Thanks for your comments!
You ask : Do you have an idea of how to model observers within such a virtual world?
Sure. Start with bits as explained by the essay. These bits may be similar in some ways to electrons, photons, quarks, etc but it is important o keep in mind they are not electrons, ect because those show up later.
They differ from electrons, photons, quarks sect in that they are immaterial and don't necessarily follow the laws of physics such as the uncertainty principle, that too comes later.
Use those bits to make compounds which are atom-like (again not atoms proper yet) and use those compounds to build more compounds that are molecule-like.
With those make something human like in that it has something like a brain and eyeballs.
Once the enormous compound of bits begins making measurements of its world, the bits don't stop being bits, but deep inside, encoded in the neural pathways of the brain-like compound, is something entirely new.
Those are the its, the material objects that are the focus of science and most of our daily lives, which include houses, cars, people, planets, molecules, electrons photons and quarks, whose behavior is generalized as the laws of physics.