

So the signal is, what is a currency actually worth? And the noise is, what's the uncertainty around it? So with a traditional Fiat currency like dollars or euros, people use those all the time to buy potatoes, gasoline, steel. And so that's a very strong signal that tells you what that currency is worth. And some people speculate on currencies, on traditional currencies, and that might introduce a little bit of noise, but still the signal to noise ratio is very strong.

Neal Stephenson:

In the case of a lot of cryptocurrencies, a great deal of the traffic of the transactions that happen are speculative in nature. And there's not much... These currencies sometimes aren't used that much for normal economic transactions.

Neal Stephenson:

So it's hard to know what they're worth the signal to noise ratio is really bad and the result is volatility and it's a volatility that adds to more volatility as people become nervous about the true value of these things.

Neal Stephenson:

So I think that the way to get a strong signal and to establish the stable value of such a currency is by actually using it for economic transactions. And in the gaming industry, we've got, I think, a model for that because a game is, it's just bits, right? I mean, 20 years ago, maybe a game would ship on a DVD-rom or a cartridge, but those were just ways of moving bits around. The real game is bits. And yeah, we know that those bits have got reasonably stable economic value, or if you go to the Epic store or the Steam store, there are prices there, not only for whole games, but for components of games, asset stores and so on, or add-on packs, UGC. And prices there fluctuate but still, they don't fluctuate that much.

Neal Stephenson:

So I think we can say that, in the economy of the game industry, there is such a thing as of a fairly stable price, fairly stable economic value of these digital assets. And so, what we're intending to do with LAMINA1 is create a new Layer 1 currency that is intended for and optimized for those kinds of transactions. And we hope to see it. We're not going to do an initial coin offering or anything like that, that feels speculative in nature. We're going to instead try to get creators using this as a way to do business. And we want to see it being used as a common currency that will have value, not because people are speculating on it, but because people are using it to buy and sell digital goods.

Marc Petit:

So let's focus on... For LAMINA1 to focus on art and creators and digital goods, I think is fascinating. And I wish you success. It's good. I think we need that on our station, we try to introduce NFTs at the wrong time. It did not quite work out, but we do see pent-up demand for a tool, a solution, for artists and creators. So we wish you luck with LAMINA1.

Marc Petit:

So can you speak to some of the most difficult challenges of the blockchain and who's trying to solve them? You mentioned in your SIGGRAPH address, some companies like BKopy. And can you come back on some of those core challenges that are top of mind for you?

Neal Stephenson:

Yeah, so I mean, I should say that, although I'm a reasonably technical guy that I'm not an expert on blockchains and cryptocurrencies. It's the thing I've followed at arm's length for a long time, but I've always found it a challenging thing to fully understand. And I like to leave it to experts because if you make a mistake and do it wrong, the consequences can be bad. So for any kind of detailed technical conversation about the chain and crypto, I'd get you in touch with Peter who can speak to that. But coming at it from my end of things, which has to do with the creator economy and so on, there's a concept that Jaron Lanier has talked about probably others as well, but I know Jaron, so I think of it as a Jaron thing, which is the idea of a value chain. And so I'll give you an example.

Neal Stephenson:

Let's say that I were to write a book that had a magic sword that was just described in the book. Well, maybe I'd like to see that used in a game or a metaverse experience. I could put something on a blockchain, describing the sword and maybe have a little sketch that I draw on an envelope and some words of description, and that's enough for me to say, I created this idea on such and such day. But that's a far cry from being an asset that could actually be used in an experience. So somebody might then come along and take that and create an asset that could be sold on the Unreal asset store or the Unity asset store that a game maker could buy and drag into their game.

Neal Stephenson:

But even that isn't yet a fully usable integrative asset because just having a folder in the game directory doesn't create a good experience. You probably want your art director to make a pass over it and make the appearance of the sword consistent with the overall art direction of the game. You've got sound designers who need to do something similar with the sounds that it makes when it's used. And you've got programmers who need to, using blueprints or C++, who need to integrate the sword into the game so that it actually is capable of doing something and contributing to the experience. So at each stage, more value is being added. And at the end of that process, you've got something that might actually bring in some revenue.

Neal Stephenson:

And when that revenue finally appears, what you'd like it to do is propagate backwards. And you'd like the different people who contributed to the value chain to get compensated in some way. So the question in front of us is how to set that up. And in Hollywood there's an idea called a waterfall which is how does money flow down to the different people involved in a project? It works, but it's cumbersome and expensive. And we've been working with a company called Neon Machine in Seattle, which is working on a game called SHRAPNEL. That's going to be a blockchain NFT game and they've been developing some ideas for new kinds of smart contracts that would solve some of the problems I've just been describing.

