In 2021, an investment firm bought 2,000 acres of real estate in a metaverse platform called The Sandbox. The firm paid about USD 4m for this virtual land by buying 792 non-fungible tokens on the Ethereum blockchain. The 792 NFTs purchased were equivalent to 1,200 city blocks.
This isn’t the first time that virtual land has been bought and sold. In 2010, a man known as Mike Bergen paid USD 100,000 for a Second Life island. And more recently, in 2019, a user on the Decentraland platform spent USD 175,632 on a parcel of land.
The burning question is, did the investment firm really buy it? This is because the issue of legal ownership in the metaverse is very complex.
For starters, it’s important to understand that the metaverse is still in its early stages of development. So while there are many platforms that allow you to buy and sell virtual land, there is no legal framework in place to protect your investment.
This means that if the platform on which you’ve bought your land shut down tomorrow, you could end up stranded.
Legal ownership of NFTs in the metaverse is based on two things: decentralization and interoperability. Some claim that tokens provide indisputable proof of ownership on the blockchain, which can be used across various metaverse apps, environments, and games. Decentralization allows buying and selling of virtual items can be done on the blockchain itself for whatever price you want, without any intermediaries.
This is different from traditional virtual worlds, like Second Life, in which the company that owns the platform also sets the rules for what can and can’t be bought and sold. While this might sound like a good thing, there are some drawbacks to decentralization. First, it’s still unclear how taxes would work on virtual land or NFTs.
When a user purchases an NFT in the metaverse, the purchase is recorded on a blockchain. The blockchain is a digital ledger where transaction records cannot be deleted or altered. The purchase assigns the user ownership of the NFT, which is then stored in a crypto wallet. The user can do whatever they want with the NFT, including selling it, trading it, or using it to represent themselves in the metaverse.
However, because there is no central authority regulating the metaverse. The legal status of virtual “owners” is very complicated. Currently, ownership of metaverse assets is not governed by any property law but rather by contract law. This means that the terms and conditions outlined in the contract of sale determine who owns what.
The second drawback is that there is no guarantee that your virtual land or NFT will retain its value. In fact, prices can fluctuate wildly, and there is always the risk that the platform you’re using could become obsolete overnight. For example, what would happen to your virtual land if the company that created the metaverse went out of business?
The third and final drawback is that you don’t have full control over your metaverse assets. If the platform you’re using ever decides to change the rules or even shut down, there’s nothing you can do about it.
Advances in technology alone will not pave the way for true ownership of digital assets in the metaverse. We need a new business model that allows users to maintain control over their assets, regardless of the platform they’re using. Only then will we be able to create a truly decentralized metaverse. Legal and regulatory reform coupled with technological advancement is needed before the metaverse can mature into what it promises to become.
Only then will we be able to create a truly decentralized metaverse. Until then, the Metaverse will remain in the hands of those who control the servers.