The metaverse has been labelled as the newest buzzword in the tech field. Generally, it is a form of cyberspace, which creates an experience for users, based on artificial intelligence, to be able to engage and form a virtual world. It will basically allow its users to go beyond the flat interfaces of either their smartphones or PCs by immersing a version of themselves, as avatars in its environment, through virtual reality (VR) and augmented reality (AR) experiences. ^[i] To simplify, VR is the usage of computer modeling that permits the user to interact with an artificial three-dimensional visual or other sensory environment and hence alludes to a certain type of realistic simulation, while AR is a technology built to augment reality with digital images using video or photographic displays. ^[ii]

In 1992, author Neal Stephenson created the term ‘metaverse’ in his science-fiction novel “Snow Crash,” which envisions humans’ interaction through avatars in 3D space.[iii] Meta stands for a prefix, which signifies 'beyond,' and 'verse' means 'universe,' creating the term metaverse.[iv] Recently, interest in virtual interactions focusing on the metaverse has intensified, with major companies announcing initiatives in this new digital space. In fact, Facebook for example has incorporated the term into its new name ‘Meta’, envisaging how metaverse will dominate the next wave in tech.

However, due to the revolutionary nature of the metaverse, it may lead to range of complex legal and regulatory issues. This article will analyze the legal implications of the potential growth of metaverse, reviewing the essential need for laws and regulations to govern this groundbreaking digital technology.

The Opportunities

A 2021 report by Bloomberg Intelligence affirmed that metaverse is having an excellent economic prospect that “it is expected to reach 800 billion by the middle of this decade, and by 2030 that figure is expected to multiply to 2.5 trillion”[v]. With these numbers, it is understandable the reasons why big companies perceive the metaverse as the future of the Internet.

Everyone from Meta to Google, Apple and Microsoft will compete in this novel cyberspace. For example, Meta is aiming to create a huge network of real-time 3D virtual space, called Horizon Worlds, where users will be able to preserve their identity as well as payment history, while playing. Meanwhile, Google’s AR headsets, “Project Iris”, are expected to be released in 2024.[vi]

Not just tech companies have decided to venture into metaverse. DAMAC, the property development company in the UAE, has also launched a metaverse project. The company’s managing director, Ali Sajwani, who is actually a plot owner in the Sandbox Metaverse, has affirmed that DAMAC is examining various ways of incorporating the Metaverse into their operations.  According to Hussain Sajwani, Founder of DAMAC: “In an attempt to mold to the progressive trends of business, we are expanding our offerings into the metaverse realm to avail of the many opportunities it presents.”[vii]

In November 2021, Nike has launched its metaverse superplex, Nikeland and says nearly 7 million people have visited it ever since.  Nikeland is built within Roblox, the online gaming platform having nearly 50 million daily active users and has also designed so far in-game locations for brands like Chipotle, Ralph Lauren and also Gucci.[viii]  Last year, Balenciaga also launched its clothing line on the digital game Fortnite: ‘Fortnite x Balenciaga’, which was the game’s first ever luxury partnership incorporating both digital and physical elements. “Within the game, virtual fashion was realized through skins and outfits that replicated the physical Balenciaga retail collection.”[ix]

The Impact and User Conduct

The metaverse will combine elements of ordinary internet, social media and online games, yet also other leisure activities. It will bring them together into synchronous environments, in which users will be able to spend time, engage in leisure activities and also do business transactions

The metaverse will also transform the way we invent new things. “Formula 1,[for example] is using digital twins [twin models of cars] to create new race cars and try them out on virtual tracks.”[x] A doctor will be able to control equipment in the metaverse, permitting him/her to operate on persons using a robot whose motions could be synchronized with the doctor’s.

This digital space, therefore, will be the biggest disruption to our daily lives, not just affecting business, healthcare and education fields, but also impacting our mobility, privacy, social interactions and security:

1.    Social Impact:

Users will design their own avatars, essentially their virtual manifestation, to be able to interact with others within their circles i.e. friends, coworkers, or even artificially intelligent entities. For some, designing your own digital identity will permit the person to reflect pieces of oneself in ways that s/he were not willing or find it difficult to convey before. One could “have more confidence in the metaverse with [one’s] custom-designed avatar, having more confidence in real life more easily becomes a by-product.”[xi]

Yet, interaction would be basically much more fluid in digital settings, most of which will not allow the multitude of complexities that real world interaction permits. This might lead the user to disconnect from the real world and even in many instances to desensitize to actions, impacting not just users’ social behavior and mental health, but also raising the question of how the dynamics will be regulated.

