The metaverse represents a paradigm shift in how people will experience the internet. However, it is still not well understood and significant topics relating to it have not been explored, including how legal concepts in the real world will operate when
transitioned to a virtual world. This article aims to begin an exploration of those issues.
It is first necessary to explain what the metaverse is. Mark Zuckerberg in his October 2021 letter to Meta Platforms shareholders provided the helpful description of the metaverse as an “embodied internet where you’re in the experience, not just looking
at it”. This is a simple but quite useful way to conceive of it. The metaverse, aims to be a physical representation of the internet, where users can experience digital worlds immersively, both with 3D visuals (via virtual reality headsets) and physically
(via haptic interfaces, rudimentary versions of which have been developed).
Although exploding in popularity now, the concept of the metaverse is not new. The term was first coined in author Neal Stephenson’s 1992 book Snowcrash, a dystopian science fiction work referring to a virtual reality world where people represented by digital
avatars interact with each other and software-based agents. The metaverse is now starting to become a reality and the increasing interest in metaverse platforms such as Sandbox, Decentraland and Facebook’s shift of strategy to focus on metaverse applications
bring this into stark relief.
Although still in its infancy as a technology, the metaverse represents a fundamental change in how we will use the internet, moving from a largely textual, point and click experience to a fully immersive one where people are participants in new online worlds.
The metaverse will use Web 3.0 technologies, including blockchain, and advances in hardware to radically transform the way we live our lives. Imagine going to work in a virtual world where you can interact with colleagues without ever leaving your house or
sitting down at a virtual table across from an old friend who happens to live on a different continent. These and fanciful adaptations such as experiencing simulated flight are all possible in the metaverse.
New technology brings with it unforeseen and novel uses that need to be addressed by appropriate legal frameworks. How legal frameworks will apply in the metaverse is a matter of debate. The application of existing legal frameworks to the metaverse and the
creation of new ones will be an incredibly relevant topic in coming years as the technology matures and user adoption increases. An exploration of relevant issues, points for further consideration and future possibilities follows.
Whose Laws Apply
As with the internet itself, metaverse platforms cross country boundaries in their operations and national laws apply to the prosecution of certain offenses committed. Metaverse platforms will also have their own policies and procedures regulating a variety
of conduct from inappropriate speech to how data can be accessed, which will be influenced by the laws of the countries in which they operate.
Laws in the metaverse will initially draw upon the laws of the countries in which the relevant platforms operate, in a similar way to social media platforms or search engines today. However, the mainstream internet platforms of today are much more limited
in scope than metaverse platforms are aiming to be. In fully immersive digital worlds, it is not inconceivable that metaverse platforms will need to implement internal compliance policies and procedures (effectively private laws) to regulate all aspects of
behaviour that are regulated by laws in nation states and will interact and overlap with nation-state laws in a much broader array of areas than currently is the case for internet platforms.
If a global audience gravitates towards one metaverse platform, that platform and its private laws may have more influence than even large nation state governments. For example, Facebook had approximately 2.91 billion monthly active users in the fourth quarter
of 2021 dwarfing the population of any nation state, but its role in the lives of users is comparatively limited. If a metaverse platform reaches a similar user base, its role in law making and standard setting could be profound.
Contracting will increasingly become streamlined and operate on the basis of hardcoded rules in smart contracts, which is also a nascent field but further along on its development trajectory than the metaverse. Smart contracts are blockchain based contracts,
popularly built on the Ethereum blockchain or variants thereof (though they don’t have to be). They can be hardcoded to operate automatically based on conditional logic (if X then Y; if Z then W). Without human intervention, smart contracts can apply conditional
logic to effect contractual outcomes such as automatically trading shares or painting a metaverse house, upon the occurrence of predetermined conditions. Given blockchain technology serves as a permanent digital ledger, compliance costs are reduced as there
is always a record of what was agreed. Contracting in the metaverse (and outside of it as smart contracts are also increasingly being used in the real world) will become more streamlined and easier to monitor and enforce.
Metaverse Real Estate
Most metaverse platforms provide for the creation and sale of metaverse real estate which are NFTs (Non Fungible Tokens) that provide access to unique parcels of ‘land’. A virtual land boom has been taking place, principally on popular metaverse platforms
such as Sandbox and Decentraland, where parcels of land on the platforms have skyrocketed in value. Like land in the real world, metaverse land allows its owner to build and develop unique structures or properties on it.
