Metaverse regulation: How to govern a virtual society?

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  Quantumrun Foresight
• January 24, 2024

Insight highlights

New legal frameworks are needed to address the metaverse's unique challenges, including intellectual property, asset management, and privacy. The rise of NFTs and virtual assets requires tailored regulations, with considerations for securities law and taxation. Ensuring user safety against harassment and disinformation is also essential. Effective regulation could increase trust and investment in the metaverse, spurring innovation, diverse participation, and sustainability. Global collaboration is key to developing secure, standardized regulations for this evolving virtual space.

Metaverse regulation context

Although numerous existing laws may pertain to the metaverse, their implementation still raises questions and concerns. In some instances, the current legal framework can be applied clearly and effectively; however, courts face novel challenges in more complex cases. The range of regulations necessary for maintaining order in the metaverse could give rise to many legal issues. 

As Web 3.0 initiatives gain traction, disputes over intellectual property (IP) rights will likely become more urgent— a trend already evidenced by the growing number of IP conflicts involving the metaverse and similar projects. In 2017, AM General LLC filed a complaint against the publisher of Call of Duty for using its famous Humvee military vehicle design and trademark in its video game franchise. Ultimately, the US District Court found that Activision's use of brands in their video game was protected under copyright law because it had artistic value. Moreover, the advent of digital assets, such as non-fungible tokens (NFTs) representing collectibles, has led to unexpected IP complications, including the extent to which NFT owners can utilize the content they have bought.

In addition to IP matters, the metaverse presents challenges to asset regulation, tax codes, behavior standards, privacy protection, and cybersecurity. The unique nature of virtual assets and transactions requires the development of comprehensive regulatory frameworks that cater to these new paradigms. Crafting appropriate legislation will help ensure the metaverse's stability and security while promoting a fair and transparent virtual environment for all participants.

Disruptive impact

As virtual assets in the metaverse grow, these blockchain-based investments could become subject to conventional financial regulations and laws. Assets created or sold through blockchain technology might be considered "investment contracts," which would fall under the purview of securities law. Cryptocurrencies and tokens are likely to be integrated into the virtual world, and as a result, they may be subject to regulation by various regulatory regimes. However, the US Securities and Exchange Commission (SEC) is currently grappling with determining how securities laws should be appropriately applied to these digital currencies and tokens.

Whether NFTs and other virtual asset sales are subject to state sales tax remains open. While several US states have already established rules for imposing sales taxes on digital items, they have not explicitly clarified whether such policies apply to NFTs in particular. Another dilemma revolves around the legal boundaries of behavior in virtual realities and who should be responsible for their enforcement. For example, gaming platform Roblox sued a content creator in 2021 regarding his violations of the terms and conditions of the company, and federal and state computer fraud regulations. He was accused of harassing participants on the platform.

As the metaverse expands, there is also potential for increased incidents involving propaganda and disinformation. Addressing these issues will require the development of complex global regulations that help maintain a safe and trustworthy environment for users. Implementing these regulations will involve collaboration among nations and a comprehensive understanding of the unique challenges posed by the metaverse.

Implications of metaverse regulation

Wider implications of metaverse regulation may include: 

• Enhanced privacy protection in the metaverse leading to increased trust in virtual spaces, fostering greater collaboration and interaction among users.
• As regulations create a more standardized and secure environment, businesses may be more inclined to invest in and adopt metaverse technologies, potentially leading to new markets and revenue streams.
• Governments using the metaverse to increase civic engagement, with regulations ensuring transparency and security in virtual town hall meetings, debates, or even online voting.
• Regulations addressing accessibility and inclusivity in the metaverse leading to a more diverse user base.
• New regulations spurring innovation as companies develop new technologies to comply with legal requirements, such as advanced encryption methods or more immersive VR experiences.
• Job opportunities shifting to those associated with the virtual world, such as real estate, content creation, and digital asset management.
• Metaverse regulations focused on sustainability encouraging the development of eco-friendly virtual technologies, reducing the environmental impact of digital infrastructure, and promoting more sustainable practices.
• The implementation of regulations addressing copyright and IP in the metaverse leading to clearer guidelines for content creators, potentially reducing disputes and encouraging the sharing of digital resources.
• Regulated virtual environments providing new opportunities for education and workforce training, with increased trust in the metaverse enabling the growth of online learning communities and virtual apprenticeships.

Questions to consider

• What regulations and safety measures would make you comfortable trying the metaverse?
• How might governments collaborate to standardize metaverse regulations?