The Metaverse is coming: Is the legal market prepared?

Are you ready for the Metaverse? Probably not, but please bear with me, because the legal implications will be enormous. Open your creative mind first, and at the very end apply your critical thinking legal intellect. Here we go.

Originally published on Thomson Reuters Institute.

Imagine, if you will, a world resembling our physical one, but a completely virtual, immersive, colorful, all-encompassing one with land, rivers, houses, farms, people, animals, full cities, stores, businesses, concerts, and everything else contained in our physical world. Sauntering down a bustling city street, minus the smells, is as easy as walking on a moon that orbits an earthlike place. Platforms with full replication of our physical world are being built through a wearable device to create this Metaverse. Why? That seems a tad ridiculous.

Yet, before the iPhone was launched 14 years ago, we didn’t imagine the myriad of things we could accomplish by simply touching a piece of glass-faced, hand-held technology today. It would have been a leap of faith to see where we sit now. Thus, the Metaverse is that next leap.

Over the next 18 months, following an era of Zoom and Teams virtual meetings on laptops and mobile devices, Apple will be releasing the first mixed or virtual reality headset, allowing for people to interact virtually. Initially the focus will be on new Zoom-like meetings with far more immersive business engagements, but then it gets more profound. Wait for it.

MetaverseConcept of virtual reality glasses

Why now?

The Metaverse, or Web 3.0, is developing, but what led us here? First came layer one: blockchain, an immutable database to store information, in concert with the proliferation of cryptocurrencies, an ability to transfer value akin to currency initially, but later representing all assets. The tokenization of assets is a seminal concept and means that anything physical, or more important in this instance, digital, can be proven and has authority via code on an immutable ledger.

The latest manifestation of this authenticated representation of ownership are NFTs (Non-Fungible Tokens), and their popularity is the slippery slope of the Metaverse. Initially, people are buying digital art. In building out the Metaverse, art will be displayed on the walls of homes. However, the assets, living in smart contracts on the blockchain represent all assets. Homes, offices, land and even designer clothing of this world — legally represented by deeds, contracts, and leases — have been tokenized. This means you can buy digital land, homes, and other objects on a platform like OpenSea, to prove you own it. That value creates a network effect, enabling interactions within an ecosystem, and therefore a new Metaverse (world) is born.

MetraverseDigital land for sale on Decentraland

Indeed, OpenSea is just one of several marketplaces where individuals can buy the future of asset ownership in the Metaverse. All asset ownership, both digitally and physically, could be ported over to an NFT on blockchains. All of these critical pieces are then layered on top of a platform of animation — the actual space inside the headset, which has been with us for many years. It is the asset tokenization that makes this paradigm shift most pivotal. Transactional attorneys should beware, and litigators should feel their eyes widening at the possibilities ahead.

The virtual spaces being developed have cities in which you can buy almost anything. Land, upon which you can build your house, then you can fill that house with pieces of art (via NFT), and wear an outfit that is a verifiable Ralph Lauren suit with Nike shoes. The concert you attend requires a ticket (another NFT), and the subsequent music you want to purchase is also digitally saved and copyright enabled. Again, all of this is purchased from companies with underlining NFT ownership.

These digital worlds will likely be our future in the next decade, and a substantial amount of your time will be inside of these worlds. I know, it’s terrifying. If you are skeptical, however, note that OpenSea processed transactions of more than $3.3 billion in August alone, and this is just the beginning.

In the Metaverse, people will interact, transact, own assets, have relationships, build things and companies, create intellectual property (IP), have copyright issues, and advertise. Further, crimes may happen, insurance likely will be developed, and a massive host of other IRL (In Real Life) concepts that now all now require will evolve — and that will require legal professionals to be involved.

Not to mention the scaling of DeFi (Decentralized Finance), which has already begun and will continue to ramp up. Clearly, this is a burgeoning market. While I have been engaged in this space for several years, a recent white paper from Reed Smith on the Metaverse underlined its importance for the legal industry. It is a worthy read if you wish to continue down the rabbit hole.

What’s next?

What is on the horizon as we move into the Metaverse? DAOs, for one,

DAOs (Decentralized Autonomous Organizations) are entities that have been built by humans. Likely a business initially, but once the code has been written, the code acts as the law and it runs the business autonomously. These DAOs will proliferate both inside, but more importantly for the foreseeable future, outside of the Metaverse. They are already very successful, supporting $25 billion on one DeFi DAO right now. (I will examine the magnitude of DAOs in an upcoming post.)

The implications of the Metaverse for the legal community and within the regulatory community as well as every other facet is enormous. While this space is being built, it is still early. Over the course of the next several years, the Metaverse and all its implications will move from the fringe to a more important arena for lawyers to contemplate and eventually address. Now is time for those lawyers to apply their critical thinking legal intellect.

Podcast: The Hearing – Stevie Ghiassi, Co-founder Legaler and Legaler Aid

Question: What do the Iranian national football team, NFTs, Hotel Rwanda and tennis great, Andy Murray have in common?

Answer: Stevie Ghiassi, Co-founder of Legaler and Legaler Aid. And my guest this week!

In this episode, Stevie chats with me about his unlikely journey from running a chain of souvenir shops to becoming a legal tech entrepreneur. He also talks about the important work that Legaler Aid is doing, and ways in which legal tech and blockchain have helped them pivot after Covid took away traditional fundraising streams.

Yet again we’re seeing innovative ways that cryptocurrency and blockchain are being used, and how they offer real opportunities for the legal industry.