Neal Stephenson:

And it's not only a matter of sending money back up the value chain, but there's also ways to build in permissions. So as the original creator of the idea, I might not approve of all of the ways in which it gets adapted. Some troll might take it and use it to make something that I find objectionable or just bend it past all recognition. And so at that point, I'd like to be able to say, I withdraw my approval for this. I don't consider this to be a legitimate use of my work. So these are all, I think, advances in how smart contracts work and how NFTs work that we can look forward to in coming months and years. And I'm hoping that it'll... It's not going to be easy, but I think it's doable. And if we can get some people using these ideas and adopting these contract templates and I think will have contributed something to the open metaverse.

Marc Petit:

Absolutely. I think I remember you mentioned the problem of having a legal binding agreement for things that are on-chain and assets, either virtual or physical, they don't reside on the chain and trying to find a legal framework to solve those problems. I think we have a lot of those issues ahead of us.

Neal Stephenson:

I'm working with Josh Kramer at BKopy, B-K-O-P-Y, is the name of a project he's been working on to address some of these issues. He's a guy who's been programming since he was very young, but he had a high ranking position at Amazon Studios for a while. So he knows a lot about the world of IP rights and contracts and how that all works. So he's been looking at the state of NFT agreements as they exist today and it's very primitive and needs a lot of work. So his system is going to involve placing an agreement, a binding legal agreement on-chain, and then you can make pointers back to that agreement.

Neal Stephenson:

Maybe I should explain that one of the issues with blockchains is that they're expensive, almost kind of shockingly expensive, places to store data. We're used to being able to store huge documents on Google Drive or whatever for almost for free, but storing data on the blockchain is much more expensive than that. So, if you've created an image or a movie that's a megabyte, or even gigabytes, in general, putting that whole thing on a blockchain is prohibitively expensive. And so what tends to happen in NFT transactions is that the thing on the chain is only a pointer to the thing itself, but that then gets into a bunch of issues around the permanence and the stability of the thing that's pointed to.

Marc Petit:

Fascinating. I think LAMINA1 has its work cut out for it. So many problems. Kind of glad that we are going through a bit of a crypto winter, shaking out the speculation and hopefully the good actors remain and we can build up a stack that's actually useful for the creators.

Neal Stephenson:

I hope that in a couple years, we'll look back on it and be glad that we launched when we did, which was really at the absolute bottom of the market. So no one can accuse us of surfing on the wave of unhinged speculation.

Marc Petit:

Does LAMINA1 have a view on the environmental concern around the amount of compute necessary to run crypto?

Neal Stephenson:

You guys probably know this, but for people in the audience who don't, the first Layer 1 blockchain was Bitcoin, which relies on an idea called proof of work. So with any currency, the issue is how do you prove that it's not counterfeit? And there's a way to do that by basically solving big math problems and it's called proof of work and it works. But as Bitcoin has become a very large industry, solving those math problems has ended up consuming an unbelievable amount of energy. And so there's a lot of concern about that for very good reasons.

Neal Stephenson:

There are other ways to back a currency and proof of stake is one that consumes orders of magnitude less energy. And so Ethereum, for example, has started out as proof of work. But any day now, they're going to switch over to a proof of stake system. That's going to be much more environmentally benign. So we are going to use, of course, we're going to use a proof of stake system that is as efficient as we can make it.

Neal Stephenson:

It still is going to consume some energy. And we would prefer not to have any carbon footprint at all, or even be carbon negative, meaning that as this system is used, the amount of CO2 in the atmosphere actually goes down. So we're going to build that in. One of the advantages of starting a Layer 1 chain is that it gives you the freedom to make engineering decisions. And one of those decisions is going to be that in order to operate a node, which is the thing that consumes the energy on the network, you need to be able to prove that you purchased carbon credits from a legitimate supplier. Not all carbon credits or created equal, so there's a whole additional layer of complexity around figuring out which ones of those are worth buying. But we want to build that in. And we're even looking at some more ambitious ideas on the carbon side of things that are currently too crazy to talk about. So they'll be in a separate lane.

Patrick Cozzi:

Yeah. I appreciate your concerns around the environment there. We wanted do a couple topics around your thoughts on the future. So earlier in the podcast, you mentioned that you're impressed with Doom and the graphics that was being done there in the early '90s. And since then, really the gaming industry has helped drive the decline and the cost for GPUs and graphics.

Patrick Cozzi:

We're curious, what do you think the most disruptive industry will be moving forward?

Neal Stephenson:

In a lot of ways, I've out of the future predicting game. Because the future is coming too fast. When I was working on Fall; or, Dodge in Hell, my second to the most recent novel, I wrote a whole bit about social media that I thought was very futuristic and here's Neal being the great predictor of the future. And then when Trump got elected, I just had to tear it all out and redo it because what had really happened was so much crazier than what I had written that I had to redo the work.

