Regulating the Metaverse

All right, happy Friday everyone. Welcome to In Case You Missed It, GovTech's weekly technology news roundup where we look at some of the biggest GovTech news over the past week and give you our thoughts on what it means government, residents, and the market. I'm Joe Morris, joined by Jed Peskrow, and Dustin Haisler unfortunately is out this week. This week though, we're going to be doing something a little bit different. We're diving deep into one topic, and that topic is the metaverse. To help us, we're going to be joined by Bradley Tusk. Bradley's a lot of things: a writer, political strategist, CEO of Tusk Ventures. You may recognize him from his appearances on CNBC, his podcast Firewall, or the fact that he was a lieutenant governor for the state of Illinois and also worked in local government as well. But recently he and his team have published a memo outlining why and how governments should regulate the metaverse and the risks we all face if these regulations aren't put into place. So we're happy to have you here, Bradley.

Yeah, thanks for having me, guys. Really appreciate it.

We've heard so much about the metaverse. I think we're all trying to wrap our minds around it. Major companies, though, are taking it quite seriously and diving in headfirst. Even JP Morgan has got skin in the game, no pun intended. They've released a paper a few weeks ago titled Opportunities in the Metaverse. It seems like everyone's kind of trying to plant their flag right now as it relates to it, but we wanna get into the weeds today and have you set the stage about exactly what the metaverse is and why you kind of came out with the position that you did.

Yeah, so look, metaverse, just take a step back. Imagine the internet if you combined The internet today, the Internet of Things, virtual reality, augmented reality, blockchain, and crypto. Some amalgamation of all that is what the metaverse will be. So basically, in some ways, it's not unlike this process we're having right now, but we would be within the metaverse face-to-face, really interacting. You know, it would just be a far more immersive, interactive, engaged experience than what you can do today. So It's coming. You could already argue that pieces of it already exist. Facebook has betas out right now on testing it. Like you said, Facebook, Microsoft, Apple, they're spending tens of billions of dollars to build this thing. So, it's going to happen. It's a question of when, not if. And I guess once I realized that, I was just thinking one day, like, okay, this thing's coming. How would you regulate it? Right? Which is the kind of, like, super nerdy stuff that I tend to think about. And so I started making a list. And then I've got a really group of smart people working here. And I said, hey, how would you guys regulate it? And they gave me stuff. And the next thing I knew, it was a 6,000-word, 20-page memo, just really outlining all of the issues, with the underlying point being this. This thing is coming. Everything that's wrong on the internet is going to be 10 times worse on the metaverse. We can prevent a lot of problems. We can preempt a lot of problems. But we've got to actually deal with it.

Right.

Right. And if we just pretend that it's not happening, it's not going to work.

Hadley, thanks again for coming here and talking with us. You know, going back to like what the metaverse is, is this— do you think this is the sort of thing where when someone is engaging in it, is there a possibility that, you know, someone could lose their grip on reality while they're engaging with it?

It's a good question. Look, I think people lose their grip on reality all the time. Absolutely. But, you know, maybe, Jed, a different way to ask the question would be, could people's lives fully disappear into the metaverse, right? Could it be so immersive and become their community to the point where they're not really going outside or anything else? And so, yeah, I think that risk absolutely exists, especially for gamers. Like, so my son is 13, and one of the reasons I think he actually handled the pandemic and the quarantine fairly well is all of his socializing is with his friends on the PS4, right? He has the headset and he's talking to them. And sometimes I was like, are you aware that there's a giant quarantine and pandemic going on? And for my daughter, it was like a big, big deal. And for my son— so I think that gamers especially. But yeah, I think absolutely, Jeff, there are people whose lives are going to disappear completely into the metaverse.

So we've seen state and local as well as federal leaders really take on social media regulation over the last couple of years. And the memo mentions this as a kind of a cautionary tale about what could happen if we don't have the guardrails in place. What do you think some of the pitfalls are if the metaverse isn't regulated?

