More restrictive governments may also wish to limit or censor certain political content. We saw this, for example, when the P.R. China banned Nintendo’s “Animal Crossing: New Horizons” after the platform was used to stage digital protest for Hong Kong.
Traditional financial market regulation, such as laws related to securities, banking, financial infrastructure or money transmission may apply to especially digital assets in the metaverse. Some digital assets may be considered securities, and the application of securities laws would result in a complex set of rules governing sales, trading, and other activities. Further, inventing new digital products, creating new markets and service offerings in the metaverse may trigger licensing requirements (e.g., FinTech, banking, securities firm license).
At the same time, the anonymity, liquidity and borderless nature of digital assets make them very attractive for money laundering activities and illegal transactions such as blackmail, terrorist financing, tax evasion and cross-border transfer of funds. Furthermore, the unlimited nature of the internet and the world of metaverse makes it even more difficult for the authorities to trace these illegal transactions. The absence of traditional intermediaries in decentralized public blockchain transactions means users do not need to undergo Know Your Customer (KYC) or Anti-Money Laundering (AML) due diligence, nor to comply with sanctions. While this approach promotes a much more open type of financial innovation, policymakers are right to worry about the ease with which illicit transactions will be possible unless new regulation is developed and enforced.
Therefore, it is important to create a level playing field for all participants, no matter if they come from the existing financial markets or from the non-financial markets.
Antitrust laws in the real world protect consumers from monopolies and encourage healthy competition between businesses. The global and interoperable nature of the metaverse will inevitably encourage multiple companies to communicate and cooperate with each other to provide greater choice and a better experience for participants in the metaverse. Even though most stakeholders benefit from interoperability, companies must be careful to avoid antitrust violations when agreeing on any standards with their competitors and potentially sharing strategic information. Antitrust agencies are often suspicious of such information sharing. For example, the sharing of sensitive information such as pricing or the agreement to entrust the development of certain areas to one participant or a group of participants could imply serious competition violations.
4. Moderation and intellectual property (IP)
Another legal issue is that of moderation and IP rights. Decentralized spaces are not controlled by a regulatory authority, but still require strong safety and moderation processes. These are supported by machine learning and trust or safety agents trained to recognize unsafe user behavior and illicit activities.
At first glance, selling a claim to a unique piece of content such as an NFT may appear to be the same as assigning copyright. However, the issuer of an NFT will typically retain copyright and other intellectual property rights, and the buyer will be granted the right to hold the underlying asset. Care must be taken to ensure that the issuer's brand is protected through the sale and subsequent transfer of the NFT. Just as NFTs may currently represent real-world or virtual objects or any kind of values (e.g., granting and proving ownership rights for music, art, videos, real estate, gaming), the challenge lies in the determination of the ownership and attached rights related to NFTs in the metaverse.
If you collaborate with others to generate intellectual property rights, who owns the created rights? The principles of co-authorship and co-ownership are complicated and will be even more so in the metaverse where a community of stakeholders may have been involved. Against this background, the European Commission is considering legal reforms to clarify the position on “co-generated” data from new technologies (as well as machine-generated data).
5. Privacy and ethics
Given the immersive nature of user activity, tracking in the metaverse has the potential to become far more powerful than simple web-tracking. The integration of technologies such as VR or haptic feedback gloves involves processing of vast amounts of biometric data. Besides enabling a more powerful experience as systems learn about users’ movements and preferences, data could also be used to target users with more precise advertising, or to create profiles including sensitive information such as health-related issues. To counter this risk of privacy overstep, organizations such as Crucible are currently working on designs of open metaverses, which include privacy options, allowing users to remain anonymous in the virtual environment.