Executive summary

This report aims to help the NSW Government prepare to meet the risks and opportunities created by 'the metaverse': a collection of immersive, computer-generated virtual worlds in which to 'work, play, relax, transact and socialise'.^[1] Should the metaverse and its enabling technologies mature quickly and become widely adopted, the NSW Government aims to be ready to take advantage of the opportunities it provides and to mitigate the risks it creates.

What is the metaverse?

Exactly what systems and technologies are encompassed in the term 'metaverse' is not universally agreed upon. For this report, a metaverse application is a software application that possesses the following three properties:

a persistent virtual world (users join a world that continues to exist and change even when they're not present)
presence (users feel as though they're 'really there')
social connectivity (users can interact with each other).

The report generally considers technologies, services, platforms and applications that have or enable these properties to be part of 'the metaverse'.

Today, metaverse applications typically run on virtual reality (VR) or augmented reality (AR) headsets. These headsets give users the sensation that they are present in a virtual world by fooling the senses with imagery and sound that respond to the motion of a user's head and body.

VR headsets fully replace the user's surroundings with a digital alternative, so are today used for activities like gaming, exploring virtual art galleries, or socialising in virtual chat rooms.
AR headsets still allow a user to see their surroundings, but 'augment' those surroundings with digital objects or annotations. This makes AR headsets useful in applications that still require the user to be present with their surroundings: an AR headset might, for example, provide a schematic overlay of a machine for a maintenance worker assembling it.

Contrary to marketing hype, the metaverse is currently at an early stage of development. It is best thought of as a collection of separate VR and AR applications with social aspects, rather than a single, connected 'virtual internet' as originally depicted in science fiction.

Opportunities and risks created by the metaverse

The metaverse and its enabling technologies are general purpose. Metaverse applications may be useful in many domains including education, health and aged care, art and tourism, asset management, emergency services and community support. Across domains, metaverse applications may help in:

bringing people together (for example, a VR application supporting virtual family visits to aged care facilities during Covid-19 lockdown)
assisting people with contextual information about their activities (for example, an AR 'hologram' of a remote expert collaborating with a field maintenance worker)
providing people a model of the real world (for example, a VR re-creation of a damaged building that can be examined for emergency response planning)
giving people experiences (for example, a virtual reality art gallery that users can explore together)
transporting people out of their environment (for example, a virtual outdoor world for people confined indoors due to illness).

Metaverse technologies also introduce risks, however. Some of these risks are apparent from similar technologies already in more widespread use, including:

exposing people to anti-social and abusive behaviour (for example, physical threats and intimidation, already common online, made more impactful by the sense of presence the metaverse provides)
excluding people (for example, by providing a service that can only be used with a VR headset, which are expensive and can cause nausea and dizziness for some people)
violating people's privacy (for example, by gathering and using personal data like body language, facial expressions, gaze direction and even heart rate, that can be used to predict people's identity, behaviour and preferences)
influencing people's behaviour (for example, by amplifying the algorithmic influence techniques used in social media with the metaverse's richer sources of user data and greater control of user experience)
denying people a livable environment (for example, by using the availability of virtual worlds as an excuse not to improve living conditions in a real world accommodation facility)
increasing social anxieties and disconnection (for example, over-reliance on VR for escapism and communication affecting social competencies in the real world).

How the metaverse may involve the NSW Government

The NSW Government is already undertaking projects involving virtual reality, and some of these projects satisfy the metaverse definition above.

In the future, the government may take some or all of the following roles:

application user (for example, developing or procuring metaverse applications for use by NSW public servants to assist them in carrying out their duties)
application provider (for example, developing or procuring metaverse applications that provide services for the NSW public)
service provider (for example, by hosting an application programming interface (API) that allows third parties to integrate NSW Government data into their metaverse applications)
platform provider (for example, by creating a marketplace where developers can host applications vetted as suitable for use by NSW schoolchildren)
regulator (for example, by ensuring commercial venues don't circumvent NSW gambling regulations through the use of augmented reality).

Recommendations

We share the government's belief that it is not too early to start planning for a future where the metaverse is more sophisticated and more widely adopted. We recommend that, initially, the government focus on

building understanding of, and expertise in, the metaverse and its supporting technologies
augmenting existing systems and infrastructure to support future metaverse applications
starting to develop governance for the use of metaverse technologies by the NSW Government.

In each of these work areas we have made a series of specific recommendations, summarised below and explored in more detail in the referenced sections of the report.

Recommendations to build understanding and expertise

1. Examine the legal questions raised by metaverse applications.

Adoption of metaverse technologies both by the NSW Government and the wider public will raise new legal questions. Considering these questions now will help the government understand and prepare to take on its roles as a metaverse user, platform provider and regulator. Key questions include:

What existing activities and products (such as computer games, phone apps, websites and social networks) are legally relevant to the metaverse?
Are there any circumstances where objects or locations in metaverse applications could take on property-like elements?
When are augmented reality objects 'in' a real-life location?
Are the data collected by metaverse applications appropriately regulated, especially for children?
When would the NSW Government have obligations to ensure metaverse services are accessible to all members of the NSW public?
Are there circumstances in the metaverse where people have a right to their own likeness, as instantiated in the form of an avatar?