So to me, there are 3 big things that politically, governmentally need to happen, both to regulate social media today, and then maybe even more important, put the right guardrails in place for the metaverse, which will be even kind of more scarier, more dangerous, more whatever. So the first is privacy, right? So I'm sure as the you know, people who are listening or watching this know really well, the US does not have a national privacy framework. Europe has something called GDPR. I think it works reasonably well. The state of California passed something called the CCPA. It's having maybe a mild impact so far. But right now, if you're an average American, there's no— we have no right to our personal data. It's not protected in any way. We have no right to privacy. And as a result, you know, we have this sort of totally out-of-control internet. Where Facebook and Twitter and every other platform is trying to maximize their profits, because that's what companies do. And the way to do that is to put as much toxic stuff on there as possible, because that drives clicks and likes and everything else. And so they're monetizing your data constantly, they're showing you bad content constantly. And so the first thing is, if you had a US version of GDPR that just starts putting some constraints on what they can do with your data, that's the first step. The second step is something called Section 230 of the Telecommunications Decency Act. I'm sure you guys know what it is, but for the people who don't know, it basically gave the platforms immunity from liability for whatever's posted on the platforms itself. So if you guys posted really defamatory content about me on Twitter or Facebook, whatever it is, I could try to sue you, probably wouldn't win, but I could try, but I can't sue Twitter or Facebook, right? And as a result, if you're the platforms, your only incentive, because all you want to do is draw clicks, which draws eyeballs, which generates more advertising revenue, is have the craziest stuff on there possible. If you are completely immune from any of the consequences or repercussions, you have no incentive to behave well. We have got to revoke Section 230. The third piece is antitrust, where just like whether it was Standard Oil or Ma Bell or whatever else throughout American history, there are times where companies just get Too big, too powerful, too monopolistic. And the problem is not only does it give them an unfair advantage, I think it really stifles innovation. So out of my venture capital fund, we invest in early-stage companies, seed and Series A. And the reality is I can't invest in a competitor to Facebook or Apple or Google or Microsoft or any of those companies, because how are they possibly going to compete, right? And for as long as these companies have free rein to just smash whatever they want to smash, step on, buy anything they want, stop competition, that's exactly what they're going to do because that's their economic incentive. We need tougher antitrust laws. So to me, if those 3 things could be done, it's a big if, but if they could, it would be really helpful to the internet today, and I think it'd be even more helpful to the metaverse in 5 years.

Yeah, very well and passionately stated, Bradley, and the memo indeed addresses a lot of these things. I encourage all of our viewers to Get it, get deep into that memo and check out all the different issues that it talks about. Bradley, going back to the metaverse, you know, to most people this thing seems like it's far removed from our daily lives. You know, unlike social media, it feels futuristic and distant, you know, something that we can just wait and worry about in years, not necessarily now. So with that being the case, with that perception probably being there, How do you go about convincing lawmakers and governments to take it seriously, to start thinking about it now?

Totally, totally fair question. And the answer is, it's really hard. So I sent 50 elected officials, you know, that I'm friendly with the memo. Some were US senators and governors, some were city council members, different parties, different jurisdictions, whatever. My thought was like, let me just try to get in people's hands. Um, and a few of them said, okay, what can I do about this? And my team is working with them right now on specific legislation they could introduce. And mainly the legislation just says, okay, we're going to appoint a group of people to start figuring this out, dealing with it. We're going to get the right experts in the room. My hope, and this may be a totally misguided hope, would be, given that the vast majority of people who run for office do so because they desperately need attention and validation and affirmation, when they see something getting pressed, they tend to follow suit. So if I can get one US senator, one state senator, one governor, one mayor to all do something in the metaverse and the press covers it, that will create sort of a copycat effect, which will then hopefully lead to some legislating where people will start to think about these issues. And then hopefully that leads to a more thoughtful approach to this. Again, what I did was a little bit of a shot in the dark. I recognize that it may not work, but it seemed worth it. Bradley, real quick.

Going back to the theme of that question, have you seen personally any officials start to take more notice since you've released this thing?

