Now playing: Watch this: Intel's Project Alloy headset cuts the cord

The best virtual reality can be a pain to set up. You need a pricey PC, a fancy headset and great motion controllers, and you'll still be tethered by a cord. But Intel's Project Alloy wants to throw those limitations out the window.

Intel CEO Brian Krzanich kicked off his Intel Developer Forum (IDF) on Tuesday with a bold claim: "Merged reality will be one of those fundamental shifts that's going to redefine how we work, how we're entertained, and how we communicate."

What's "merged reality," you ask? It seems to be an Intel term to describe a VR experience that uses depth-sensing cameras to bring elements of the real world into a completely cordless VR headset.

Project Alloy is the prototype version of that headset, and it already seems to work at a very basic level. In a demo on the IDF stage, the company showed how users could walk around a rudimentary virtual space and interact with objects using their own hands.

Enlarge Image Intel

While the presenter struggled a bit, the headset's integrated Intel RealSense cameras let him bend each of his fingers in virtual reality, push a lever, and use a real-world dollar bill to carve a virtual golden statue spinning on a virtual pottery wheel. Rival cordless headsets like Microsoft's HoloLens and the Meta 2 are still struggling to track your hands, so the demo seemed reasonably impressive.

Don't get too excited, though. Intel doesn't plan to actually produce a consumer VR headset. As usual, the chipmaker is trying to sell these technologies to partners, and it could be quite a while before they do. Intel says even partners will have to wait for the Project Alloy headset until the second half of 2017.

Besides, there's a reason why the best VR headsets still have tethers today: it takes an awful lot of CPU and GPU power to make a virtual world feel real.

Intel didn't offer a price or specifically name any partners for Project Alloy.

(If you think "Merged Reality" sounds a lot like Microsoft's "Mixed Reality" or Magic Leap's "Cinematic Reality," or even just plain ol' augmented reality, you're not alone. -- read about the differences here -- but Intel CEO also has a whole blog post about what he believes "merged reality" should mean.)