Ornella Hernandez

Michael Bodley


<p>The FTC’s move to <a href="https://www.ftc.gov/news-events/news/press-releases/2022/12/fortnite-video-game-maker-epic-games-pay-more-half-billion-dollars-over-ftc-allegations" target="_blank" rel="noreferrer noopener">slap</a> Fortnite developer Epic Games with a cumulative $520 million fine for alleged lax privacy settings said to put minors at risk and a problematic refund process poses a crucial question for the metaverse: Are their virtual worlds next? </p>



<p>The Web3 world is paying attention, even though <a href="https://blockworks.co/news/fortnite-developer-epic-games-gets-2b-from-sony-kirkb-to-drive-metaverse-efforts" target="_blank" rel="noreferrer noopener">Fortnite</a> isn’t based on a blockchain. The blockbuster title has more than a little in common with its play-to-earn cryptocurrency peers: online payments (albeit via fiat), chat forums and the ability to create nearly fully customized avatars. That’s not to mention one particular game mode that sets players up with their own island, which they use as a home base to visit the virtual homes of their friends.</p>



<p>Sound familiar?&nbsp;</p>



<p>Epic Games representatives even alluded to “virtual currencies” in a lengthy <a href="https://www.epicgames.com/site/en-US/news/epic-ftc-settlement-and-moving-beyond-long-standing-industry-practices" target="_blank" rel="noreferrer noopener">statement</a> on the settlement, the largest yet of its kind&nbsp; — saying that “games should go above and beyond to make sure players even more clearly understand when they are making a purchase” in both fiat and cryptocurrencies.&nbsp;</p>



<p>The FTC has historically signaled out household names, like Fortnite, to set an example by levying a “really big fine and [using] that as a signal to the industry,” according to Dan Jasnow, an attorney at law firm ArentFox Schiff who focuses on the metaverse and related intellectual property matters.&nbsp;&nbsp;</p>



<p>Given the “entire metaverse, blockchain and crypto industry is under a lot of scrutiny” after the fallout from FTX, Jasnow told Blockworks that “everybody should take this as a warning that the FTC is closely scrutinizing consumer protection issues across the board.”</p>



<p>The FTC claims Epic was unlawfully collecting identifiable information from users younger than 13, and that it employed design tricks — or “dark patterns” — to charge customers without first explicitly obtaining their consent. Fortnite allegedly routinely saved the payment information of its players after an initial purchase. Since the regulator started looking into the matter, the game’s developers have introduced a new payment order flow that includes more streamlined refunds.&nbsp;</p>



<p>Voice chat with other players was enabled by default, Jasnow said, leading to additional privacy concerns when it comes to unintentionally broadcasting personal conversations. Epic in September retooled its default privacy settings to impose higher standards for minors.</p>



<p>“No developer creates a game with the intention of ending up here,” Epic said. “The video game industry is a place of fast-moving innovation, where player expectations are high and new ideas are paramount. Statutes written decades ago don’t specify how gaming ecosystems should operate. The laws have not changed, but their application has evolved and long-standing industry practices are no longer enough.”</p>



<p>It’s worth keeping in mind that the user base for a number of metaverse platforms, like The Sandbox and Decentraland, remains relatively miniscule in comparison to Fornite’s 400 million worldwide users (in the FTC’s estimation).&nbsp;</p>



<p>Earlier this year, <a href="https://blockworks.co/news/fortnite-developer-epic-games-gets-2b-from-sony-kirkb-to-drive-metaverse-efforts" target="_blank" rel="noreferrer noopener">Epic Games took in $2 billion from existing investors</a>, including Sony’s investment arm and KIRKBI, the family-owned investment firm behind The LEGO Group, in a bid to accelerate its metaverse ambitions.</p>



<p>Epic Games recently listed its first NFT-powered title, Mythical Games’ Blankos Block Party, in its gaming marketplace.</p>



<p>Updated Dec. 22, 2022 at 11:50 pm ET: The FTC fine of $520 million includes two separate fines: $245 million related to Fortnite&#8217;s refund system and $275 million connected to user privacy.</p>



