Today, Intel announced a new virtual reality reference design it's calling Project Alloy, a cordless system the company says contains everything you need to have a VR experience without extraneous components. That means the headset contains the computational and graphics power necessary to create the virtual images and an internal battery for power, as well as 3D cameras and sensors powered by Intel's RealSense motion tracking tech. CEO Brian Krzanich says the device is capable of "merged reality," which blends images from the real world like handheld objects into virtual environments.

In a demo onstage at the Intel Developer Forum in San Francisco, a Project Alloy wearer was able to use a dollar bill in his physical hand as a lathe to shave down a virtual block of gold in a VR environment. Krzanich was also brought into the VR scene, by way of Project Alloy's onboard cameras. This is the promise of mixed reality, he said, where virtual environments can integrate everything from our limbs and handheld objects to entire virtual representations of other people captured by cameras and sensors. "We believe the capability of Alloy and what it introduces is significant," Krzanich said. "It gives the opportunity to merge the physical and virtual world together."

Intel plans on making Project Alloy open source next year to let third parties build headsets

Intel says this type of merged reality technology should alleviate some concerns about VR headsets blocking out the real world and creating a potentially dangerous situation for users and other people in the room. This type of tech also removes the need for complex sensor setups or hand controllers, Intel says. Of course, Project Alloy doesn't seem as precise or high-definition as something like the HTC Vive using Valve's Lighthouse laser tracking system. However, it does represent a leap toward merging the type of cordless, lower-budget system we see with Samsung's Gear VR with a higher-end set of capabilities you'd more likely to get with the Oculus Rift.

If merged reality sounds similar to the type of tech found in Microsoft's HoloLens, you would not be wrong. The HoloLens is considered augmented reality, where virtual images are blended in with the real world, and Microsoft uses the term mixed reality to describe the effect. The idea is to let you maneuver physical spaces as you would normally as 3D objects are created out of light. So the HoloLens in a way achieves a similar effect on the other end of the spectrum as Project Alloy — one focuses on AR, the other VR.

Intel and Microsoft are teaming up for mixed reality

To cement this idea, Windows chief Terry Myerson came out onstage at IDF today to announce that the Windows Holographic platform, with which developers can make and run mixed reality apps, will come to all Windows 10 PCs next year. That means that any VR or AR headset, and not just the HoloLens, will be able to run 3D and even standard, 2D apps designed for Windows 10, Myerson said. Intel and Microsoft are working together to release specifications for mixed reality-ready PCs and head-mounted displays.

Intel also plans to open source the Allow hardware next year, alongside its RealSense application programming interface (API) so third-party manufacturers can develop headsets of their own that run on Windows 10 and tap into Intel tech. "Anybody can take the Alloy hardware, combine it with Windows Holographic, and build a world-class virtual reality system with any manufacturer they choose," Krzanich said.