Neal Stephenson:

But boy, disruptive stuff now is...I'm very interested in what's happening with big traditional infrastructure, heavy industries around energy, particularly I think that the cost of photovoltaics has been just plummeting steadily year after year.

Neal Stephenson:

And it's one of these things that we don't necessarily notice the change from day to day. But suddenly if you look at a graph of what's happened in that market, it's a huge change. And I think that we're kind of approaching a crossroads where a lot of our thought habits, a lot of our instincts around the environment and energy, are going to be challenged because we're used to thinking that it's always good to conserve energy. You should turn off the light in the room that you're not using. You should never waste anything because we sort of assume that all energy production is bad. That we act as though it's all coming from a coal-fired power plant somewhere. And in some places it is. So if you live in one of those areas, you should definitely try to conserve electricity, but in a lot of places is coming from clean sources now, and a lot more is going to have to happen for us to get out of the mess that we're in.

Neal Stephenson:

So I think what we're going to see in the next few decades is huge amounts of photovoltaic capacity coming online. We're going to see nukes are making a comeback and wind turbines are going up all over the place. I was in Iowa a couple weeks ago and there's just huge fields of wind turbines going off to the horizon.

Neal Stephenson:

And when you're generating power using those kinds of technologies, it's okay to use energy. There's nothing wrong with it. And if you're using the energy to have a beneficial effect to withdraw carbon from the atmosphere, let's say, then it's good. But it goes against a lot of the environmental dogma that we were all brought up to believe in.

Patrick Cozzi:

Yeah. No, you gave me a flashback when I was a kid growing up. I used to get grounded if I left the lights on.

Neal Stephenson:

Yeah. Well, yeah. So it's part partly just the traditional, "waste not, want not" kind of mentality, but it's reinforced by the environmental argument as well.

Neal Stephenson:

But the mentality that says we should not build things is going to get in the way. It's already getting in the way. There was a whole controversy in New England about building some power lines that would bring hydroelectric power from Quebec down towards New York. By almost any measure, that is a good thing to do, environmentally, but local groups... We're using environmental regulations from the '70s to sort block the building of those power lines. We're going to see more of those conflicts coming up.

Marc Petit:

So you were able to reinvent the metaverse back in 1992 and you told us, you were exposed, you bought computers in the very early stage. You came from a family of engineers and studied physics. So, any these things led you to think about the worlds perhaps differently. So any advice for our younger listeners on what they should be focusing on and doing today?

Neal Stephenson:

Doing today? This may be kind of an old man answer, but I more and more find value in reading history. I gave a commencement talk at Berkeley's school of computer science back in May. And I just think that it's very rare for things to happen today that are unprecedented. And if you don't study history, then you're always surprised. And it's easy to think that whatever happens is unique.

Marc Petit:

That makes a lot of sense. Thank you, Neal.

Marc Petit:

So it's time for our closing remarks. We usually close the podcast with the same two question. The first question is, were there any topic you would've liked to discuss today that we did not discuss?

Neal Stephenson:

I mean, this might sound like special pleading, but I'm fascinating by what Epic's doing with Unreal Engine and what's happening in that ecosystem right now. So the rise of virtual production and the bringing so many tools to bear.

Neal Stephenson:

So that's something I follow as much as I have time for, but it would probably be getting us very deep into the weeds to talk about that in detail.

Patrick Cozzi:

That could be a whole other episode.

Patrick Cozzi:

So Neal, last but not least. My favorite question is, do you want to give any shout outs to a person or an organization?

Neal Stephenson:

Oh. Yeah, that's one I probably should've prepared for because my mind always goes blank at times like this. I guess I already mentioned Anne Applebaum. I think she's one of the most important writers who's contributing to our intellectual life today, both because of her historical writing and because of her writing about current events and the rise of authoritarianism and so on and so forth.

Neal Stephenson:

So big endorsement for her. I don't know, maybe we should just leave it at that. As soon as we hang up, I'll think of 12 others that I should have mentioned. Yeah.

Marc Petit:

Well, Neal Stephenson, thank you very much for being with us today. We wish you best of luck with LAMINA1. It looks like a fantastic project.

Neal Stephenson:

Thanks. Yeah, no, we have our work cut out for us as you pointed out, but we're looking forward to most of that work.

Marc Petit:

Yeah. And it's fascinating to reread your novels, Cryptonomicon, Snow Crash. Of course, encourage everybody to dig into those books. They are quite amazing.

Neal Stephenson:

Thank you, very much appreciated.

Marc Petit:

Patrick, it's time to say goodbye. So thank you, Patrick. Thank you, Neal. And we'll be back for a new episode next week. Thank you everyone.