<hr class="wp-block-separator has-alpha-channel-opacity"/>



<p><strong>Get the news in your inbox. Explore Blockworks newsletters:</strong></p>



<ul class="wp-block-list">
<li><a href="https://blockworks.co/newsletter/daily"><strong>Blockworks Daily</strong></a>: The newsletter that helps thousands of investors understand crypto and the markets, by Byron Gilliam.</li>



<li><a href="https://blockworks.co/newsletter/empire"><strong>Empire</strong></a>: Start your morning with the top news and analysis to inform your day in crypto.</li>



<li><a href="https://blockworks.co/newsletter/forwardguidance"><strong>Forward Guidance</strong></a>: Reporting and analysis on the growing intersection of crypto and macroeconomics, policy and finance.</li>



<li><a href="https://blockworks.co/newsletter/0xresearch"><strong>0xResearch</strong></a>: Alpha directly in your inbox. Market highlights, data, degen trade ideas, governance updates, token performance and more.</li>



<li><a href="https://blockworks.co/newsletter/lightspeed"><strong>Lightspeed</strong></a>: Built for Solana investors, developers and community members. The latest from one of crypto&#8217;s hottest networks.</li>



<li><a href="https://blockworks.co/newsletter/thedrop"><strong>The Drop</strong></a>: For crypto collectors and traders, covering apps, games, memes and more.</li>



<li><a href="https://blockworks.co/newsletter/supplyshock"><strong>Supply Shock</strong></a>: Tracking Bitcoin’s rise from internet plaything worth less than a penny to global phenomenon disrupting money as we know it.</li>
</ul>


The FTC Came Gunning for Fortnite. Is the Metaverse Next?

Sebastian Sinclair

<div id="highlights-block_6254c9ca036e5" class="highlights">
        <ul>
                <li>Epic Games has secured a whopping $2 billion in additional funding from Sony and KIRKBI to further its metaverse ambitions</li>
                <li>While some see the Fortnite developer&#8217;s position to port their games to Web3 as a challenge, others view the move as a positive</li>
            </ul>
    
</div>



<p>The developer of one of the world&#8217;s most popular games, Fortnite, has scooped up $2 billion in additional funding in a bid to accelerate its metaverse ambitions.</p>



<p>Epic Games said Monday it had received $1 billion each from existing investors Sony Group Corporation and KIRKBI, the family-owned investment company behind The LEGO Group.</p>



<p>Following regulatory approval of the deal, Epic&#8217;s post-money equity valuation stands at $31.5 billion.</p>



<p>The fresh funding will be used to build out Epic&#8217;s vision for the metaverse and support its continued growth, according to a <a href="https://www.epicgames.com/site/en-US/news/sony-and-kirkbi-invest-in-epic-games-to-build-the-future-of-digital-entertainment" target="_blank" rel="noreferrer noopener">statement</a>. Epic said it is attempting to create novel &#8220;social entertainment&#8221; by exploring the connection between the digital and physical worlds.</p>



<p>“As a creative entertainment company, we are thrilled to invest in Epic to deepen our relationship in the metaverse field, a space where creators and users share their time,” Kenichiro Yoshida, president and CEO of Sony Group Corporation, said.</p>



<p>Sony&#8217;s participation in the round extends upon its <a href="https://www.roadtovr.com/sony-epic-games-investment-implications/" target="_blank" rel="noreferrer noopener">$250 million cash infusion</a> for Epic in 2020 and a further <a href="https://www.roadtovr.com/epic-games-unreal-engine-1b-investment/" target="_blank" rel="noreferrer noopener">$200 million</a> a year later. Epic&#8217;s accrued capital is slated for the developer&#8217;s project to build “real-time 3D social experiences leading to a convergence of gaming, film, and music,” its CEO Tim Sweeney reportedly said at the time.</p>



<p>While the funds have been flowing, questions are mounting over how the developer will best attempt to monetize their efforts in a world seemingly designed for decentralization and individual ownership of digital assets.</p>