Only in the discussions that we've had directly with some elected officials and their staffs. I don't want to name them because I don't want to preempt the press that they're going to try to get by announcing stuff. So we've had some of those direct conversations. But beyond that, no, not really. And look, I get it, right? I've worked in government for a long time. You're consumed by the issues of that moment. And there's a war happening right now. and inflation and all kinds of stuff. And if you're here in New York City, it feels like crime's out of control, the subways are unsafe. And so everyone's got immediate stuff to deal with. But remember, I worked for Chuck Schumer. Chuck always said— I don't know that he actually did it, but he identified the problem, which is your immediate instinct is to deal with the immediate fire in front of you and to put it out. And what you should really be doing is the long-term thing with the biggest implications and ramifications, because ultimately that's what really deserves your time the most. Now, again, I'm sure especially as majority leader, he's putting out fires all day because that's kind of what the job requires. But my hope is that at least some people will say, OK, this may not be a political problem or a policy problem for me today or in a year or two, but it's going to be a huge thing in 7 years. And if I can get out in front of this thing, one, I'll do some good, and two, I'll get credit for this thing, which is, in my experience, what politicians want.

You spent your professional career wading in the regulatory waters. From Uber to DraftKings and many others, you've helped them crack the code on how to be successful in these highly regulated industries. And so, you know, this regulation's part carrot and part stick. Sometimes it seems we spend more time thinking about the stick than the carrot. What incentives do you think we need to have built to encourage good behavior from companies that are diving into the metaverse?

Yeah, I mean, I think ultimately, if companies are behaving well in the metaverse, we can say, look, we will work with you on consumer protection, for example. So right now, consumer protection, which is typically a state or municipal activity, says we are going to regulate the activities of any entity that's selling anything to the public, right? And when it's physical, so this chair that I'm sitting on, it makes sense, right? There need to be specifications for how to make this chair so that it's safe, so that I can go to the store, reliably buy something, and know that someone thought about it on the front end, and that I won't collapse and break my neck.

Right.

on this chair. That makes sense in the physical world, but then what happens in the purely metaphysical world, in the digital world, where transactions are completely digital and there's nothing physical changing hands? There's sort of 2 ways regulators could go with it. They could say, we don't care, and you're still going to have to meet all these old-school standards and requirements, or they could say, we still need to protect consumers, but we get that you're living in a different reality. We will update our regs, working hand in hand with you, to do so. I mean, I think right now on crypto, that is exactly what has to be happening, right, in that you have got this new concept that no one quite understands. It is a sovereignless currency, so it is hard to figure out what jurisdiction exists. And right now, you have got the government on one side saying bad, bad, bad, and trying to find regulations. You have crypto enthusiasts like me saying good, good, good. And the reality is, we need crypto regulation, because again, as an investor in Coinbase and Circle and legitimate companies in the space, I don't want fraudulent ICOs to be out there because they undermine the credibility of my investments, right? But I also know that if a bunch of regulators are figuring this stuff out and we're not at the table, they're gonna get it all wrong, right? So in the same way that that has to happen for crypto and for autonomous cars and delivery drones and everything else, that's gotta be the start of the process for the metaverse too.

Bradley, since you mentioned crypto so many times in your last response, I'm just curious because, you know, earlier in the conversation you said The metaverse is going to be a combination of a lot of different things. And I believe you mentioned crypto as part of that combination. How do you see crypto playing a part in it?

So to me, and I get that this is sort of an early outlier position, but I would argue that crypto today is not a— even though it's called cryptocurrency, it's not a currency, right? We can't really, other than NFTs or like rocket launchers illegally on the dark web, you can't actually buy them.

Right.

But so it's an asset class. People invest in it because they think the price of Bitcoin or Ethereum or Solana or whatever is going to go up and they'll make money. It's like stocks or pork bellies or gold or anything else. To me, when the metaverse is truly here, that's when crypto goes from being an asset class to a currency, right? Because if you're selling things in the metaverse, there's no real reason that you wouldn't be incentivized to say, You might not take all 2,500 tokens that exist right now, or whatever the number is, but at least the mainstream ones, just like you would take Visa and MasterCard and Amex and PayPal and Venmo. You could also take Bitcoin and Ethereum, right, or whatever group you want to take. Once it becomes really easy to transact within the metaverse, and crypto could be a pure equal to any other form of currency, then I think people start to use it to actually buy things, and that transforms the entire economy.

