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Accounting in the metaverse: is it too soon to invest?

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Accountants at a leading Midlands practice have insisted on caution about investing in the metaverse ahead of the cost-of-living crisis.

Morgan Davies, director at Prime Accountants Group, which has offices in Solihull, Coventry and Birmingham, has urged businesses to hold off investing in NFTs and the metaverse during the cost-of-living crisis as they are yet to prove they can survive the economic decline taking place across the UK.

The metaverse is a complex world, where laws, money and relationships take place in simulated scenarios; a world that tech moguls are calling the future. Existing for decades and created primarily for gaming activities in which users had limited rights on platforms, as it evolved, the metaverse is said to be one of the hottest business opportunities, if people are brave enough to invest.

Why it will be important…but not yet

The metaverse is still in its infancy, but it has already started making waves in relation to a world where users can interact with holographic images of their colleagues as if they were in the same room.

More and more people are investing, or using the metaverse and the subsequent growing phenomenon of cryptocurrencies and non-fungible tokens (NFTs) in their everyday lives. Generation Z (people born between 1997 and 2012) make up around 60 per cent of users in the metaverse, spending approximately eight or more hours a day online, and is more immersed in digital culture than any other generation.

Morgan Davies

Morgan said: “As the first generation born a true digital native, ‘Gen Z’ has some of the most tech-adept individuals on the planet, who spend twice as much time socially interacting in the metaverse than they do in real life.

“As they enter the workplace and start their own businesses, having a presence within the metaverse will be key for networking and reaching this tech-savvy generation.

“Client work isn’t the only way I see accounting utilising the metaverse. It could play a key role in trade shows and even revolutionising the ‘working day’ by marrying together the benefits of in-person and remote communication, removing the issue of limited office resources and allowing each avatar access to tools that optimise what they are saying or presenting.”

Morgan said having a trade show within the metaverse will not only enable businesses to speak with their target audience directly through their avatar, but also opens the opportunity for tours of factories and workplaces. He added that it also can remove the ‘pot luck’ experience many businesses have at trade shows, wondering whether they are speaking to the right people.

“However, due to the sensitivity surrounding money, the relationship between accountant and client cannot solely exist online. Accounting relies heavily on trust, a feeling which is best built through face-to-face meetings,” he added.

“When working for a client, accountants gain full access to their financials and, whether personal or business-related, it is a private part of someone’s life. Very few will be comfortable passing on this information unless the person’s identity can be confirmed and verified; an area still in its infancy for many metaverses.

“The unpredictability of these markets indicates why curious investors should pause before investment, and why they should think twice before handing over their financial statements and money/NFTs to accountants they meet exclusively in the metaverse.”

Why should we wait?

Morgan said in order to stay ahead of the curve, businesses across the world are buying prime retail space, also known as digital land, within metaverse platforms such as Decentraland and The Sandbox.

However, he said it could be too soon to invest. As the economic state of the UK continues on its downward trajectory, we don’t know how these platforms or digital tokens like NFTs or cryptocurrencies work alongside inflation, interest rate rises and a possible recession. None of these things have been stress tested against these digital tokens. Morgan said it would be wise to ride the recession wave before investing in something that is yet to prove its success and longevity.

He added: “Not only do we need to find out if these virtual worlds and currencies can survive the next 10 years, but laws and regulations within the virtual worlds must undergo further development before it is wise to invest.

“It’s easy for people to forget that individuals and businesses will still be taxed in the metaverse, a situation which could be chaotic and complex as nations across the globe come together into one virtual world where tax, law and regulations will differ from avatar to avatar.”

“While it is exciting that the world is changing and developing, we would always recommend businesses invest using a regulated financial advisor, whose identity can be verified and who can help them navigate the precarious and often risky areas of investments.”

Finance

Crypto’s tipping point

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Chris George, Senior VP of Product at Somo argues that Crypto needs to improve its scalability to be taken seriously

Cryptocurrencies are no longer the exclusive domain of high risk financiers or tech Bitcoin jockeys, willing to ride a niche and volatile asset for good or ill. Today, neobank and mainstream banking apps alike offer crypto banking, helping them trade in Bitcoin or Ethereum from as little as one dollar(https://www.revolut.com/crypto/).

Indeed, in September 2022, Finbold reported that British citizens had invested nearly £32bn in cryptocurrencies, and additional research from HMRC would have it that one in 10 UK adults has bought crypto, double the number from the previous year. 

But even given the legitimacy lent to crypto by the fact that now 50% of UK banks allow customers to interact with these currencies as well as other digital assets, how can the asset management industry turn it into a significant – and mainstream – asset, particularly in today’s turbulent economic climate? With the collapse of FTX, this must be taken into serious consideration. FTX was sold as being a safe and stable way to trade digital currency, alas this has not been the case. It turns out Sam Bankman-Fried seriously over-promised and dramatically under-delivered, gambling away customer assets and ultimately prioritising fraud and malpractice.