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true"><p lang="en" dir="ltr">This does not mean LEGO in Fortnite, but Epic Games is working with them to create a &quot;Digital Experience&quot; and with references of the metaverse, it doesn&#39;t rule out anything to do with Fortnite 👀</p>&mdash; T5G (@Top5Gamingx) <a href="https://twitter.com/Top5Gamingx/status/1512038899304087555?ref_src=twsrc%5Etfw">April 7, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



<p>&#8220;What they&#8217;ve been building with Fortnite, is what they&#8217;re kind of calling a metaverse, but I&#8217;d say it&#8217;s a closed ecosystem, where they rely on external investments and deals with large intellectual property rights, instead of a more open web3 metaverse,&#8221; Lost Relics and Codebit Labs Director Cliff Cawley said.</p>



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow"><p><strong>&#8220;It seems that some companies are merely using the term metaverse as another marketing term to ensure their balance sheets remain profitable for themselves,&#8221; Cawley added</strong>.</p></blockquote>



<p>Fortnite is a hugely popular free-to-play battle royal game where 100 players are dropped on an island and duke it out by crafting, shooting and looting their way to a top spot. </p>



<p>While the model is free-to-play, Epic generates substantial profit through microtransactions via its in-game store. Players can purchase skins, emotes and sprays in exchange for the company&#8217;s in-game currency called V-Bucks, which are purchased using fiat.</p>



<p>Epic uses V-Bucks to turn a large portion of its profit. In 2018, the company generated $5.5 billion in gross revenue from its Fortnite title and $3.7 billion the following year, according to <a href="https://s3.documentcloud.org/documents/20696836/epic-apple-trial-epic-games-exhibit.pdf" target="_blank" rel="noreferrer noopener">leaked documents</a> from last year&#8217;s Apple v. Epic Games trial.</p>



<p>&#8220;It would be next to impossible for Epic to smoothly transition Fortnite into a Web3 Game,&#8221; Simon Kertonegoro, CEO and founder of MyMetaverse, said. &#8220;Its game mechanics and monetization are already set up to run in a Web2 way.&#8221;</p>



<p>Web3 refers to the idea of a decentralized internet where ownership of data is possessed locally by the individual. Metaverses, meanwhile, refer to the experience individuals will have based on an intersection of technologies including virtual reality, blockchain and Web3 infrastructure. </p>



<p>Both concepts are in their early infancy, but development and major funding have continued to push the bounds and explore new revenue streams that share collectively in the success of a particular title.</p>



<p>While revenue models will need to be hashed out, some blockchain gaming developers believe Epic&#8217;s foray into the metaverse will help position the budding industry front and center.</p>



<p>&#8220;We should definitely anticipate more innovation happening in the space as new economic models are introduced,&#8221; Brian Akaka, chief marketing officer at Laguna Games, the developer behind the upcoming non-fungible token (NFT) title <a href="https://cms.blockworks.co/crypto-unicorns-nets-26m-in-token-sales-led-by-tcg-backed-vc/" target="_blank" rel="noreferrer noopener">Crypto Unicorns</a>, told Blockworks.</p>



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow"><p><strong>&#8220;It is important for game developers to incorporate new mechanics as a natural part of gameplay, rather than treating it as an add-on.&#8221;</strong></p></blockquote>



<p>Kertonegoro believes Epic is poised to take advantage of an entirely new title centred around the concept of monetizing in-game assets that give players the option to share in the profits of Epic&#8217;s sales.</p>



<p>&#8220;I believe Tim Sweeney and Epic Games, in general, are smart enough to know that, in the end, the solution that&#8217;s best for players will always win,&#8221; he said.</p>



<p>Epic continues to distribute only a single class of common stock outstanding and remains controlled by its CEO and founder.</p>



<hr class="wp-block-separator has-alpha-channel-opacity"/>



<p><strong>Get the news in your inbox. Explore Blockworks newsletters:</strong></p>



<ul class="wp-block-list">
<li><a href="https://blockworks.co/newsletter/daily"><strong>Blockworks Daily</strong></a>: The newsletter that helps thousands of investors understand crypto and the markets, by Byron Gilliam.</li>



