What does it mean to "own" something in the metaverse? Hardline crypto enthusiasts sometimes treat NFTs as ironclad proofs of ownership, far more secure than any bill of sale or property management system in the real world. On the other hand, naysayers are quick to discredit the potential value of storing purchases on the blockchain, and of digital assets as a whole. But when it comes to managing your most valuable digital assets, it's worth questioning both sides.
The prevailing idea is that NFTs are the most secure form of digital ownership, because they are decentralized and interoperable. This means they're not tied to a particular entity and can be applied anywhere. However, there’s two problems here. First, the legal protections for virtual properties such as NFTs are far from ironclad. According to João Marinotti, a legal scholar from Indiana University, NFTs don't fall under property law at all. Instead, they fall under contract law. In the metaverse, contracts take the form of terms of service agreements (ToS), and each platform will have their own ToS with their own boundaries on ownership, functionality, and asset management.
Second, NFTs are not the same as digital assets. They represent your ownership over a digital asset, sort of like a virtual receipt stored on a blockchain. While NFTs can’t be changed or erased, digital assets can be invalidated, rendered useless, or even confiscated if their owner violates the ToS of a given 3D world. So a banned user would still own the NFT receipt for their digital asset, but the asset itself would now be worthless and inaccessible. As we continue transitioning into virtual worlds with virtual belongings, the question of how ownership works in the metaverse requires attention from metaverse users and lawmakers alike.
First, a primer on NFTs. An NFT is a unique token that represents an object that you've purchased. When you buy an object, real or virtual, you're assigned a unique NFT which acts as a receipt for that purchase. Today, NFTs are a popular way to represent ownership over a digital version of a real world object, such as a piece of art. In the metaverse, however, NFTs will digitally represent ownership of a digital asset that doesn’t exist in the real world, such as a plot of virtual land or an article of virtual clothing for your avatar.
When you complete a purchase, that transaction is recorded on a blockchain. A blockchain is a digital ledger which no single person or entity controls, meaning the record of your purchase can't be altered or erased after it's been stored on a blockchain. As Glimpse CEO Lyron Bentovim has explained, “Blockchain technology is like a safe that's completely transparent. Everyone can see what was inside, so there’s public accountability, but only one person has the key to the safe.” One would assume, then, that once you buy a digital asset in the metaverse nobody can take it from you. Your proof of ownership for that asset is permanently recorded on a blockchain, and the NFTs themselves are stored in your personal, highly secure crypto wallet.
The problem is, most people assume that NFTs and digital assets are the same thing. As we’ve already mentioned, they are not. The NFT is only a receipt which represents your ownership of that asset. The digital asset itself is an item that will have some function in the metaverse, whether it's a visual asset like a wizard's hat or a virtual apartment you can hang out in. While NFTs are secure and unchanging, the assets themselves are potentially subject to a wide range of rules and restrictions which may make you regret your purchase.
Each world in the metaverse will be created and operated by a particular company or developer. This has created some misunderstandings around the decentralized nature of the metaverse. Although the metaverse as a whole will be decentralized, each individual world is currently its own centralized platform, with its own particular terms of service and/or end user license agreements.
This means that while assets may be visually interoperable, the function of each asset can differ wildly between platforms. (If you want to learn more about visual interoperability of assets in the metaverse, check out our recent newsletter on that subject .) Visuals are certainly valuable, but if you buy a digital asset which is priced according to its functionality only to find out it’s hardly functional anywhere, you may have seriously overpaid. While the NFT receipt is stored on a blockchain that’s not controlled by any company, the visual and interactive aspects of a digital asset are controlled by each particular platform.
The visual/interactive elements are the whole reason you'd want to own a digital asset in the first place, so that puts a lot of power into the hands of those particular platforms. It's not hard to imagine a world in which there are exclusivity deals between platforms and digital asset vendors, meaning certain assets would only be visually represented and interactive on a single platform, and would be functionally useless anywhere else. Here, an analogy helps: imagine if your Gucci sunglasses in New York turned into a $10 pair of convenience store glasses when you were in California. Even worse, imagine if they disappeared entirely outside of New York. This is what metaverse users need to be highly aware of when they complete their purchases, keeping in mind exactly where they plan to spend their time and show off their belongings in the metaverse.
Right now, the legal rights behind digital assets and NFTs are murky at best, and outright nonexistent at worst. Broadly speaking, crypto-properties don't enjoy the same amount of protections as real properties on the books. Until legal systems catch up with the rapid emergence of digital assets and NFTs, the rules governing digital assets will remain unique to each platform under their particular terms of service.
Terms of service are chock-full of elastic legal language which could derail the value of, and your ownership over, virtual assets. Thanks to phrases like "reasonable belief" and "interfering with user enjoyment," platforms are often well within their rights to ban users and disable the visual/interactive elements of their digital assets for breaking their ToS. You'd still own the NFT receipt for your digital asset, but it would become decoupled from the visual/interactive elements of that asset, rendering the NFT useless and effectively worthless.
It's worth remembering, however, that a lot of this is worst-case-scenario theorizing. Just because platforms have the ability to confiscate your NFTs doesn't mean they will, as these potential consequences are intended for each platform’s worst offenders. This is nothing new: companies today empower themselves with the ability to ban users who would disrupt or harm other users. When users are “permabanned” in a video game, for example, all of their in-game purchases are lost with their account as well.
Nonetheless, it's important to keep your wits about you as we continue transitioning into the metaverse. The rules of the metaverse are still taking shape, so staying tuned into the rules around digital ownership is crucial for owning digital assets in the metaverse.
Cameron is the Content Writer/Editor at The Glimpse Group. As a former academic researcher in the humanities, he blends his outside perspective as a relative newcomer to tech with Glimpse's industry-leading expertise to demystify the world of VR, AR, and the metaverse.