The Bank of International Settlements (BIS) Calls for Regulation in the Metaverse
The BIS has released a report urging regulators to prepare for the potential negative impacts of an unregulated metaverse on the digital economy. The report warns that without proper regulation, the future of money and virtual environments could become fragmented and controlled by powerful private firms. To address this, the BIS recommends promoting efficient and interoperable payments that meet user demands. Additionally, regulators should establish clear standards on data privacy, digital ownership, and consumer protection.
Centralized vs Decentralized Metaverse
The report examines the advantages and disadvantages of a centralized versus decentralized metaverse. A centralized metaverse, where a single entity holds control over payments, may lack interoperability and result in users being subject to rent-seeking behavior and loss of control over their transaction data. On the other hand, a decentralized metaverse, based on Web 3 principles, allows users to have direct control over the system’s rules through mechanisms such as voting. However, the report suggests that these mechanisms may only provide an illusion of participation.
BIS’s Stance on Crypto
The BIS, an international financial institution coordinating monetary policy among central banks, has previously expressed concerns about the fragmented and congested nature of crypto. The organization has also highlighted the substantial centralization in decentralized finance (DeFi) and the associated risks it amplifies in traditional finance. While acknowledging the potential role of blockchain in a monetary system through central bank digital currencies (CBDCs), the BIS has criticized cryptocurrencies’ volatility as unsuitable for use as native forms of payment.
Hot Take: BIS Urges Regulation to Safeguard Against Fragmentation and Corporate Control
The recent report from the Bank of International Settlements serves as a call to action for regulators to proactively address the potential risks of an unregulated metaverse. By promoting efficient and interoperable payments and establishing clear standards on data privacy and consumer protection, policymakers can help safeguard against fragmentation and domination by powerful private firms. The report also highlights the need to carefully consider the centralized versus decentralized nature of the metaverse, as both approaches come with their own challenges. Overall, the BIS emphasizes the importance of regulation in shaping a sustainable and inclusive digital economy.
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