No one knows what the first killer app for VR will look like. Those who are trying to create it face challenges akin to the first oral storytellers learning to write their stories down. All they know for certain is that the impact on entertainment is going to be massive.

At a recent GamesBeat VR panel speculating on the future of entertainment and games, William Rhys Dekle, senior director of world development at Microsoft Game Studios, predicted that VR would transform gaming into passive entertainment. “Five years from now, there will be more viewers than video gamers,” he said.

Assertions like that are increasingly being based on progress in the real world. VR and AR applications have moved well beyond theoretical speculation.

Magic Leap, a competitor of Microsoft’s HoloLens project and an extremely well-funded start-up focused on bringing “mixed-reality” technology to market, is one company working directly with select developers on applications in entertainment, education, healthcare and the workplace. Chief Executive Rony Abovitz likes to say that he is building “an operating system for reality.” He also promises that his company is “gearing up to ship millions of things.” Meanwhile, all we know for sure is that teams at Magic Leap have been using their tools in the real world to host “app fests” where developers create games, apps and features.       

Magic Leap routinely converts technology leaders into evangelists, and often employees, for their mixed reality vision. Rio Caraeff, chief content officer of Magic Leap and co-founder of the video streaming service Vimeo, joined Magic Leap last July. He said their technology is “the most exciting thing in the last 100 years, up there with the invention of film and electricity.”

Graeme Devine, a famed game developer who became Magic Leap’s chief creative officer and vice president of games and apps two years ago, described what a mixed reality experience superimposed on your own home would feel like:

“You start playing a game using wooden blocks. You spell things with letters on them and look at those words and learn how to actually interact with the world. Then things move in your house. You start to see lights and hear sounds going off in a room. Eventually you go and look in that room and see what’s there. In front of you is a ghost, a ghost standing in your house, in the middle of your room. It points directly at you and directly beyond you. You look behind yourself, and there’s a body on the floor. Then you look back and the ghost is gone, but in your ear you hear, ‘Please help me.’”

Devine’s description sounded awfully intriguing, but what did it really mean?

Until yesterday, Magic Leap had been very secretive about its big breakthrough. The one video the company did release was stunning, but the special effects—an elephant appearing in the palm of someone’s hand—looked suspiciously produced. We now know that the miniature elephant is close to what we can expect to see in the not-too-far-distant future.

Magic Leap’s latest video shows a small robot lurking beneath a desk. It senses the presence of an observer and waves. A second segment shows a solar system swirling above a desk. The company said the video was was shot directly with Magic Leap technology.

The video is rough along the edges and lacks the production values of, say, the recent Star Wars trailer, but it represents a remarkable vision of what is possible. “We are sensing the world—the floor, the people. We’re doing real-time understanding of the world, so that all these objects can know where they sit,” Abovitz said at a WSJDLive 2015 conference.

How impressive will that next trailer be when you are able to put on a pair of high-tech eyeglasses, step outside your house and look up to see the Millennium Falcon being chased by a swarm of TIE fighters?

One can only imagine what this is going to do to Twitch broadcasts. Hopefully, we’ll be saying goodbye to awkward overlays. And hello to Twitch mediated realities.