About that Metaverse Property You Bought—You Might Not Own It

There’s growing hype around the so-called metaverse as a new place to market and where the smart money needs to snap up virtual real estate. Except, even as some startups say they’re looking to buy, buy, buy, it’s unclear how this concept of immersive virtual worlds will play out in real financial life, as they ultimately must.

Those looking to dip their toes in the water might want to look at questions that João Marinotti, an associate professor of law at Indiana University has raised. The “legal scholar who studies property law, tech policy and legal ownership” says that what most people think of owning real estate in the physical world is significantly different than in the virtual one. And while he was noting concerns and wariness that consumers should have, the same issues are critical for commercial real estate professionals.

The fundamental difference is what you purchase in the metaverse and what legal property rights it entails. Purchasing a “property” means buying what is called a non-fungible token, or NFT, and keeping it in a crypto wallet. These are digital certificates using blockchain and cryptography technology that say you are the “owner” of some digital thing. That could be a spot in a virtual world or include something more complex, like the right to control a lease on a multifamily unit for a pre-defined time, as was done last year for a building in San Francisco.

However, the NFT is not generally identical to a digital item, like a piece of art, a video clip, or that storefront in a digital world.

“Even experts conflate NFTs with their respective digital goods, noting that because NFTs are personal property, they allow you to own digital goods in a virtual world,” Marinotti writes.

But the NFT is not the end of legal entanglements in the metaverse. First, there is no single metaverse. Instead, there are and will be independent virtual worlds and none have claims on the other. If you take a property in one world—say that  fancy storefront—someone could have something similar in another digital location.

Then there are the rules of any given metaverse, which is a commercial undertaking that requires anyone, including CRE professionals, to accept a lengthy and complex license agreement and terms and conditions of use. The NFT, which lives on a crypto blockchain distributed ledger somewhere, is not the same as the digital goods on a platform and doesn’t include the aspects that people experience online. The platform could, if it wished, legally disconnect the link between the NFT—which is like an address pointing to what you think you own—and the digital property. That leaves you with the NFT but nothing in that particular metaverse.

It could be like being up the creek without the creek. Before signing off on some fabulous virtual real estate, check with lawyers who know the lay of the land and be sure that what you actually get is what you expect.