In 2021, an investment company bought 2,000 acres of real estate for approximately $ 4 million. Normally it would not get in the headlines, but in this case, the ground was virtual. It only existed in a metaverse platform called The Sandbox. By purchasing 792 non-fungible tokens on the Ethereum blockchain, the company then owned the equivalent of 1,200 city blocks.
But did he do it? It turns out that the legal ownership in the metaverse is not that simple.
The prevailing but legally problematic narrative among crypto enthusiasts is that NFTs enable true ownership of digital assets in the metaverse for two reasons: decentralization and interoperability. These two technological features have led some to argue that tokens provide an indisputable proof of ownership that can be used in various applications, environments, and metaverse games. Because of this decentralization, some also claim that the purchase and sale of virtual items can be done on the blockchain itself at any cost, without the permission of anyone or a company.
Despite these claims, the legal status of virtual “owners” is significantly more complicated. In fact, the current ownership of metaverse assets is not regulated at all by property rights, but rather by contract law. As a legal researcher studying property rights, technology policy and legal property, I believe that what many companies refer to as “property” in the metaverse is not the same as property in the physical world, and consumers risk being cheated.
Shopping in Metaverset
When you purchase an item in Metaverse, your purchase is recorded in a transaction on a blockchain, which is a digital ledger that is not under the control of anyone, where transaction records can not be deleted or changed. Your purchase gives you ownership of an NFT, which is just a single string of bits. You store the NFT in a crypto wallet, which only you can open and “take” with you, no matter where you go in the meta-verse. Each NFT is associated with a specific virtual element.
It’s easy to think that because your NFT is in your crypto wallet, no one can take your virtual apartment, your outfit or your wand without having access to your wallet’s private key. For this reason, many people believe that NFT and the digital element are one and the same thing. Even experts confuse NFTs with their respective digital assets, noting that because NFTs are personal property, they allow you to own digital assets in a virtual world.
However, when signing up for a metaverse platform, you must first accept the platform’s Terms of Service, Terms of Service or End User License Agreement. These are legally binding documents that define the rights and obligations of users and the metaverse platform. Unfortunately and not surprisingly, almost no one actually reads the terms of service. In a survey, only 1.7% of users questioned and questioned a “child attribution clause” embedded in a Terms of Service document. Everyone else inadvertently gave their firstborn to the fictitious online service provider.
It is in these long and sometimes incomprehensible documents that metaverse platforms set out the legal nuances of virtual property. Unlike the blockchain itself, the terms of service for each metaverse platform are centralized and under the full control of a single company. This is extremely problematic for legal ownership.
Interoperability and portability are defining features of Metaverse, which means you should be able to transport your non-real estate – your avatar, your digital art, your magic wand – from one virtual world to another. But today’s virtual worlds are not interconnected, and there is nothing in the NFT itself that qualifies it as, for example, a magic wand. As it stands, each platform must link NFTs to their own proprietary digital assets.
Small virtual characters
Under the Terms of Service, purchased NFTs and digital goods received are almost never identical. NFTs are available on blockchain. Metaverse land, goods, and characters, on the other hand, are found on private servers running proprietary code with secure and inaccessible databases.
This means that all the visual and functional aspects of digital assets – the very properties that give them value – are not on the blockchain at all. These features are fully controlled by the private metaverse platforms and are subject to their unilateral control.
Due to their terms of service, the platforms may even legally delete or donate your items by separating the digital assets from their original NFT ID codes. Ultimately, even though you may own the NFT that came with your digital purchase, you do not own or possess the digital assets yourself. Instead, the platforms simply give you access to digital assets and only for the desired duration.
For example, one day you may own a $ 200,000 digital painting for your apartment in the metaverse, and the next day you may be excluded from the metaverse platform and your painting, which was originally stored in its proprietary databases, deleted. Strictly speaking, you would still own the NFT on the blockchain with its original identification code, but it is now functionally useless and without economic value.
Admittedly shocking, this is not a far out scenario. It may not be a wise business decision for the platform company, but there is nothing in the law that prevents it. Under the NFT Premium Terms of Service and Terms of Service, which govern $ 4 million in virtual real estate purchased on The Sandbox, Metaverse Company reserves the right, like many other NFT and Metaverse platforms, to terminate, at its sole discretion, your ability to use or even obtain access to your purchased digital assets.
If The Sandbox “reasonably believes” that you have participated in any of the Platform’s prohibited activities that require subjective assessments of whether you have disrupted others’ enjoyment of the Platform, it may immediately suspend or terminate your user account and remove your NFT images and descriptions from its platform. It may do so without notice or liability to you.
In fact, The Sandbox even invokes the right in these cases to immediately confiscate any NFT that it believes you have acquired as a result of the prohibited activities. How he would manage to confiscate blockchain-based NFTs is a technological mystery, but it raises further questions about the validity of what he calls virtual property.
The conversation contacted The Sandbox for comment but did not receive a response.
As if these clauses were not alarming enough, many metaverse platforms reserve the right to change their Terms of Service at any time with little or no real notice. This means that users should constantly update and reread the terms to ensure that they are not engaging in any recently banned behavior that could result in the removal of their “purchased” assets or even their entire accounts.
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Technology alone will not pave the way for true ownership of digital assets in the meta-verse. NFTs cannot circumvent the centralized control that metaverse platforms currently have and will continue to have under their contractual terms of service. Ultimately, legal reforms are needed alongside technological innovation before Metaverse can become what it promises to be.