At the Intel Developer Forum in San Francisco, CEO Brian Krzanich unveiled Project Alloy, which is a virtual reality reference design that enables the operation of a standalone wireless VR headset.

The headset made possible by Project Alloy does not need any extraneous components, working without a requirement to be connected to a PC or smartphone. The Project Alloy headset already contains the graphics and computational power necessary to construct the virtual reality environment, an internal battery pack and sensors and 3D cameras that use the RealSense motion tracking technology of Intel.

In addition to unveiling Project Alloy, Krzanich also explained the concept of "merged reality," which blends what can be seen in the real world into virtual reality environments.

"Merged reality will be one of those fundamental shifts that is going to redefine how we work, how we are entertained and how we communicate," Krzanich said, with the concept demonstrated by a Project Alloy headset wearer holding a real dollar bill. The wearer used the bill to carve a piece of gold on a pottery wheel in a VR environment.

The RealSense technology incorporated into the Project Alloy headset can identify objects in front of the wearer. For example, users can wield a real-life tennis racket to play a game in a VR environment, and can even bring the people picked up by the headset's cameras into virtual reality.

According to Intel, merged reality will address concerns that VR headsets will block out the real world, which could create potentially risky situations for the wearer. Project Alloy also eliminates the need for complicated setups such as those involving hand controllers and a good number of sensors being placed around a room.

Project Alloy will not be as high definition or as precise as other VR systems such as HTC's Vive, which uses Valve's Lighthouse laser tracking system. However, the new design by Intel is a huge development in the combination of wireless and relatively cheaper VR systems such as the Samsung Gear VR featuring high-end capabilities as found in the Oculus Rift.

According to Moor Insights & Strategy analyst Patrick Moorhead, merged reality would be amazing for gaming applications. Houses can be transformed into gaming levels, with players using their own hands instead of controllers and the walls being picked up by cameras and represented in the VR environment.

The concept of merged reality is different from augmented reality, which is seen in Microsoft's HoloLens. While Intel's Project Alloy brings real-world objects into virtual reality, Microsoft's HoloLens does the opposite in blending virtual objects with the real world, such as allowing users to access their email inbox overlaid on what they see in the physical world.

In what could be the best part about the initiative, Intel is looking to make Project Alloy an open source platform, which would allow any company to use the design as a foundation for a VR device. Intel will also be working with certain manufacturers to create Project Alloy-based headsets, with the devices to run Windows Holographic.

Windows Holographic is the version of the Windows operating system that is compatible with augmented reality and virtual reality. Microsoft recently revealed that it would make the software available to devices beyond the HoloLens.

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