In 2021, an investment firm bought 2,000 acres of real estate for about $4 million.
This sort of thing doesn't usually make financial headlines, but this time it's different because the land is virtual.
It exists only in a meta-cosmic platform called sandbox. Through 792 irreplaceable tokens purchased on the Ethereum blockchain, the company owns assets equivalent to 1,200 city blocks.
But it turns out that legal ownership in the metadverse isn't so simple.
A common and legally questionable claim among NFT enthusiasts is that NFT is a digital asset that can truly be owned in the metasexes for two reasons: decentralization and interoperability.
These two technical features have led some to claim that NFT provides indisputable proof of ownership and can be used in a variety of metascotic applications, environments, and games. Because of this decentralization, some people also claim that virtual goods can be bought and sold on the blockchain without the permission of anyone or any company.
In practice, the legal status of the virtual "owner" is much more complicated. In fact, the current ownership of metasurverse assets is not governed by property law at all, but by contract law. What companies call "ownership" in the virtual world is not the same as ownership in the real world, and consumers are at risk of being cheated.
Buy in the virtual world
When you buy something in the virtual world, your purchase is recorded in a transaction on the blockchain, a digital ledger that no one controls and in which the transaction record cannot be deleted or changed. Your purchase assigns you ownership of the NFT, which is just a unique string of bits. You store the NFT in an encrypted wallet that only you can open, and you can "take it with you" wherever you go in the metasverse. Each NFT is linked to a specific virtual item.
It's natural to assume that because your NFT is in your encrypted wallet, no one can take away your NFT-enabled virtual apartment, costume, or wand without accessing your wallet's private key. Because of this, many people think that NFT and digital objects are the same thing. Even experts conflate NFT with their respective digital goods, noting that since NFT are personal property, they allow you to own digital goods in the virtual world.
However, when you join the Metasurverse platform, you must first agree to the platform's terms of service, Terms of Use, or end user license agreement. These are legally binding documents that define the rights and obligations of users and metasverse platforms. Unfortunately, almost no one actually reads the terms of service. In one study, only 1.7% of users found and questioned "sub-assignment clauses" embedded in terms of service documents. Everyone else had fallen into the trap.
It is in these long, convoluted documents that the metasurverse platform articulates the legal nuances of virtual ownership. Unlike the blockchain itself, the terms of service for each metasurverse platform are centralized and completely controlled by a single company. This is a big problem for legal ownership.
Interoperability and portability are the defining features of the metasexes, meaning you should be able to carry your non-real estate virtual possessions -- your avatar, your digital art, your wand -- from one virtual world to another. But today's virtual worlds are not connected to each other, and NFT itself has no label, say, a magic wand. For now, each platform needs to link NFT to their own proprietary digital assets.
NFT and digital goods are two different things
Under the terms of service, the NFT purchased and the digital goods received are almost never the same thing.
NFT exists on the blockchain. On the other hand, lands, goods, and characters in the virtual world reside on private servers running proprietary code with separate, inaccessible databases.
This means that all the visual and functional aspects of digital assets -- the features that give them any value -- are simply not on the blockchain. These functions are controlled exclusively by the privately owned metasurverse platform.
Because of their terms of service, platforms can even legally delete and transfer your items by disconnecting digital assets from their original NFT identification code. Ultimately, even if you own the NFT attached to a digital asset, you do not legally acquire or own the digital asset itself. Instead, these platforms only give you access to digital assets, and not all the time.
One day, for example, you might own a $200,000 digital painting, and the next day, you might find yourself banned from using the metasurverse platform and your painting, which was stored in a private database, deleted. Strictly speaking, you still have the NFT on the blockchain and its original identifier, but it is functionally useless and economically worthless now.
This is not a far-fetched scenario.
This may not be a smart business move for platform companies, but it is not prohibited by law in any country. As with many other NFT and metasverse platforms, Sandbox reserves the right to terminate your use and even access to the digital assets you purchase, depending on the terms of use and advanced NFT Terms of use for $4 million worth of virtual real estate purchased on sandbox.
If Sandbox "has reason to believe" that you have engaged in any activity prohibited by the platform, it may immediately suspend or terminate your user account and remove your NFT images and descriptions from its platform. It can do this without notifying you and without any legal liability.
Even more shocking, many metasurverse platforms reserve the right to amend their terms of service at any time, with little actual notice. This means that users need to constantly refresh and reread the terms to make sure they don't engage in any recently banned behavior that could get their "purchased" assets, or even entire accounts, deleted.
Technology alone will not pave the way for true ownership of digital assets in virtual worlds. NFT cannot circumvent the centralized control that Metasverse currently has and continues to have under the terms of service of its contract.