2.    Crime and punishment:

Due to the nature of this revolutionary digital space, any wrong that could be committed in the real world could also occur in the metaverse. In incidents of assaults, for example, will it be possible for an avatar to be responsible for their actions in the metaverse remains a question. “This would be complicated, because it would mean that we need to attribute a legal persona to the avatar, giving them rights and duties within a legal system; allowing them to sue or be sued.”[xii]

Another legal question is how to prove such a crime, where actual bodily harm is required as an element of the act. Therefore, it would be difficult to prove loss, harm, or injury suffered by an avatar.

According to a 2018 study by the virtual reality research agency The Extended Mind, 36% of males and 49% of females who were regular users of VR technologies reported having experienced sexual harassment.[xiii] Sexual predators are able to mask their identity behind an avatar, which might not be easily traced back to its operator in the real world.

Common Sense Media, has also affirmed that the risks for children are especially high, since they will probably explore the metaverse before their parents, which might potentially expose them to sexual and violent content without their caregivers’ knowledge.[xiv]

Consequently, Meta for example invented the so-called ‘Safe Zone’ feature, which permits users to create a protective bubble around them with the aim to avoid close contact with others. This indicates how wrongs in the real world will follow humanity into this new digital space. Therefore, there is a need for such actions to be governed, and to establish set of rules and regulations that would help minimize the risk and the occurrence of such crimes.

The Market

Due to the metaverse’s decentralized nature, there will be no boundaries when it comes to buying and selling goods and services. This will offer a great opportunity for businesses to reach new markets, yet how the marketplace will be regulated needs further examination.

1.    Regulation of virtual assets:

Generally, transactions in this new digital space are monetized through the use of cryptocurrency or NFTs (non-fungible tokens). NFTs are unique digital assets, i.e. an art work, music, a video or any other type of creative asset. They are line of code on the blockchain ascribing ownership of an asset to a person, and therefore acting as a robust proof of ownership on the blockchain, they are principally virtual receipts on the blockchain. What the purchaser obtains is a right to display the asset, yet there is so far no legal decision on whether an NFT amounts as proof of title to a digital version of the original asset.[xv]

One of the key legal concerns around NFTs is that it is not very clear how existing laws will apply to them, i.e. whether they will be treated as securities, commodities, or even something different. This will make it difficult for investors to have clarity over their rights and obligations, and could lead in many instances to legal conundrums.

2.    Contracts:

The notion of contracts in the metaverse will operate on the basis of hardcoded rules in the so-called ‘smart contracts.’

Smart contracts are programmed digital codes that run on the blockchain, automate operations and ensure that trading and transactions are done according to predetermined rules. They are essentially a set of rules that control the use of specific NFTs and are used to facilitate purchases and sales of virtual property. Yet, they are not flexible and amendable.

Because this digital space is new and many users are unaware of the smart contracts’ framework, many scammers take advantage of the situation by developing fake links. Once such links are activated, the scammer will be able to access the consumer virtual wallet and through the smart contract can transfer the wallets’ consents. “As a result, the transfers are almost impossible to amend, which means the stolen cryptocurrency is essentially impossible to retrieve. Cryptocurrency-based crime equaled USD 14 billion in 2021.”^[xvi]

Therefore, there must be a legal system governing this digital space, which would incorporate metaverse transactions and action and also there is a need for the governmental bodies, such as financial authorities that would be able to provide oversight over the transactions. [xvii]

The Data and Privacy

Data protection is also another possible legal implication of the metaverse’s potential growth that needs to be addressed. With the boom of this digital space, metaverse will reveal new ‘types’ of our personal data for processing: facial expressions, gestures and other types of reactions from an avatar.

While users are already used to share some personal info when creating accounts, the Metaverse will require a much more intimate set of personal data, which will include physiological and emotional response data. According to Julie Rubash, chief privacy counsel at software company Sourcepoint: “Biometric data will play a much more prominent role in the metaverse, and regulation may need to adjust to reflect expanded, more intimate use of biometric data and potential harms that may result.”[xviii]

Moreover, a singular metaverse, when it will be operated by multiple entities, will necessitate interoperability criteria. User data will be certainly at risk of exploitation due to the vulnerabilities occurring when information is ported from one application to another.  Hence, “platform operators will need extensive agreements to govern data transfers, information security standards, and responsibility for compliance.”[xix]

Conclusion

The metaverse exhibits an astonishing array of opportunities and presents consequently a range of new legal issues that will need to be governed.

Laws and regulations in this novel digital space will initially draw upon the laws of the states in which the relevant platforms operate, similarly to how social media platforms and search engines currently function. Yet, today’s mainstream internet platforms are limited in scope than metaverse is aiming to be. Aiming to provide a regulatory framework for the metaverse, Dubai has provided for the world’s first regulator Dubai’s Virtual Assets Regulatory Authority (VARA), with the objective of offering a scheme for financial entities to operate in the metaverse. [xx]

However, to govern jurisdiction comprehensively, the ideal scenario would be having a single authoritative body governing the Metaverse that would address the notion of its cross-border nature, which relativizes the principle of territoriality.