First, we need to acknowledge that not all crypto is created equal. Some, such as Bitcoin or Ethereum, do function as a currency, are limited in volume and therefore can increase and (as 2022 amply showed) decrease in value. But other blockchain-based crypto doesn’t behave like what most people commonly accept as currency at all. 

For there to be significant uptake in crypto as an asset, there is going to have to be a far broader and deeper understanding of what it is and what it can do. As Christophe Diserens, chief compliance officer at SwissBorg has suggested: “Value and useability are going to be key. Metcalfe’s Law has been used to value tech and internet stocks so why not crypto?”. That value took a bit of a beating during the recent sell-off and crypto’s perceived volatility will need to be addressed if it is to achieve scale. Because that’s what it’s going to need if it’s ever going to be considered as a legitimate global payment alternative in the future.

 

The role of The Merge

Not the latest B-movie, sci-fi flick, The Merge in September 2022 saw the world’s second-biggest cryptocurrency, Ethereum, move from a ‘proof of work’ to a ‘proof of stake’ protocol. This was nothing short of seismic. 

Proof of work is how the vast majority of crypto has been mined to date. People solving complex equations to validate transactions (the ‘work’) uses masses of computer processing energy, accounting for a significant slice of the world’s electricity consumption. In today’s climate (in both senses of the word), that’s just not on. 

Proof of stake, on the other hand, relies on far fewer ‘miners’, fewer computers and less energy as a result. This so-called ‘Merge’ is not only expected to reduce worldwide energy consumption by 0.2%, but also boost the crypto economy as a whole, creating more opportunities for investors and allow developers to build more products and applications on Ethereum. Ultimately, it could be what drives the decentralised internet of blockchain, crypto and NFT – Web3 – mainstream. 

What does this mean in the ‘real’ world? This could present a real opportunity for the financial services sector as a whole. It will change the way it operates, speeding up transactions, creating new business models and generally just making the whole thing a more efficient way of working. Fully cashless payments for business would be a real boon, given the costs and potential losses involved in transacting in cash. Digitisation also makes transacting an altogether more intuitive experience. 

One thing crypto and its associated technologies and solutions needs to be wary of is becoming a solution in search of a problem. For a truly mainstream breakthrough, the industry needs to make sure it’s bringing the consumer along on the journey. For end users to be truly confident in crypto, it has to benefit from the same levels of governance and regulation that cover the rest of the financial services industry, building and maintaining consumer confidence will be extremely important as trust levels have been shaken by the recent lack of solid administration and “irresponsible lending practices” leading to the FTX implosion . It has to be simple to transact, but with all the protections that investors have come to expect. It can’t afford to take them on another rollercoaster ride like 2022’s. 

While 50% of the UK’s banks may be getting on board with crypto to some degree, there is still a wide open ocean of opportunity for asset management players to realise value for themselves and their clients. It will involve some reshaping and more investment in digitisation to manage the assets of the future, whatever they may be. 

Somo, part of the CI&T family, will be publishing a report titled ‘Assessing the Crypto Conundrum: Will cryptocurrency ever be a significant trading asset and how can digitalisation shape its future?’ in 2023. 

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Skedadle to change the game for advertising with Currencycloud partnership

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Currencycloud, the experts simplifying business in a multi-currency world, has partnered with Scottish start-up app Skedadle to provide its users an easy, secure and seamless way to transfer money earned in-app while playing games on public transport.

Skedadle rewards travellers for the time they spend playing on-the-go. They can earn £2 per day simply for playing games on the move. That’s an extra £60 in their pocket each month. This can be done thanks to a disruption in the advertising market, by using algorithms to verify and track the users’ engagement with ads, proven to be higher while playing than in traditional online advertising, which increases product and brand recall for advertisers. Thanks to the partnership with Currencycloud, Skedadle users can use the app on public transport and be reassured that all financial transactions and financial data comply with the highest standards of security and validations.

By connecting to Currencycloud’s API technology, Skedadle has been able to integrate in their app a state-of-the-art payments ecosystem that seamlessly bulk settles the money earned from advertisers into a secure account and then processes withdrawals from users fast. At the same time, Currencycloud also sets the infrastructure that will enable them to grow both geographically in the UK and globally, by providing access to 38 currencies and low cost, fast FX rates.

Says Nick Macandrew, CEO and Founder at Skedadle: “Trust and security are crucial, especially when it comes to people’s money. As we rapidly grow our platform, we need a solution that can keep up with our pace and Currencycloud do just that. Our cutting-edge technology requires a secure, stable, and simple way of managing payments, whilst guaranteeing the best user experience possible.”

Nick Cheetham, Chief Revenue Officer at Currencycloud commented: “Backing bold start-ups from day one has always been part of our DNA. Skedadle’s creation of new revenue streams for travellers and advertisers alike is an exciting business endeavour. We are eager to see how the  platform can grow and disrupt the market by integrating our seamless payment capabilities.”

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