2. Ensure NSW Police are equipped to address criminal activity in the metaverse.

Many online crimes that are already within the remit of NSW Police will occur in the metaverse. The sense of presence and immersion users feel in metaverse applications may also increase the potential harm caused by (virtual) physical intimidation or abuse. Additionally, given the foundational use of cryptocurrency and Non-Fungible Tokens (NFTs) in some metaverse applications, it would be reasonable to expect that the rampant fraud making use of those technologies will present significant risks relevant to NSW Police.

Even if conduct falls short of the legal threshold of a crime, it may be important for NSW law enforcement to be involved in prevention activities in the metaverse. The NSW Police Force's cyberbullying activities, for example, could be expanded to encompass risks in metaverse applications.

3. Begin training key staff.

Deeper engagement with the metaverse in any role will likely require NSW Government staff to gain expertise in new skills. This will require training:

leaders, who will need to understand when metaverse technology may be useful, its risks and benefits, and their own responsibilities for establishing effective governance of metaverse applications developed or used by the government
technical staff, who will need to understand the new content and behaviour moderation challenges associated with VR, as well as the development challenges of building metaverse applications such as 3D modelling, network architecture and suitable API design.

4. Run a pilot to develop and release a metaverse application.

A pilot will help build skills and experience in government, and help inform the development of metaverse governance. Considerations for selecting a use-case for an initial pilot include

whether it provides an opportunity to build staff capability and enhance existing NSW Government data, infrastructure and services (such as the Spatial Digital Twin)
whether it provides the three metaverse properties of a persistent virtual world, presence, and social connectivity to achieve its purpose
whether it augments, rather than replaces, an existing service or functionality
whether the risks of unintended consequences can be predicted and controlled.

Specific applications that may be suitable for an initial pilot include:

5. Establish a cross-departmental metaverse community of practice.

This group would aim to bring together existing work with metaverse technologies across government and to begin developing whole-of-government approaches and resources to engage with the metaverse. This community could be internal, but could also be open to other public sector or private employees, at the NSW Government's discretion.

Discussions with NSW Government staff have revealed a number of prototype metaverse projects and research in the area, dispersed across different departments. By establishing a metaverse community of practice, branches of the NSW Government can share knowledge and insights from their research. This could lead to a more cohesive overall NSW Government metaverse strategy, and encourage collaboration between departments on new metaverse incentives.

6. Create a 'metaverse experience lab'.

Metaverse technologies, particularly VR and AR, are new enough that many people have not experienced them at all. Creating an 'experience lab' for NSW Government staff gives an opportunity for the staff to have such a first hand experience in a controlled environment, and may help develop staff's intuition and judgement about their various roles with the government's work in the metaverse.

7. Cultivate broader collaborations for knowledge sharing.

Events bringing together metaverse researchers and practitioners from governments, universities and private industry across Australia can expose NSW Government staff to developments and ideas in the field.

8. Define the scope of the NSW Government's interest in the metaverse to differentiate it from cryptocurrencies and Non-Fungible Tokens (NFTs).

Contrary to the marketing material of some metaverse developers and platforms, cryptocurrency and NFT technologies are not required to define ownership or enable commerce in the metaverse.

Cryptocurrency demonstrates no benefit when used to purchase virtual items when compared to fiat currencies. Similarly, the claim that NFTs enable ownership of virtual items to be recognised across different metaverse worlds is misleading. The record of ownership of an item and the effective rights that it grants a user is entirely at the whim of the operators of a virtual world. This is true whether or not the record is stored as an NFT on a blockchain or as an entry in some other type of database.

The NSW Government will likely have to examine cryptocurrencies and NFTs in other contexts, for example as they relate to taxation, financial regulation and crime. If cryptocurrencies and NFTs continue to see use and adoption, then they may become common within metaverse applications. However, we believe they should still be considered a distinct area of concern.

Recommendations to augment existing systems and infrastructure

9. Consider how the NSW Government's digital identity systems can accommodate metaverse use cases.

Metaverse use cases could include applications and services delivered by NSW Government, as well as 3rd party metaverse applications that would benefit from being able to verify a NSW resident's identity through a digital identity API under appropriate circumstances.

Given that metaverse adoption is still relatively low, there may be novel requirements for digital identity in the metaverse that have yet to emerge. We recommend that the NSW Government, as a digital identity provider, assume that digital identity will be an important service in the metaverse and consider what new technical, legal and regulatory issues may arise as a result.

10. Consider augmenting NSW Spatial Digital Twin to better serve data to metaverse applications.

The NSW Spatial Digital Twin (SDT) already provides API access for third parties to use NSW Government spatial data in their web applications and these APIs can be leveraged and further extended for many digital twin use-cases that naturally benefit from the use of VR and AR.

For example, the existing SDT contains telecommunications and infrastructure data intended to assist emergency response teams with understanding the locations of valuable infrastructure during events such as bushfires. The use of an augmented reality display of this data could enable firefighters to make better use of it.