Major brands have also flocked to the metaverse seeking to establish store fronts on owned or rented parcels of digital land in an effort to capture what they expect to be the main centres of consumer attention of the future. Exclusive neighbourhoods have
also developed. For instance, the American rapper Snoop Dogg has bought virtual land and developed a mansion in the Sandbox metaverse. The virtual land next door to Snoop’s metaverse mansion sold for $450,000 in late 2021 (showing the value in having a famous
neighbour, even in a virtual neighbourhood).
NFT real estate is tokenized and easily transferable, unlike most real estate in the real world today. As of now, it is not subject to the complex processes associated with real world real estate purchases, such as conveyancing and title transfer that can
take weeks to effect. A metaverse land sale, even for virtual land that costs tens or hundreds of thousands of dollars, happens almost instantaneously once funds are exchanged.
It is likely that the friction costs associated with real world real estate will not fully migrate to the metaverse as the blockchain technology embedding these transactions removes many of the inefficiencies in the contracting process. However, metaverse
real estate is getting more complex. Developers are being hired and paid handsome sums to design novel digital architecture. Given the increasing complexity, it would not be surprising to see additional due diligence eventually being required in these transactions.
This article does not intend to provide a comprehensive overview of NFTs, but it is worth noting that similar to metaverse land, a variety of unique digital assets are being created for use on metaverse platforms and more broadly. The existence of these
goods gives rise to questions around what happens if the virtual property is destroyed (e.g., by some corruption of the computer code, albeit unlikely when using blockchain platforms, this is still possible), stolen (e.g., via hacking) or lost (e.g., if a
password to access a crypto hard wallet is forgotten). Insurance products are being designed to address some of these eventualities. Legal frameworks will also need to be reconfigured to address traditional real world issues with goods in a virtual setting.
Linking Virtual and Physical Property
One use of the metaverse is to link physical property with a digital equivalent. For instance, in the luxury goods space, certificates of authenticity have long been a factor. Some brands have digitized these certificates of ownership using NFTs, which helps
with storage and traceability. It is also possible to go a step further and provide holders of those NFTs with access to unique experiences on a brand’s storefront in the metaverse or even unique experiences in the physical world with the NFT acting as a pass
to the experience.
This raises the novel question of what happens if ownership of the physical good and the NFT equivalent are separate. Would it be possible to separate the physical good from its NFT? What happens if the physical good is lost, stolen or destroyed, does the
NFT continue providing access to the special events and services? These novel questions will likely be decided in contractual frameworks for each good/NFT.
The immersive nature of metaverse platforms means more personal data will be collected than in today’s Web 2.0 point and click interfaces. For instance, a metaverse platform accessed through a haptic suit (providing touch feedback to the user) can provide
information on the users, height, weight, bodily functions, emotions, etc. The scope of the information available to these new platforms will dwarf anything currently seen by existing social media platforms. Appropriate regulation and legal frameworks will
need to be developed to address this.
Crime and Punishment
Issues of civil and criminal wrongs on metaverse platforms will be more akin to the real world and potentially any wrong that could be committed in the real world could also occur in the metaverse. For instance, and somewhat farfetched, it could theoretically
be possible for bodily harm to be inflicted on a user accessing the metaverse with a haptic suit. Depending on the platforms programmed parameters, theft, destruction of property or murder (killing a digital avatar) may be possible.
Harassment and groping on metaverse platforms have been identified as a real issue and perhaps the anonymous and cartoon nature of these platforms desensitizes users from the impact of their actions. The prevalence of these issues has led Meta to create
a ‘Safe Zone’ feature allowing users to create a protective bubble around them to avoid close contact with others. The fact that this is necessary shows that real world wrongs will follow humanity into these new digital worlds.
All of these wrongs will need to be governed as they are in the real world. Given metaverse platforms will be global, this again brings us to the idea of private actors (the platforms) stepping into the shoes of nation states and setting up systems to punish
The metaverse presents an incredible array of possibilities and poses a variety of novel legal issues that will need to be addressed. Metaverse platforms remain in their infancy and the law and order issues that will eventually need to be addressed have
thus far only been skimmed on the surface. It can be expected that as these platforms mature and user adoption increases, these issues will become more relevant. The development and evolution of legal frameworks in this area presents an opportunity for new
worlds to be created with modern governance frameworks free from historical clutter but influenced by what has and has not worked in the past.