Goldman Sachs: Blockchain is the core of the development of the Metaverse and web3

Wall Street bank analysts led by Rod Hall from Goldman Sachs called blockchain one of the most disruptive technology trends to emerge since TCP/IP and HTML "introduced the internet in the 1990s," in a report published Tuesday.

The metaverse is a loose term for virtual worlds where people can play, work, entertain, socialize and transact as avatars.

In October, Facebook announced that it would change its name to Meta and focus on building virtual worlds, saying that this is the future of the Internet.

Decentralized, crypto-focused game metaverses like Axie Infinity and The Sandbox have been gaining traction lately. They allow players to create and trade items in the form of non-fungible tokens, or NFTs (a type of secure crypto-collectible), and have in-game economies that use cryptocurrency.

Goldman Sachs analysts said crypto technology must be central to the development of the metaverse because it allows users to securely own assets or items and transfer them to different platforms without requiring permission from a central party.

For example, The Sandbox runs on the Ethereum crypto network, which enables users to buy and sell in-game land and NFTs on exchanges outside the metaverse, such as OpenSea.

“We believe the metaverse is likely to be an amalgamation of different 3D spaces, and users will regularly move between these spaces,” Goldman said.

“If any virtual goods or services cannot move with the user from one space to another, we think their value may be more limited.”

“In terms of the metaverse, blockchain is the only technology we see that can uniquely identify any virtual object independent of a central authority,” the analyst added. “This ability to identify objects and then track ownership is critical to the ultimate functionality of the metaverse.”

A blockchain is a digital ledger of transactions that is overseen by all members of the network rather than a central party. Blockchain technology powers Bitcoin, where users known as "miners" must solve cryptographic puzzles to verify transactions, thereby keeping the network secure.

Although Facebook/Meta has launched an early version of the Metaverse, it’s unclear whether the company believes decentralized blockchain technology will play a big role.

Many crypto enthusiasts worry that the company’s financial might and power over social media means it could dominate virtual worlds and tightly control creation and trading.

Critics, meanwhile, are highly skeptical of the whole idea of ​​the metaverse, pointing out that previous virtual worlds (like Second Life) have existed for years, while virtual reality headsets never really caught on.

Goldman Sachs’ report is generally bullish on blockchain, although the bank said it is too early to develop a clear investment strategy around it.

With Web 3, Goldman Sachs believes that blockchain allows for “partial elimination of centralized control.” The note adds that in the future, users will be able to log in without the need for a third party such as Meta, Google or Apple.

Goldman Sachs analysts said blockchain "has broader and more profound implications for the decentralized identification and ownership of digital and physical entities."

They say the technology could increase privacy on the internet and get rid of the need for centralized control in a range of industries, such as supply chain management.