Better AR/VR support in the SDT could also support a variety of useful, 3rd-party tools for NSW residents. This could include, for example, using live Transport NSW information to provide augmented reality overlays depicting the locations and routes of NSW buses, trains and ferries, or using spatial data from local councils to provide augmented reality overlays for building planning and approvals.

11. Identify gaps in NSW network infrastructure that may impair access to metaverse applications.

Many homes and businesses in NSW lack high bandwidth, low-latency internet access. This is particularly true in remote areas, some of which don't have internet access at all. Such lack of connectivity introduces problems for accessing metaverse applications, many of which will require high-quality connectivity to function. Many of the potential NSW Government use-cases described in Metaverse applications with government involvement which would otherwise be useful for people in remote areas, such as remote learning, may be impossible to deploy due to poor connectivity. Upgrades to connectivity will therefore be critical to support wide access to metaverse applications for NSW residents and businesses.

As a starting point for identifying and addressing specific connectivity gaps, the NSW Government may wish to consider:

conducting a state-wide analysis of connectivity, in order to provide a metaverse-ready view of the state to inform investment decisions
predicting the locations that might see greater early take-up of metaverse applications and prioritise improving connectivity at these locations (for example, remote areas using VR for remote learning)
running metaverse application trials in areas of good connectivity to better characterise performance requirements
developing a connectivity investment plan that explicitly balances targeted investments based on the likelihood of widespread use with the need to deliver inclusive outcomes
investigating what implications the limited 5G and fibre broadband access in remote areas has on metaverse connectivity
ensuring that the NSW Connectivity Strategy's objective of bringing meaningful digital connectivity to all citizens and achieving metro-equivalent standards can be met in light of metaverse connectivity requirements.

Recommendations to start developing governance

12. Consider using AI governance as a model for metaverse applications.

This could include developing instruments similar to the government's AI Assurance Framework, AI Strategy and Ethics Policy and AI Review Committee for metaverse application governance.

AI and metaverse technologies are analogous in several respects:

both are complex, novel technologies with significant scope for benefit and harm
both have ill-defined boundaries, with no clear definition on exactly which systems should 'count' as AI or the metaverse
both require specialised, multi-disciplinary expertise to implement which may not be widely present in the government
both often require procurement of products from third parties
both involve the collection and use of users' personal data.

The NSW Government's AI governance is already well-designed to address the above challenges, making its use as a template for metaverse governance compelling.

13. Develop a set of responsible metaverse principles to inform detailed frameworks and guidelines.

Again, this work could draw from the similar work done by the government with AI governance. Principles developed for an AI setting such as fairness, accountability, transparency, positive impact, and privacy, apply equally well to metaverse applications as they do to AI systems.

More specific principles, intended for organisations developing platforms for online communication (which would include metaverse applications), have been developed by the Australian eSafety Commissioner. These principles emphasise:

service provider responsibility
user empowerment and autonomy
transparency and accountability.

Being general in nature, principles typically need to be augmented with more detailed guidelines or rules in order to inform specific design decisions.

14. Incorporate documentation of key design trade-offs into governance processes.

Whilst principles act as aspirational targets, examining how to balance competing objectives of such aspirations can help inform design decisions.

Explicit requirements to document and balance competing objectives could form part of ensuring responsible use of metaverse technologies. The trade-offs could be framed through the competing interests of involved parties, such as a metaverse application developer, a NSW resident user, and the NSW Government regulator. More specific trade-offs common to metaverse applications could also be documented and used as a way to inform key design decisions.

15. Define ethical requirements for NSW Government metaverse applications.

Such standards serve to guide internal design decisions and procurement of 3rd-party technologies. The government could draw from existing rules, for example those developed by Dr Louis Rosenberg (Chief Scientist for the Responsible Metaverse Alliance). Rosenberg's rules intend to control some of the specific risks of the metaverse including:

manipulation of user behaviour through collection of their biometric data and the use of AI to understand and control their emotional state
fabrication of reality through undisclosed product placement and AI avatars that interact with users, similar to 'bots' in current social media
collection of behavioural and physiological data and its associated privacy risks.

In addition to informing future regulation discussions, the NSW Government could draw from the ethical requirements it defines to create a set of red lines for metaverse applications it is involved in. Such red lines would inform the government's own development of metaverse applications as well as its engagement with other metaverse providers.

16. Develop procurement guidelines and partnership strategies.

The government's existing IT procurement process could be straightforwardly extended to incorporate considerations for metaverse technologies.

As the government is fully accountable for systems it deploys to end users — even if the system involves third party elements — transparency of procured services is crucial. Transparency is necessary for the government to understand and exercise oversight on the metaverse applications it procures. Information such as how and when data is collected and stored, how the product works, how it is tested, and the potential negative impacts, are all as critical for metaverse applications as they are for AI systems or any other large IT system. The provision of such information to the government could be mandated as part of the procurement process.

[1] Moy, C. & Gadgil, A. Opportunities in the metaverse: How businesses can explore the metaverse and navigate the hype vs. reality. (2022).