The term “metaverse” is a combination of “meta” and “universe.” This new concept allows users to interact with each other in virtual worlds and buy and sell names, goods/services, properties, and avatars. They can also organize, host, and attend events in virtual worlds.
The consumers will be using blockchain technologies and digital currencies. Blockchain is a database that includes network computers that share information across the internet. For example, Bitcoin uses blockchain technology to update its ledgers. So, several of these newer platforms are powered by blockchain technologies that use digital currencies and non-fungible tokens (“NFTs”) which allow a new type of decentralized digital asset to be designed, owned, and monetized. The NFT is a virtual asset that promotes the metaverse. It’s an intangible digital product that links ownership to unique physical or digital items (e.g., artistic work, real estate, music videos). In other words, each NFT cannot be replaced with another one because it’s unique and irreplaceable. So, for example, if you own an NFT, it will be recorded on blockchain and you can use it for electronic transactions. In fact, with NFTs, artifacts can be tokenized to create ownership digital certificates for electronic transactions.
What are the potential legal issues?
There’s a probability of committing “fraud” when it comes to electronic transactions. In California, the applicable statutes for fraud, deceit, and misrepresentation are Civil Code §§ 1572 and 1709-1710. For example, Civil Code section 1709 states: “One who willfully deceives another with intent to induce him to alter his position to his injury or risk, is liable for any damage which he thereby suffers.”
Albeit, with the advent of these sophisticated technologies, the commission of fraudulent transactions may be more difficult. However, the culprits usually find a way to exploit the technical weaknesses to their own advantage. In general, the law is several steps behind technology which will probably remain the case ad infinitum. This is true because technology advances in a rapid pace and the law is usually reacting to it. The judicial branch creates new laws by making court decisions at the administrative, state, and federal levels. The legislative branch proposes and promulgates bills as a reactive measure in most cases. For example, most, if not all statutes were proposed and promulgated as a result of a major issue such as cyberstalking, cyberbullying, revenge porn, kidnapping, or child pornography.
There is also a probability of committing “theft” or “conversion” in the digital world. We should not be misled by thinking that just because we’re operating in the so-called digital world, there is no way to lose funds or assets. Theft – which is also called “conversion” in civil courts – occurs when the victim’s funds or assets are taken without consent. Now, there is probably a lesser chance of committing theft in the metaverse. However, we are fairly confident the culprits will eventually find a way. In California, the elements for conversion are as follows: (1) plaintiff’s ownership or right to possession of the property; (2) defendant’s conversion by a wrongful act or in a manner that is inconsistent with plaintiff’s property rights; (3) plaintiff did not consent; (4) plaintiff was harmed; and (5) defendant’s conduct was a substantial factor in causing plaintiff’s harm. Lee v. Hanley (2015) 61 Cal. 4th 1225, 1240; Shopoff & Cavallo, LLP v. Hyon (2008) 167 Cal.App.4th 1489, 1507. To prove a cause of action for conversion, the plaintiff must show the defendant acted intentionally to wrongfully dispose of the property of another. Duke v. Superior Court (2017) 18 Cal.App.5th 490, 508.
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