Metaverse is a term that is being discussed and explored daily, and although the concept is fascinating and a lot of things are happening, the area is very fluid. People still have not come to a complete understanding of what it is. In other words, it is a developing area that changes every day. The topics of virtual reality, augmented reality, cryptocurrency, blockchain technology, and the like are fascinating. It’s hard not to want to get involved with what appears to be a potentially lucrative and exciting idea.
Furthermore, obtaining cryptocurrency and NFTs is also making waves and getting much attention. Every day you hear stories about celebrities and billionaires investing in NFTs, crypto, and metaverse real estate. What does it all mean? It can be overwhelming and pretty mysterious if you don’t work in the tech industry. While this article is not an informative piece on all that is going on in the metaverse, or we should say metaverse, it is a basic primer on what is happening with real estate law in the metaverse right now. So read on to get an idea of what you can expect from real estate law in the metaverse.
What is the Metaverse?
There is no “one” Metaverse; there are several. Some of the most popular and well-known metaverses are Decentraland, Illuvium, and Sandbox. A lot of the time, when someone uses the title metaverse, they just mean cyberspace, virtual reality, or augmented reality. There is no one kind of metaverse, and the term gets thrown around a lot. One way to differentiate different metaverses is how they are constructed. A metaverse can be based on blockchain technology or what is known as “off-chain” technology.
Blockchain technology: there are four types of blockchain technology, public, private, hybrid, and consortium. For the purposes of this article, we will stick to the basic definition, which is that blockchain is a shared, immutable ledger that records the transaction, such as the exchange of tangible and intangible assets. Tangible assets would be things like real estate and cars. Intangible assets would be a thing like intellectual property and patents. Since the shared ledger is immutable, the information is considered to be more secure. Blockchain ensures that information is received more quickly and accurately, reducing risk and saving everyone money in the long term.
Off-Chain Technology
This one is simpler; it is any transaction that does not take place in the blockchain. A third party typically takes on the role of guarantor, who guarantees the transaction.
If a metaverse is based on off-chain technology, an example would be a video game that is created and then sold for use by consumers. A blockchain metaverse would be like a virtual reality platform where a user could enter via computer-aided technology and experience a virtual or augmented reality. Since cryptocurrency is now a reality, you can purchase things in a blockchain metaverse, like “real estate” and digital products.
In a metaverse, the area “inside” the metaverse is divided into discernable areas that can be purchased. In other words, there are lots or parcels of real estate. The purchase of real estate is made with cryptocurrency, so you’ll need to understand crypto before trying to start and invest in metaverse real estate, which this article will not cover.
When a party purchases real estate in the metaverse, the information is coded onto what is called a “non-fungible token.”
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Non-fungible Token
A non-fungible token, or NFT, is a cryptographic asset in blockchain technology. A NFT has a unique identification code and other metadata that differentiates them from other NFTs. For the layperson, metadata is data that describes other data. They cannot be traded, and so far, it appears that they cannot be forged. A way to think about NFTs is in relation to cryptocurrency. All cryptocurrency “looks” alike; for instance, one bitcoin looks like the next bitcoin, and all NFTs look different. This is part of the extra security that blockchain technology offers to people who deal in fast, accurate information that is highly secure.
So, once you have purchased real estate inside the metaverse, you will have your NFT and, therefore, proof that you own that portion of that particular metaverse. Your NFT will function in that metaverse the same way a deed to real property does in the real world.
Where Does Real Estate Law Fit in the Metaverse?
So now that you have purchased your piece of virtual reality and you have your “deed” compliments of your NFT, what are the laws related to this new piece of virtual real estate?
Ownership Rights
You now have complete ownership of that piece of virtual reality, and you can dispose of that property in the same way that you could dispose of real property here in your physical world. You have the right to sell, lease, develop, or do nothing with it. It is the same as having a lot of land in physical reality, and it is 100% yours.
You Can Develop your Virtual Real Estate
The most recent trend is for someone to purchase property in a metaverse, get their NFT, and then develop it for use in advertising (like renting the space to a virtual billboard), for commercial purposes like virtual storefronts, or for holding events. In other words, owning property in the metaverse can potentially be very lucrative. So many people are interested in purchasing real estate in the metaverse that there is now financing offered for the virtual purchase, not unlike a mortgage. It does not appear that any zoning laws could apply to real estate in the metaverse, so you can make your property commercial and most likely do, considering there is money to be made with it.
You Can Take out a Mortgage to Purchase and be Foreclosed On
Just like you can do in physical reality, you can obtain financing to purchase real estate in a metaverse. Your NFT will be your collateral, and the company will loan you the crypto to purchase the real estate. Like with real property, the lender will technically own your NFT until the loan is paid off. If the borrower defaults on the loan, the lender can click a button to foreclose on it. The “foreclosure” will transfer the NFT out of the escrow account and into the lender’s virtual wallet. There is no judicial foreclosure at this time. While there may be a more complicated foreclosure process in the future, right now, it’s just the click of a button, and the only upside is that you are not out of a physical home, and eviction is not an issue. Nonetheless, a mortgage for a virtual property is still a legal agreement, and you should consult with an attorney before signing anything.
So that is real estate law in the metaverse today. Again, this is a highly fluid and developing area, so it is likely that a year from now, there will be other laws or restrictions on how a party can utilize their slice of the virtual world. It is indeed an exciting technology area, and undoubtedly there will be new metaverses with virtual property to be purchased. If you are considering taking out a mortgage on a piece of virtual real estate or want to look into developing it, feel free to give O’Flaherty Law a call, we would be happy to help you.
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