<li><a href="https://blockworks.co/newsletter/empire"><strong>Empire</strong></a>: Start your morning with the top news and analysis to inform your day in crypto.</li>



<li><a href="https://blockworks.co/newsletter/forwardguidance"><strong>Forward Guidance</strong></a>: Reporting and analysis on the growing intersection of crypto and macroeconomics, policy and finance.</li>



<li><a href="https://blockworks.co/newsletter/0xresearch"><strong>0xResearch</strong></a>: Alpha directly in your inbox. Market highlights, data, degen trade ideas, governance updates, token performance and more.</li>



<li><a href="https://blockworks.co/newsletter/lightspeed"><strong>Lightspeed</strong></a>: Built for Solana investors, developers and community members. The latest from one of crypto&#8217;s hottest networks.</li>



<li><a href="https://blockworks.co/newsletter/thedrop"><strong>The Drop</strong></a>: For crypto collectors and traders, covering apps, games, memes and more.</li>



<li><a href="https://blockworks.co/newsletter/supplyshock"><strong>Supply Shock</strong></a>: Tracking Bitcoin’s rise from internet plaything worth less than a penny to global phenomenon disrupting money as we know it.</li>
</ul>


Fortnite Developer Epic Games Gets $2B To Drive Metaverse Efforts

Morgan Chittum


<h2 class="wp-block-heading">The best articles, podcasts and videos to learn about the metaverse</h2>



<p>Scroll to the bottom for a complete <a href="https://cms.blockworks.co/category/education/" target="_blank" rel="noreferrer noopener">list</a> of our Investor&#8217;s Guides.</p>



<div style="height:20px" aria-hidden="true" class="wp-block-spacer"></div>



<h2 class="wp-block-heading">Articles</h2>



<h3 class="wp-block-heading"><a href="https://www.matthewball.vc/all/themetaverse" target="_blank" rel="noreferrer noopener">The Metaverse: What It Is, Where to Find it, Who Will Build It, and Fortnite</a></h3>



<h4 class="wp-block-heading">Matthew Ball, January 13, 2020, matthewball.vc</h4>



<p>This article was written in January 2020. In June 2021, Ball released a nine-part update,<a href="https://www.matthewball.vc/the-metaverse-primer" target="_blank" rel="noreferrer noopener"> &#8216;The Metaverse Primer&#8217;</a>.</p>



<p>&#8220;Technology frequently produces surprises that nobody predicts. However, the biggest developments are often anticipated decades in advance. In 1945 Vannevar Bush described what he called the “<a href="https://en.wikipedia.org/wiki/Memex" target="_blank" rel="noreferrer noopener">Memex</a>”, a single device that would store all books, records and communications, and mechanically link them together by association.</p>



<p>This concept was then used to formulate the idea of “hypertext” (a term coined two decades later), which in turn guided the development of the World Wide Web (developed another two decades later). The “Streaming Wars” have only just begun, yet the first streaming video took place more than 25 years ago. What’s more, many of the attributes of this so-called war have been hypothesized for decades, such as virtually infinite supplies of content, on-demand playback, interactivity, dynamic and personalized ads, and the value of converging content with distribution. &#8230; &#8220;</p>



<p><a href="https://www.matthewball.vc/all/themetaverse" target="_blank" rel="noreferrer noopener">Read more</a></p>



<div style="height:20px" aria-hidden="true" class="wp-block-spacer"></div>



<h3 class="wp-block-heading"><a href="https://newsletter.banklesshq.com/p/the-metaverse-emerges" target="_blank" rel="noreferrer noopener">The Metaverse Emerges</a></h3>



<h4 class="wp-block-heading">David Hoffman, September 1, 2021, Bankless</h4>



<p>An accompanying podcast on this article came out a few weeks later, called ‘<a href="https://www.youtube.com/watch?v=EqQiPseP_P8" target="_blank" rel="noreferrer noopener">Defining the Metaverse</a>’.</p>