Yeah, fascinating stuff. Thanks for answering that one for us. So in your, in your framework in the memo, you mentioned the idea of government in the metaverse, or rather governments interfacing with the metaverse. Can you tell us how you imagine that working?

Yeah, let me—

and then also, how could it benefit governments in its context?

Let me give you an upside scenario and a downside scenario, right? The upside scenario would be the DMV. Here are the words that have never been spoken in human history. I wish I could spend more time at the DMV, right? Everybody hates going to the DMV. So I get that when you actually take a driver's test when you're 17 or whatever it is, yes, that's an in-person thing. But the rest of it doesn't— you don't need to have these miserable offices where people have to like take a whole day off from work and sit there with a little piece of paper waiting for their number and the Wi-Fi is crappy and all that stuff. Instead, all this can be done in the metaverse. License renewals, tests given, questions, ID cards, all that stuff can be done virtually, and it would make the provision of services much better. It would make the constituents much happier, and it would actually make it cheaper for government to offer this stuff. You don't have real estate costs. You don't have janitorial costs. You don't have insurance issues, whatever it is. So you could provide a lot of services in the metaverse, or if you take an even more important one, healthcare. So healthcare is the biggest cost driver in the economy. It's like something like 20% of the GDP at this point. I believe that as the technology improves more and more, healthcare, I guess healthcare care, that sounds redundant, can be offered digitally, right? So one of the few good things of COVID is, and I'm biased because I'm a heavy investor in this sector, but the value proposition of digital health became very clear to people, right? All of a sudden you realize, oh, I have a cough, instead of getting in my car, sitting in this room with 10 other sick people, waiting 30, 40 minutes, and then doctor seeing me for 3 minutes, I can just log on and in 6 minutes I never left my living room and the whole thing is done. And then I can go pick up the prescription or have it delivered or whatever else, right? So there's already been an advancement in both the care and the conception of digital care over the last couple of years, but it's really just the start, right? So you could see a world where X-rays are taken in the metaverse or MRIs or all kinds of tests that right now require expensive machinery and physical interaction and a lot of staff. Some of that could definitely be digitized. Now look, if you need brain surgery, you gotta go somewhere, right? Yeah. Obviously, there are gonna be some functions of healthcare that require being in person, but there's already a trend of more at-home healthcare anyway. So for example, we're an investor in a company called GetLabs. Which is an at-home phlebotomy company. They're not using any kind of special technology, but they go to your house to draw blood, and their customers are LabDiagnostics and Quest. And they have determined that it's actually cheaper and more efficient to go to people's houses to get blood than it is to operate these physical centers. So I think you're going to see more and more care get outsourced to people's homes anyway. And so when you combine that with the metaverse, a lot of healthcare could no longer be in person. And one reason that's really important is If you think about hospitals, the operating expenses are massive, the CapEx is massive. They constantly have problems of viruses just spreading around the whole hospital because it's a place with sick people. So you really shouldn't— you should want the smallest hospital you have to have, not the biggest one. Metaverse can do that. Now, let me give you the downside case. I have a lot of experience in the regulation of gaming and gambling. And so I know that when I was deputy governor, I was at Illinois State Lottery. Spent a couple years on Wall Street building the first group to privatize state lotteries. So I know this one sector weirdly well. And right now, US lotteries, in my view, are already a mess because the vast majority of customers are poor people and old people. And because state lotteries are run by, you know, state employees who tend to be the most patronage appointments, you know, it's like the people who worked on the governor's race who can't do anything else, like you stick them at the lottery, right? And so as a result, they don't know how to run a consumer products business. They don't know how to run a gambling business. So instead of trying to sell tickets that would appeal to the 3 of us, where we shop and that are designed for us, it's all preying upon people who really don't have discretionary income to do it. So now combine that with that generation dying off because older— like my grandparents, when they were alive, they played the lottery every single day. But my parents, who are now in their late 70s, they don't. So it's already generationally shifting. Now imagine, here's your choice. You could be virtually in the coolest casino in Monte Carlo throwing dice, wearing a tuxedo with beautiful people around you and Ferraris or whatever else. Or you could walk to the bodega and do a pick 6 or a scratch-off. What are you going to choose? You're going to choose the Monte Carlo simulation, right? So by definition, state lotteries— so New York, I think, has about $2.5 billion in revenue, or actually, I think, profit. That's a big chunk of the state budget, right? If you're going to lose all of that because your lottery can no longer compete, that's a huge problem. So again, if you are the state lottery, you got to think about this world is coming. It might be 4 years, it might be 8 years, but it's coming. How do I revamp my products so that they can be appealing to people in the metaverse and so that I don't lose my revenue streams? Or taxation is the last example where right now, you know, we try to assess sales taxes on internet sales. But what helps about it is when I order a book from Amazon, they know where it's being shipped, right? They know my zip code, everything else. You know, with a good VPN, if 100% of my transactions are happening purely in the digital world with nothing physical, the ability to evade state and local sales tax is going to be a lot higher. And if you don't think about the stuff on the front end, states and cities are going to find themselves losing billions of dollars on the back end.

