In 2021, an investment company bought 2,000 acres of real estate for about $4 million. Normally this doesn’t make headlines, but in this case the country was virtual. It only existed on 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 it? As it turns out, legal ownership in the metaverse isn’t 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 technical features have led some to argue that the token provides an undeniable proof of ownership, which can be used in various metaverse apps, environments, and games. Because of this decentralization, some even argue that virtual goods can be bought and sold on the blockchain itself, for any price they want, without the consent of an individual or a company.
Despite these claims, the legal status of virtual “owners” is much more complex. In fact, the current ownership of Metaverse assets is not governed by property law at all, but 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 that consumers are being defrauded. The danger of departure is present.
When you buy something in the metaverse, your purchase is recorded in a transaction on a blockchain, a digital ledger under someone’s control and in which transaction data cannot be deleted or changed. Your purchase gives you ownership of an NFT, which is simply a unique set of bits. You store NFTs in a crypto wallet that only you can access and take with you everywhere in the metaverse. Each NFT is associated with a particular virtual asset.
It’s easy to think that because your NFTs reside in your crypto wallet, no one can take your NFT-backed virtual apartment, outfit, or wand from you without access to your wallet’s private keys. Because of this, many people think that NFTs and digital items are the same thing. Even experts associate NFTs with their respective digital assets, noting that while NFTs are personal property, they allow you to own digital assets in the virtual world.
It is in these long and sometimes incomprehensible documents that the Metaverse platform lays out the legal nuances of virtual ownership. Unlike blockchain, 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 property.
Interoperability and portability are the defining features of the metaverse, meaning you should be able to move your non-real estate virtual assets – your avatar, your digital art, your magic wand – from one virtual world to another. But today’s virtual world is unconnected, and there’s nothing in an NFT that labels it as a magic wand. As it stands, every platform is required to link NFTs to digital assets they own.
virtual fine print
According to the Terms of Service, the NFTs purchased and the digital goods received are almost never the same. NFTs exist on the blockchain. On the other hand, the land, goods, and characters in the Metaverse are on private servers with proprietary code running secure, inaccessible databases.
This means that all visual and functional aspects of digital assets – the attributes that give them some value – are not on the blockchain at all. These facilities are fully controlled by the private Metaverse platform and are subject to their unilateral control.
Due to their terms of service, platforms can also legally remove or dispose of your items by stripping the digital assets of their original NFT identifiers. After all, even if you own the NFT that came with your digital purchase, you don’t legally own or possess the digital asset itself. Instead, the platforms just give you access to the digital assets and only for as long as they want.
For example, one day you own a $200,000 digital painting for your apartment in the Metaverse, and the next day you may be banned from the Metaverse platform and your painting, which was originally stored in its own database. Yes, it has been removed. Strictly speaking, you still own the NFT on the blockchain with its original identifier, but it is now functionally useless and economically useless.
collecting your NFTs
If Sandbox “reasonably believes” that you have engaged in prohibited Platform activities that require a subjective judgment as to whether you have interfered with others’ “enjoyment” of the Platform, it will immediately suspend your User Account. may suspend or terminate and remove images of your NFTs and descriptions from its platform. It may do so without notice or liability to you.
In fact, in these cases, Sandbox also claims the right to immediately confiscate any NFTs it acquires as a result of prohibited activities. How it will successfully seize blockchain-based NFTs is a technical mystery, but it raises further questions about the legality of virtual ownership.
As if these clauses weren’t dangerous enough, many metaverse platforms reserve the right to change their terms of service at any time, without any notice. This means that users must constantly refresh and re-read the terms to ensure they are not engaging in any recently prohibited behavior that may result in their “purchased” property or even their entire account being deleted as well.
Technology alone will not pave the way for true ownership of digital assets in the metaverse. NFTs cannot circumvent the centralized control that Metaverse Platform currently has and will continue to have under their contractual terms of service. Ultimately, legal reform, along with technological innovation, is needed before the metaverse can grow into what it promises to become.
This article has been republished from Conversation Under Creative Commons license. Read the original article by João Marineotti, an associate professor of law at Indiana University.