<p>&#8220;As the NFT mania grows in energy, so has the conversation around ‘the metaverse’. We all talk about ‘the metaverse’, but no one has meaningfully attempted to define it.&nbsp;</p>



<p>This article offers an actionable proposition about what the metaverse actually is.&nbsp;</p>



<p>The metaverse will be an orchestration of many different layers and technologies, but it will ultimately collapse upon a single shared source-of-truth that all components of the metaverse will abide by.</p>



<p>The metaverse will be made up of objects, and all those objects must know that all other objects exist. From this foundation, we can create a ledger of all objects in the known metaverse, as well as their shared history of interactions and stories. &#8230;&#8221;</p>



<p><a href="https://newsletter.banklesshq.com/p/the-metaverse-emerges" target="_blank" rel="noreferrer noopener">Read more</a></p>



<div style="height:20px" aria-hidden="true" class="wp-block-spacer"></div>



<h3 class="wp-block-heading"><a href="https://www.notboring.co/p/the-value-chain-of-the-open-metaverse" target="_blank" rel="noreferrer noopener">The Value Chain of the Open Metaverse</a></h3>



<h4 class="wp-block-heading">Packy McCormick, January 25, 2021, Not Boring</h4>



<p>“The vocabulary around Web3, like that of many early movements, is very idealistic. It’s all about using technology to create trustless systems, wrest power from <em>corporations</em>, and give it back to the people. I think that vocabulary is why I haven’t taken it seriously as a real alternative to the status quo.&nbsp;</p>



<p>But I have gone deep down the rabbit hole, and I think I get it now. I can see how the decentralized web might make the leap from passionate early adopters to the mainstream, that there are real economic advantages to a decentralized internet, and that Web3 architectures will play a crucial role in a robust Metaverse. &#8230;&#8221;</p>



<p><a href="https://www.notboring.co/p/the-value-chain-of-the-open-metaverse" target="_blank" rel="noreferrer noopener">Keep reading</a></p>



<div style="height:20px" aria-hidden="true" class="wp-block-spacer"></div>



<h3 class="wp-block-heading"><a href="https://blog.bitmex.com/rock-paper-scissors-says-go/" target="_blank" rel="noreferrer noopener">Rock, Paper, Scissors Says GO!</a></h3>



<h4 class="wp-block-heading">Arthur Hayes, August 20, 2021, BitMex</h4>



<p>“Art is an expression of human civilisation’s energy abundance. When viewed in net energy terms, it is completely worthless. But when viewed as the purest expression of humanity beyond our basic functions of consuming calories, reproducing, and perishing, it is priceless. We “work” to enjoy leisure, and leisure is a personal pursuit that usually involves some art form. That encompasses music, film, paintings, sculptures, sports etc. All of these activities are energy sinks, but bring endless pleasure to the participant and the spectator.</p>



<p>The advent of super-intelligent networked thinking machines will herald an era where the vast majority of humans’ labour is economically worthless. Freed from the physical constraints of work, humans will turn to their new digital worlds and the complete expression of civilisation’s creativity and vitality. The metaverse is the future. &#8230;&#8221;</p>



<p><a href="https://blog.bitmex.com/rock-paper-scissors-says-go/" target="_blank" rel="noreferrer noopener">Read more</a></p>



<div style="height:20px" aria-hidden="true" class="wp-block-spacer"></div>



<h3 class="wp-block-heading"><a href="https://cms.blockworks.co/heres-why-one-company-ventured-into-the-metaverse/" target="_blank" rel="noreferrer noopener">Here’s Why One Company Ventured Into the Metaverse</a></h3>



<h4 class="wp-block-heading">Morgan Chittum, September 9, 2021, Blockworks</h4>



<p>“The metaverse is often used to describe the successor to the mobile internet where the physical and digital worlds converge in a shared virtual space. In the metaverse, technology is an all encompassing reality and not solely a tool like the rectangular device in your pocket.</p>



<p>Compare the metaverse to a video game like Fortnite. Players have digital avatars and seamlessly roam from one world to another, purchasing virtual goods and participating in this virtual economy. &#8230;”</p>



