In 2021, an investment firm purchased 2,000 acres of real estate for around $4 million. Normally it wouldn’t make the headlines, but in this case the earth was virtual. It only existed in one metaverse platform called The sandbox. By buying 792 non-fungible tokens on the Ethereum blockchainthe company then possessed the equivalent of 1,200 city blocks.
But did he? It turns out that 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 technological characteristics have led some to assert that tokens provide indisputable proof of ownership, which can be used in various metaverse applications, environments and games. Because of this decentralization, some also claim that buying and selling virtual items can be done on the blockchain himself for any price, without the permission of anyone or company.
Despite these claims, the legal status of virtual “owners” is significantly more complicated. In fact, the actual ownership of metaverse assets is not governed by property law at all, but rather by contract law. Like a Lawyer who studies property law, technology policy and legal property, I think what many companies call “ownership” in the metaverse is not the same as property in the physical world, and consumers are at risk of being cheated.
Purchases in the Metaverse
When you purchase an item in the Metaverse, your purchase is recorded in a transaction on a blockchain, which is a digital ledger under the control of no one where transaction records cannot be deleted or altered.
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 linked to a particular virtual element.
It’s easy to think that because your NFT is in your crypto wallet, no one can take away your virtual apartment, your outfit or your magic wand without having access to your wallet’s private key. For this reason, many people think that the 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 propertythey allow allow you to own digital assets in a virtual world.
However, when you join a metaverse platform, you must first agree to the terms of service, terms of service or end user license agreement of the platform. These are legally binding documents that define the rights and duties of users and the metaverse platform. Unfortunately and unsurprisingly, hardly anyone actually reads the terms of service. In one study, only 1.7% of users found and queried a “child attribution clause”» integrated into a terms of service document. Everyone else unwittingly gave their firstborn to the fictional online service provider.
It is in these lengthy and sometimes incomprehensible documents that metaverse platforms lay out the legal nuances of virtual property. Unlike the blockchain itself, the terms of service for each metaverse platform are centralized and under the complete control of a single company. This is extremely problematic for legal ownership.
Interoperability and portability are defining characteristics 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 connected to each other, and there’s nothing in an NFT itself that qualifies it as, say, a magic wand. As it stands, each platform must tie NFTs to their own proprietary 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 land, goods, and characters, on the other hand, exist on private servers running proprietary code with secure and inaccessible databases.
This means that all of the visual and functional aspects of digital assets – the very characteristics 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 can even legally delete or donate your items by disassociating the digital assets from their original NFT ID codes. Ultimately, while you may own the NFT that came with your digital purchase, you are not legally own or possess the digital assets themselves. Instead, the platforms simply grant you access to digital assets and only for the desired duration.
For example, one day you might own a $200,000 digital painting for your apartment in the metaverse, and the next day you might find yourself banned 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 of no financial value.
If The Sandbox “reasonably believes” that you have engaged in any of the Platform’s prohibited activities, which require subjective judgments as to whether you have interfered with 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 itself claims the right in such cases, to immediately confiscate any NFT 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.
Technology alone will not pave the way for true 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, legal reform alongside technological innovation is needed before the Metaverse can become what it promises to become.
João Marinotti is an associate professor of law at Indiana University.
This article first appeared on The conversation.