Enter the metaverse…but firstly, what is it?
Whilst the concept of the metaverse is not new (the term is said to have first been coined in the 1992 science fiction novel Snow Crash by Neal Stephenson), it remains somewhat of a mystery what the metaverse is, and where it may lead. What is apparent, is that the metaverse no longer appears to be simply a construct within the science fiction world, but rather something that is (to an extent) and may well become very real, albeit a reality existing in a virtual sphere.
There is no universally accepted definition of “metaverse”. In its most basic form, the metaverse could be said to be the internet, but beyond the realms of the internet as we currently know it, moving towards a world where the built environment and the digital environment become increasingly entwined. Whilst perhaps we have aspects of the metaverse already (including digital worlds constructed for the purposes of gaming, and commerce relating to the physical world being carried out online), the true metaverse appears to be a destination of total convergence between the physical and the digital. Mark Zuckerberg noted last year that whilst we currently look at the internet, in the future we are going to be in the experience.
So where does (real) estate come into this?
While the concept of digital twins offers a digital representation of a physical asset enabling the life cycle of a building to be simulated virtually, even further beyond bricks and mortar, a new type of property transaction is emerging. This is through the use of virtual platforms, such as Decentraland and The Sandbox, to purchase “land”. But this isn’t the type of land that the real estate industry is used to – there are no bricks, there is no mortar, there is no physical asset at all. In Decentraland, “land” is stated to be “a non-fungible digital asset maintained in an Ethereum smart contract, divided into parcels that are referenced using unique x,y cartesian coordinates”.
Acquiring such land is a venture into the unknown, and for many the absence of a tangible asset and the use of crypto-currency feels uncomfortable although for others this will be a welcome innovation. There are questions around how value will be derived from virtual land and whether the metaverse poses a risk that value will be extracted from the physical world. Yet this market has seen some big numbers so far including a $4.3m acquisition in The Sandbox by Republic Realm reported in December 2021 and Snoop Dogg’s venture to create a “Snoopverse”, with a $450,000 acquisition by another user being reported in the vicinity of Snoop Dogg’s virtual estate.
But with this uncertainty, comes unprecedented risks…
- Perhaps one of the biggest unknowns is, in a world characterised by lack of physical attachment to this earth, which legal systems and regulatory frameworks will govern the metaverse – how will jurisdiction be ascertained?
- Whilst there are certainly aspects of existing laws that may apply to the metaverse, it is likely that the existing legal framework will be insufficient to fully control and regulate the metaverse – new laws and law reform will be needed. That in itself will be a challenge; it is difficult to legislate for a concept which, at the present time, exists largely within the confines of our imagination, and will be borne out of technology that, in some respects, is not yet in existence.
- And as for (real) estate specific concerns (to mention a few) –
- How will ownership be ascertained, transferred and evidenced? Will there be a central repository of ownership, and who will ultimately be responsible for that? What title protections will be afforded in the metaverse – who will be in a position to provide guarantees of good and marketable title?
- Will interaction between different plots in the metaverse be necessary – will there be a need for easements and covenants?
- Is (crypto) cash necessary, or will financing be available?
- How will assets in the metaverse be used and managed – will there be subletting, assignments, use classes etc.?
- How will transactions in the metaverse be taxed, and under the regime of which national state?
- It is also likely that greater interaction between property and intellectual property legislative and regulatory regimes will be required, anticipating that many challenges are likely to stem from copyright, patents and data for example.
The metaverse is speculative, and there are no guarantees, except perhaps that the metaverse is (in one way or another, but maybe not in a manner that we can currently comprehend or anticipate) coming down the track, and we need to be ready. It remains to be seen how law and regulation will tackle these changes, and whether legal infrastructure keeping up with technological advancement is a battle that can be won.