You know, Bradley, I couldn't help but my imagination just ran wild when you started talking about going into the metaverse. to be in a casino and to be around all these beautiful people, it immediately made me think of the movie I was watching last night, Total Recall, the one with Arnold Schwarzenegger.

Yeah.

So yeah, it looks like we might be headed towards some fantasies like that. Yeah.

And look, it's funny. So I read a ton and I have recently gotten frustrated. I've kind of stopped reading. I was reading climate novels for a long time and I stopped because it felt like everyone was sort of following the same dystopia, right? Which was We were a fascist state, and we had all these cataclysmic climate events, and everyone could read your thoughts and everything else. But we got to be more creative on this thing. So I don't know that the typical view of the future that you see in movies and TV and books is necessarily what it will be. But yeah, it's going to be radically different because it's not just the metaverse. AI is here, and it's going to advance, and delivery drones, and autonomous cars, and autonomous trucks, and flying cars. I mean, all this stuff is on the cusp. And like, either we can pretend it's not going to happen and then try to regulate it posthumously on the back end and fail. And by the way, when you try to do that, you know what the best reason to not try to do that is? Me. I'm the guy that stops you from doing it, right? I'm the guy where I invest in these companies and then I say, no, you're not going to shut down ridesharing, you're not going to shut down daily fantasy sports, you're not going to shut down these scooters. So if I'm the guy sounding the alarm and saying, hey, we got to take this thing seriously and think about it on the front end, My hope is that people would say, okay, that's a decent point.

I love the passion and I love the vision. You know, that's what caught my attention in the memo too, was the references to the DMV. And we obviously see a big focus on the government experience across our CIO community, right? That's like their number 2 overall priority across all levels of government. So if you're sitting there and you're the head of an IT agency at a state or local government or information security officer, you might be kind of a little anxious or apprehensive. What would you say to those individuals that are in those seats?

I would flip it around a little bit, which— so I spent 10 to 15 years working in government, city government, state government, federal government. And to me, the point of being in government was to find ways to do things differently and better, right? Just to do the status quo and do what everyone else does, like, so what? It doesn't require you. That doesn't require talent. That just requires people just moving on without thinking about things. So if you're the CIO of whatever it is, all these new technologies are coming and they could be incredibly disruptive in a good way or in a bad way, but you're in a position to say to your, you know, mayor, your governor, whoever it is, hey look, this stuff's coming, here is a reasonable regulatory framework that we should start thinking about. So to me, the opportunity to do really interesting meaningful work may sit with CIOs more than anyone else in government, and I think they've just got to embrace that. And they have to know that like, yeah, City Hall or the governor's office half the time will blow them off, and the media will make fun of them and all kinds of stuff, but at the end of the day, this is the point of being in government, is to try to do things different and better.