Apple:

https://podcasts.apple.com/us/podcast/ep-78-stevie-ghiassi-legaler/id1389813956?i=1000524478029

Google: https://podcasts.google.com/feed/aHR0cHM6Ly9wb3J0YWwtYXBpLnRoaXNpc2Rpc3RvcnRlZC5jb20veG1sL3RoZS1oZWFyaW5n/episode/aHR0cDovL2F1ZGlvLnRoaXNpc2Rpc3RvcnRlZC5jb20vcmVwb3NpdG9yeS9hdWRpby9lcGlzb2Rlcy9FcDc4X1N0ZXZpZV9HaGlhc3NpX21peGRvd24tMTYyMjgxMTgwNDQ2MjA3MzUyNi1NekkyT1RFdE56VTVNelkxTkRBPS5tcDM?sa=X&ved=0CAUQkfYCahcKEwjAm42r05XxAhUAAAAAHQAAAAAQCg&hl=en

Non-Fungible Tokens (NFTs): Asset ownership via blockchain rockets into legal

In a two-part series, we will look at Non-Fungible Tokens, explaining what they are and how they will impact numerous industries; and how decentralized finance (DeFi) is critical to understanding NFT’s importance within the legal industry.

Originally published on the Legal Executive Institute.

By Joseph Raczynski

Welcome to the early days of where blockchain goes mainstream, and the legal industry needs to take notice.

While Non-Fungible Tokens (NFTs) have been around for several years — remember CryptoKitties or even the original NFT, called CryptoPunks? Even if you don’t, NFTs have officially exploded into popular culture, begging the question: So, what are they?

A Non-Fungible Token is a token stored on the blockchain, which itself is a secure distributed database with redundancy, immutability, and clarity into tracking data or ownership. A token proves ownership of an asset. For example, a deed to your house is a sign of ownership to that plot of land and building. In the case of the first digital token, Bitcoin, a single Bitcoin is the title of ownership to the underlying value of the Bitcoin.

The best part about a token on the blockchain is the ability to track ownership and therefore authenticity, undeniably proving ownership.

CryptoPunk #7129 Sold for $90,000 recently

Fungible refers to an asset that is easily exchangeable. In the classic example, a dollar is very fungible — you can hand a dollar to me in exchange for some gum, and I can then re-use that dollar for a can of soda. The physical dollar maybe different because I swapped with another in my wallet, but it is easily replaceable and exchangeable, so it is fungible.

Now, it gets interesting. A non-fungible token is a unique token that is not easily exchangeable or replaceable with another. With the mania that is occurring with NFTs, the best example is with art. Recently, Mike Winkelmann, known as @Beeple, a renowned artist who has worked with Nike and Apple, sold 20 pieces of his own work on the digital marketplace Nifty Gateway for a total of $3.5 million. And in the latest eye-opener, he sold a collection of many of his works combined into a masterpiece, titled EVERYDAYS: THE FIRST 5000 DAYS at Christie’s for $69 million. These transactions occurred on Ethereum, the primary blockchain platform of record for storing value, but Winkelmann’s art itself was simply digital images.

With the NFTs, we are proving that rare and scarce representation of things can create value, and that value can be captured on the blockchain. Let your imagination run wild for a moment: What this means is that nearly anything and everything that is represented digitally could also carry provable value.

Would you pay 2.5 million for ownership of Jack Dorsey’s first Tweet?

For example, Jack Dorsey, CEO of Twitter, is in the process of selling his first Tweet, the original Tweet of Twitter. It is, as of this writing, estimated at a value of $2.5 million and projected to go higher. Why might you ask? Well, it is feasible to collect royalties on that tweet once you own it; or, you could hopefully resell it in the future. Lastly — and again, I beg your imagination for this thought — in the not too distant future, with people living in virtual reality, these pieces of art will have a home inside those worlds, too. Other examples, the NBA has now gotten in on the action by leveraging NBA Top Shot, selling limited edition, finite numbers of virtual basketball cards, including a short clip of a LeBron James dunk, which recently sold for more than $200,000.

In the past, I discussed asset tokenization, which is the simple idea that nearly anything could be represented on the blockchain as having value. It this is now happening. This could be a painting, your car, a house, or even a Tweet. Essentially, if you have something original, that you can then prove is yours, that item can derive value.

Through the lens of the legal kaleidoscope, we are entering a complicated but colorful place, and there are an incredible number of areas this will touch. As technology push us to rethink what we know, NFTs shall do the same. In this nascent area, contemplation about the impact on both the practice and business of law will hit multiple fronts. Here are just a few:

  1. Intellectual property — NFTs carry a huge target on their virtual backs from the IP angle. At the heart of these tokens is uniqueness and ownership, and that means that eventually, litigation will follow.
  2. Trust & estates — Possession comes in the form of a digital wallet. Access to the private and public keys will need to be accounted for and administered for these sorts of new assets.
  3. Anti-money laundering — One worry, at the moment, is that the buying and selling of these digital assets could be a way to disguise or launder dirty money. Although the underlining technology of the blockchain is leveraged, a general misunderstanding of its complexity makes it a temporary safe haven for the scofflaw.
  4. Tax & accounting — Millions of dollars are being transferred, soon to be billions; and those in the tax & accounting field will need to better understand this space to assist their clients. How are sales treated? What does appreciation impact? And how can we account for the transactions?

NTFs are likely here to stay. They will continue to evolve, however, representing nearly every assets class going forward. Law firms, corporations, tax & accounting firms, and government agencies will need to pay attention to this space in order to account for how this new technology impacts their individual [digital] pictures of the law.