The main problem with virtualization is that human beings have evolved over millenia to be physical creatures. We are already feeling the effects of neglecting that aspect of our nature. Obesity and sedentary lifestyle related illnesses are rampant.
Technology may well be available in the relatively short span of 20-50 years, but the human body will still be exactly the same barring any major genetic developments. We'll be lucky if we can prevent certain illnesses through genetic manipulation, never mind "designer babies." Genetics won't be able to modify the human body in such a way that evolutionary change does.
Evolutionary change doesn't work like that. The human body will not evolve into a "shell with a brain." Evolution is a physical adaptation based on survival in a physical world. To over-simplify: millions of years ago a monkey was born with an opposing digit that was slightly closer to it's four other digits. This gave that monkey the advantage in grasping a weapon. He challenged the alpha-male and won. He bred with all the females and lo-and-behold many (not all) of his offspring were born with the same "defect." They too were better at tool and weapon holding.
I realize that the brain can be fooled into "thinking" that the body is exercising and physically moving … heck, you could even have the body connected to various machines that simulate walking and running so that the muscles don't atrophy. The problem with this is, "what's the point?"
Academically speaking it's cool and all that, but you would be using more energy than is necessary to live. We're already feeling the effects of that as well. Why add even more?
So already we have two major hurdles to overcome: the body and it's NEED for physical activity and how closely related that activity is for the brain to function properly AND the energy problem.
I have absolutely no doubt that major parts of life will be virtualized in a few decades. Most corporate jobs, school, and entertainment will most likely ALL be virtualized. Real-estate is our most expensive commodity right now and unless major population control occurs it's just going to get worse. Virtualizing these things will help with keeping cost down. Of course, this assumes that we'll still be using "money and wealth" as a measure of success.
My biggest problem with a scenario such as virtualization on the scale you're talking about is this: in a virtual world you will only be experiencing what certain people want you to experience. Human nature is NOT benevolent.
You said it yourself. Everyone, from the most peaceful, tree-hugging hippie on up the chain has evolved to desire one thing: <i>control</i>. Control over what they consider to be the "right" way to live. Control over what happens to themselves, their families and friends. Control over nature. Control over other people. Even if each person's virtual world is completely different and tailored individually there will always be a few people out there who want to be in control of YOUR world. You could completely disconnect yourself from "other" virtual worlds, but then you'd be limiting human existence to the individual. The species would die off.
Of course, I'm taking it to its extreme. I think you were describing an escapist scenario. Like using it for recreation. But some of the things you mentioned were dissatisfaction with "real life" and wouldn't it be cool if <i>society</i> was like this?
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