So look, this has been incredibly thought-provoking, and I think of tremendous value to our audience, but I want to move beyond the metaverse right now. We like to give our guests an opportunity to talk about something that you're working on, something that you're passionate about, And I wanted to hear from you. What else are you working on?

Mobile voting would be, for this audience, the one that I'd love to talk about. So if you guys would bear with me for 2 minutes. So the 15 years or so that I spent working directly in government politics taught me one thing: every policy output is the result of a political input. Every elected official puts whatever will affect their next election ahead of any other substantive or policy decision 100% of the time. And you have to accept that that's human nature. That was probably true in the days of the Greek Senate and the Roman Senate and any other democracy in history. If we want to change the outputs, we got to change the inputs, right? We live in a world where almost every single district is gerrymandered, which means the only election that really matters is the primary. We live in a world where primary turnout is typically 10 to 15%, which means 10 to 15%, frequently the furthest left or right, are the ones who are really calling all the shots. Because they're the only ones that actually matter to the elected official. So when I ran all the campaigns to legalize Uber and ridesharing, the way that we beat taxi— at the time, we were a small tech startup, and taxi was a pretty muscular industry. But the way that we did it was that we mobilized our customers. We used the app to turn them into political advocates over a period of a couple of years. A couple of million people emailed, tweeted, texted, in some way told their elected officials, don't take this thing away from me. And we won. everywhere. And at the time, I started thinking about, okay, what if you could vote this way? And the blockchain technology at the time wasn't solid enough to do it, but it has improved over time. We started thinking about it more and more seriously, and out of my foundation, Tusk Philanthropies, we started funding elections around the country where either deployed military or people with disabilities were able to vote in real elections— federal, state, municipal— on their phones over the blockchain. Did 21 elections in 7 different states, Turnout on average doubled. All 21 were independently audited by the National Cybersecurity Center. All came back clean. So I think we've proven the concept. We are now building our own mobile voting technology. I just put $10 million of my own money into a program to do that. We're working with a bunch of different companies, both in the US and abroad. And once we're done, we're going to make it open source and free to whoever wants it, both in the US and any other country in the world. And then I've got to pass legislation in all 50 states that allow this to happen, which is going to be unbelievably hard. Because everyone in power, whether the left or the right, the center, unions, lobbyists, trade groups, whatever it is, they know how to make the current system work for them. If all of a sudden primary turnout goes from 12% to 50%, that makes things really scary. So we're gonna have a hell of a fight on our hands. We're doing the first bill right now, the District of Columbia, that would allow all D.C. residents to vote municipal elections on their phones. We are hopeful that we can get it passed. And then, you know, my real plan here is I've got a guy whose whole job Every day is to advocate for mobile voting on TikTok, because it's not going to be me or my wife or my friends, it's going to be my kids and their friends who will refuse to accept that you can't vote on your phone and having effectively our own version of the Arab Spring, and that's what makes mobile voting happen. So I'm spending a tremendous amount of my time and money trying to make this happen.

Well, love that, and I look forward to covering that both in Government Technology and Governing as that advances.

Right.

We're gonna bring the memo back up again just in case anyone didn't get a chance to grab the code to access it. But Bradley, any other URLs or places that you can find it?

Yeah, so if you go to— if you wanna see the Metaverse Memo, there's either a really long URL I could give you or a simple one, which is bradleytusch.com. If you go to that, the Metaverse Memo is available on there. You click the link, it'll take you to Mirror, which is the site that hosts it. Very simple. Plus, if I say anything else that's interesting to you over the course of this last half hour, it'll be in there in some way. If mobile voting specifically is your interest, you can also just go directly to mobilevoting.org. That's the website for the cause and the campaign. And we'd love people's feedback on any of that.

Excellent. We'll drop all those URLs in the show notes after the show. So appreciate that. We appreciate you coming on and spending a little bit of time with us to talk about the metaverse and mobile voting. So we want to thank you all for watching. Join us again next week, Friday, 12:00 Pacific. We'll be discussing diversity in government. You don't want to miss it. Have a wonderful weekend.