The metaverse: how it works and the legal implications

Blockchain technology has drastically evolved over the last decade after the launch of first-of-a-kind cryptocurrency, Bitcoin. From that time onward, the technology has been used across various industries, with non-fungible tokens (NFTs) really stealing the show last year.

While many businesses are currently testing blockchain technology across a range of sectors – including supply chains, healthcare, as well as governmental and legal purposes – we will undoubtedly see various metaverse applications leveraging the technology’s strength and decentralised nature. We can expect this to revolutionise our social interactions and the way we see and value digital space over the next few years. 

What is the metaverse?

The word “metaverse” describes a fully realised digital world that exists beyond the one in which we live. Author Neal Stephenson is credited with coining the term “metaverse” in his 1992 science fiction novel Snow Crash, where he envisioned lifelike avatars that met in realistic 3D buildings and other virtual reality environments, earning a living and spending the majority of their existence in an artificial computer simulated world.

Since then, various developments have signified real progress towards a real metaverse. The word ”metaverse” is now defined in the Oxford English Dictionary as a “virtual-reality space in which users can interact with a computer-generated environment and other users”. This is not too far removed from Neal Stephenson’s interpretation, and what is truly exciting is that this concept has metamorphosed from the wild fantasies of a fictional story into our current reality.

The metaverse we are coming to know today is a network of 3D virtual worlds (i.e., virtual reality, augmented reality, and video) that allows us to ’live’ within a digital universe. The metaverse (i.e. Web 3.0) is often compared to the internet (i.e. Web 2.0), in contrast to which, it not only allows the sharing of content, but also gives its users control over their experience within the space.

How does the metaverse work?

The metaverse is built by using various technologies such as cloud infrastructure, platforms, applications, software tools, user-generated content, and hardware. These technologies allow the creation of a metaverse which can be accessed through your laptop or even a mobile device. The metaverse provides users with various experiences that mirror real world activities – including, but not limited to, entertainment, gaming, commerce, education, and research. 

While we can already see quite a few aspects of the metaverse on the market, the question is how long will it take before it becomes an integral part of our lives? Mark Zuckerberg, the CEO of the newly named Meta (formerly Facebook), estimates it could take five to 10 years before the key features of the metaverse become mainstream. If the metaverse is to become a new internet, then it must have certain properties that separate it from isolated virtual reality experiences like Second Life. Luckily, we can already see a lot of these properties in popular metaverses such as Decentraland and Sandbox, which include massive scalability, persistent 3D worlds, continuity of data, unlimited number of users, interoperability, and individual sense of presence.

The future of the metaverse

With the expanding market capitalisation of NFTs, the adoption of blockchain technologies and the growing community of gamers around the world, life in the metaverse will soon become the new normal. Founders, investors, futurists and executives have all tried to stake their claim in the metaverse, expounding on its potential for social connection, experimentation, entertainment and, crucially, profit. The involvement of big corporations in this space might significantly speed up Zuckerberg’s prediction as to the mainstream adoption of the metaverse, and we can already see that tech giants like Microsoft, Epic Games, and Apple are trying to get a slice of the virtual land. 

While the metaverse will unlikely fully replace our physical reality and activities, its presence will provide new opportunities for creativity and business development. Not only that, but it has the potential to have a positive impact on the environment, individuals and brands that utilise it properly.

Legal implications

Similar to the issues and concerns surrounding NFTs, the concept of the metaverse is very new to everyone, which consequently brings multiple new legal and regulatory implications, especially in the absence of existing standards and regulations.

Security and privacy have become an integral part of our Web 2.0 experience, forming specific rights and regulations surrounding data ownership, processing and storage. Web 3.0 will expose new categories of personal data for processing in order to create ‘avatars,’ making the current regulations unsuited for this new world. While blockchain technology is already incompatible with the current data protection regime (for instance, the GDPR is based on the assumption that data can be modified or erased where necessary, while blockchain technology renders the unilateral modification of data to ensure data integrity), the fully decentralised metaverses will bring the whole new level of unanswered questions as well as security and privacy concerns.

Following up on the full decentralisation point, most of the current metaverses are either fully or partly centralised. This gives the owners the right to control certain or some elements of their metaverses (for instance, deleting users who act inappropriately or try to verbally abuse other users). However, the ultimate aim of the metaverse is to reach the stage when the environment is fully decentralised without having one central authority.

This brings many concerns such as what or who will prohibit users from conducting illegal activities within the metaverse. While some practical considerations are being given to that (for example, some metaverses are considering giving the power to the community to remove users who breach community guidelines), the space is developing so quickly that the right solutions might not be implemented in time.

In addition, intellectual property rights are highly relevant in the metaverse, and we have already seen several intellectual property disputes arise. While most of these disputes were connected to the creation, sale, or purchase of NFTs, they are a fundamental part of Web 3.0 so the possibility of disputes in the metaverse will become even greater. From copyright and trade mark registrations to patent protection and usage of the current intellectual rights within the metaverse, there is much uncertainty surrounding the space, making work for legal practitioners even more complicated. 

Educating lawyers

While the potential of the metaverse might not be fully visible from the first glance, Web 3.0 will revolutionise the way we communicate and will play an important role for the next generation. Despite all of the excitement, there is a lot of work that needs to be done, including creating new legal, regulatory and technical solutions, in order to make the metaverse a safe space for everyone.

Understandably, as legal practitioners, we usually struggle to keep up with fast-evolving technologies and are hesitant to adopt unproven advisory positions. Therefore, it is important to educate ourselves on the technology and solutions offered by this space, so we are better equipped to advise clients as the metaverse matures over the coming years.

Yuliya Prokopyshyn is a solicitor at Stephenson Law Stephenson.law