Can you really own anything in the Metaverse? A law professor explains how blockchains and NFTs fail to protect virtual property

In 2021, an investment company purchased 2,000 acres of real estate for approximately US$4 million. Normally it wouldn’t make the headlines, but in this case Earth was virtual. It only existed in a metaverse platform called The Sandbox. By purchasing 792 non-fungible tokens on the Ethereum blockchain, the company owned the equivalent of 1,200 city blocks at the time.

But did he? It turns out that 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 the tokens constitute an indisputable proof of ownership, which can be used in various applications, environments and metaverse games. Because of this decentralization, some also argue that buying and selling virtual items on the blockchain itself can be done at any price, without the consent of anyone or company.

Despite these claims, the legal status of virtual “owners” is considerably more complicated. In fact, actual ownership of metaverse assets is not governed by property law at all, but rather by contract law. As a lawyer who studies property law, technology policy, and legal ownership, I believe that what many companies call “property” in the metaverse is not the same as property in the physical world, and consumers are at risk of being ripped off.

Purchases in the Metaverse

When you buy an item in the Metaverse, your purchase is recorded in a transaction on a blockchain, a digital ledger under no one’s control where transaction records cannot be deleted or changed. Your purchase grants you ownership of an NFT, which is simply a single string of bits. You store the NFT in a crypto wallet that only you can open and “take with you” wherever you go in the metaverse. Each NFT is associated with a particular 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 magic wand without accessing your wallet’s private key. For this reason, many people think that the NFT and the digital element are one and the same. Even experts confuse NFTs with their respective digital assets, noting that because NFTs are personally owned, they allow you to own digital assets in a virtual world.

NFTs and the hype surrounding the metaverse have led to a virtual land rush.

However, when you join a metavers platform, you must first agree to 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 unsurprisingly, hardly anyone reads the terms of service. In one study, only 1.7% of users found a “child attribution clause” embedded in a terms of service document. Everyone else unknowingly gave their firstborn to the fictitious online service provider.

It is in these lengthy and sometimes incomprehensible documents that metaverse platforms set out the legal nuances of virtual ownership. Unlike the blockchain itself, the terms of service for each metavers platform are centralized and under the full control of a single company. This is extremely problematic for legal ownership.

Interoperability and portability are hallmarks of the Metaverse, meaning you should be able to transport your non-real estate virtual property — your avatar, your digital art, your magic wand — from one virtual world to another. But today’s virtual worlds aren’t interconnected, and there’s nothing in an NFT itself that qualifies it as, say, a magic wand. As it stands, each platform must link NFTs to their own digital assets.

Small virtual characters

According to the terms of service, NFTs purchased and digital goods received are almost never identical. NFTs exist on the blockchain. Metaverse lands, goods and characters, on the other hand, exist on private servers with proprietary code with secure and inaccessible databases.

This means that all the visual and functional aspects of digital assets – the characteristics that give them value – are not on the blockchain at all. These functions are fully controlled by the private metaverse platforms and are subject to their unilateral control.

Due to their terms of service, the platforms can even legally remove or donate your items by unlinking the digital assets from their original NFT ID codes. While you may own the NFT that came with your digital purchase, you do not legally own or own the digital asset itself. Instead, the platforms give you easy access to digital assets and only for the duration you want.

For example, one day you could own a $200,000 digital painting for your apartment in the metaverse, and the next day you could be banned from the metaverse platform and your painting, which was originally stored in its own databases, is deleted. . Strictly speaking, you would still own the NFT on the blockchain with its original identifier, but it is now functionally useless and of no financial value.

Virtual items like this avatar are sold in NFT markets.
Nescolet/Flickr, CC BY-NC-ND

Admittedly shocking, this is not a far-fetched scenario. It may not be a wise business decision for the platform company, but nothing in the law prevents it. Under the NFT Premium Terms of Service and Terms of Service that apply to $4 million worth of virtual real estate purchased on The Sandbox, the Metaverse Company – like many other NFT and Metaverse platforms – reserves the right, in its sole discretion, to modify your usage. terminate or even access your purchased digital assets.

If The Sandbox “reasonably believes” that you have been involved in any of the Platform’s prohibited activities, which requires subjective assessments as to whether you have interfered with others’ “enjoyment” of the Platform, it may immediately suspend or terminate and remove your NFT images and descriptions from its platform. It may do so without notice or liability to you.

In fact, in these cases, The Sandbox even claims the right to immediately seize any NFT it believes it has obtained as a result of the prohibited activities. How he would manage to seize blockchain-based NFTs is a technological mystery, but it raises further questions about the validity of what he calls virtual ownership.

The Conversation contacted The Sandbox for comment, but received no response.

Legally binding

As if these clauses weren’t 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 must constantly update and re-read the terms to ensure they do not engage in recently prohibited behavior that could lead to the removal of their ‘purchased’ assets or even their entire accounts.

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Technology alone will not pave the way for real ownership of digital assets in the metaverse. NFTs cannot circumvent the centralized control that metaverse platforms currently have and will continue to have under their contractual terms of service. Ultimately, in addition to technological innovation, legal reform is needed before the Metaverse can become what it promises to be.

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