<p><a href="https://cms.blockworks.co/heres-why-one-company-ventured-into-the-metaverse/" target="_blank" rel="noreferrer noopener">Keep reading</a></p>



<div style="height:20px" aria-hidden="true" class="wp-block-spacer"></div>



<h2 class="wp-block-heading">Podcasts</h2>



<h3 class="wp-block-heading"><a href="https://www.joincolossus.com/episodes/45988185/dizon-mapping-the-metaverse-economy?tab=blocks" target="_blank" rel="noreferrer noopener">Mapping the Metaverse Economy with Gabby Dixon</a></h3>



<h4 class="wp-block-heading">Founder&#8217;s Field Guide with host Patrick O’Shaughnessy, September 2, 2021</h4>



<p>“My guest today is Gabby Dizon, co-founder of Yield Guild Games or YGG. In 2020, Gabby and his co-founders built YGG around the growing “play-to-earn” economy within blockchain-based games.</p>



<p>Based in the Philippines, YGG effectively backs players &#8211; who might not otherwise be able to afford to play &#8211; in exchange for a share of their profits. Today, YGG is paying out over $1 million US dollars a week to players within its community &#8211; largely concentrated in their home country of the Philippines. &#8230;&#8221;</p>



<p><a href="https://www.joincolossus.com/episodes/45988185/dizon-mapping-the-metaverse-economy?tab=blocks" target="_blank" rel="noreferrer noopener">Listen in</a></p>



<div style="height:20px" aria-hidden="true" class="wp-block-spacer"></div>



<h2 class="wp-block-heading">Books</h2>



<h3 class="wp-block-heading"><a href="https://www.goodreads.com/book/show/40651883-snow-crash?from_search=true&amp;from_srp=true&amp;qid=Dh7C6pmvIL&amp;rank=1" target="_blank" rel="noreferrer noopener">Snow Crash</a></h3>



<h4 class="wp-block-heading">Neal Stephenson, June 1992, Bantam Spectra Books</h4>



<p>&#8220;In reality, Hiro Protagonist delivers pizza for Uncle Enzo&#8217;s CosoNostra Pizza Inc., but in the Metaverse he&#8217;s a warrior prince. Plunging headlong into the enigma of a new computer virus that&#8217;s striking down hackers everywhere, he races along the neon-lit streets on a search-and-destroy mission for the shadowy virtual villain threatening to bring about infocalypse.&nbsp;<em>Snow Crash</em>&nbsp;is a mind-altering romp through a future America so bizarre, so outrageous… you&#8217;ll recognize it immediately. &#8230;&#8221;</p>



<p><a href="https://www.goodreads.com/book/show/40651883-snow-crash?from_search=true&amp;from_srp=true&amp;qid=Dh7C6pmvIL&amp;rank=1" target="_blank" rel="noreferrer noopener">Read this book</a></p>



<div style="height:20px" aria-hidden="true" class="wp-block-spacer"></div>



<h3 class="wp-block-heading">Get educated. Check out <a href="https://cms.blockworks.co/category/education/" target="_blank" rel="noreferrer noopener">The Investor&#8217;s Guide to Bitcoin</a>, <a href="https://cms.blockworks.co/the-investors-guide-to-nfts/" target="_blank" rel="noreferrer noopener">The Investor&#8217;s Guide to NFTs</a> and <a href="https://cms.blockworks.co/the-investors-guide-to-defi/" target="_blank" rel="noreferrer noopener">The Investor&#8217;s Guide to DeFi</a> and <a href="https://cms.blockworks.co/the-investors-guide-to-inflation/" target="_blank" rel="noreferrer noopener">The Investor&#8217;s Guide to Inflation</a>.</h3>



<div style="height:20px" aria-hidden="true" class="wp-block-spacer"></div>



<p><em>The content of this webpage is not investment advice and does not constitute any offer or solicitation to offer or recommendation of any company, product, or idea. It is for general educational purposes only and does not take into account your individual needs, investment objectives or specific financial circumstances.</em></p>
