2. What Is the Metaverse?

This chapter will discuss the contours and aims of the Metaverse along with the development of virtual realities. Before discussing the legal difficulties concerning the meta-verse it is important to discuss its contours. In this discussion, an important distinction must be made between Meta and the Metaverse. The Metaverse is the 3D virtual reality that will be the central point of discussion. The Metaverse is an open-source, decentralized virtual reality that facilitates interoperability between different providers. It is the next step in the virtual reality saga, whereby virtual reality aims to take over large aspects of physical life. Meta on the other hand is the parent company of Facebook and other companies and aims to become a large provider of virtual realities connected to the Metaverse.

The discussion on how to regulate the meta-reality is not completely new. The Metaverse is in many ways comparable to other virtual realities. There are various developments of virtual worlds. The most popular and well-known virtual worlds are perhaps those offered through games. The development of games is complex. There are multiple layers and levels of development.¹ For the purposes of regulating the economy of the Metaverse, it is only necessary to examine three earlier developments.

The first is the offline virtual world. This world was developed through a variety of games, most famously, Super Mario. The user would buy the gaming software, install it on a device and the user could then experience a virtual reality. This reality however was limited to one user who was alone in the virtual reality. A similar development was the Sims a virtual game whereby users would play in a simulated real-life world. This development is the first leading to virtual realities based upon a real-world environment. With the development of the internet, the same type of gaming content became available online. The online virtual worlds allowed multiple players to connect and play within the same virtual world. These are called the Massive Multi-player Online games (MMO).

The MMO games form the second development in the gaming development. Unlike offline games, the MMOs allow interaction and cooperation between different players. The first graphical MMO in existence was Neverwinter Nights² a role-playing game based upon the board game Dungeons and Dragons. The MMOs currently include famous gaming worlds such as World of Warcraft (WoW) and Runescape. WoW at its height had an estimated amount of 7.2million users and currently has around 1.1million.³ These games are characterized by an online virtual world in which the players emerge themselves. Unlike the offline games, users can interact in the virtual environment. The users can earn and buy gold from the platform provider and use it to buy virtual assets. This game is closely related to the third development that of MMOs with economies with a link to the real economy.

The third development is that of MMOs with a link to the economy outside the gaming industry. The most famous of these games was Second Life, a game based upon simulating the real world. Second Life in 2020 had an estimated user number of 600.000.⁴ Whilst currently past its peak, the platform had 36 million accounts created and a daily transaction rate of 1.2 million dollars.⁵ There are two important differences between Second Life and the earlier MMOs. The first is the intention which is that of a simulation based upon the real world. The second is that of the economy in Second Life. Users can purchase coins with dollars but also earn them by working for another user or by operating a shop. They can furthermore exchange their virtual coins for fiat currency. This exchange created a link between the real economy and the virtual economy. There are several similarities between the Metaverse and Second Life.

Similar to Second Life users of the Metaverse can communicate and trade with each other. The platform allows the users to exchange virtual goods and services. The aim of the Metaverse, like Second Life, is to provide a reality based on real life. However, unlike Second Life the Metaverse will allow users to emerge in the environment using virtual reality glasses. Thus whilst walking through their own homes users can feel like they are in their work environments and meet other colleagues. The second large difference between Second Life and the Metaverse is interoperability. Due to its open-source code, the Metaverse will be able to connect to virtual environments provided by other companies. Second Life on the other hand was a closed virtual environment provided by a single source. To explain it in less technical terms, consider Legos.

Virtual reality such as Second Life can be compared to a world created by Legos. The world is provided by one company (Lego) which has created the world, decorations and characters. Whilst the same company can create different themes and different worlds, these are separated into different boxes. And whilst the Lego worlds are sold and offered throughout the world, the company is located in a small number of jurisdictions. Therefore the themes can be played throughout the world but in case there is an issue consumers can easily establish the applicable legal regime. The interesting thing about Legos is that you can connect the blocks. You could build one room and then build the next and attach it. Before Lego lost its patent only Lego created the specific blocks that could be connected, now these blocks are created by a number of providers. These worlds can be accessed from the Lego rooms or through their own door. When entering the other room, one leaves the world offered by Lego and enters one offered by a competitor. And whilst Lego used to create the entire universe, including decorations and characters, now these can be designed by competitors. This means that a company specialising in the creation of avatars might be providing the characters walking throughout the world. Another company can create the art hanging on the walls, or even individuals can make and hang up their own art. Thus creating a complex mix of different providers. Metaverse is like these Lego-built rooms but after Lego lost its patent. All environments are built upon the same baseplate (source code) but built by different providers. Adding to the mix of complexity is the strange jurisdiction. When Lego sells its products through a store, it generally falls under the jurisdiction of the store it sells through, there are fewer such clarities in virtual reality. Thus allowing for an almost infinite amount of jurisdictions to be part of the same virtual environment. Metaverse, however, is different from previous online environments in various ways.

The previous environments were purposed for a single function: entertainment. Whilst the gaming industry is a large business, only a few games remain successful for a long period of time. Virtual reality, however, is not the same as a game. Whilst virtual reality has its origins in gaming it has often different objectives. Second Life for example was not described as a game by its designers. It is a virtual environment where users can explore without gaming obstacles or objectives. Though its popularity decreased slightly, Second Life still had a $600 GDP in 2021.⁶ A virtual reality that is not perse designed as a game whereby obstacles should be overcome can generate long-term revenue. The Metaverse is considered more likely to be successful. As it encompasses various objectives.

The Metaverse can offer entertainment such as attending virtual concerts, plays or festivals. Such as the musical example given in the introduction of this book. However, the Metaverse can offer a wider variety of services. Such as online shopping whereby an avatar that looks exactly like its user can try on various items of clothing. These virtual dressing rooms can mimic the experience of trying on clothing but without the hassle of having to physically change outfits.⁷ This experience is made possible by what is described as the three illusions of virtual reality. Virtual reality provides the user with three illusions: place, embodiment and plausibility.⁸ The user will see the virtual surroundings of a dressing room through the mobile device. This illusion is strengthened by the ability of the Metaverse to respond interactively.⁹ The clothing can furthermore be programmed to fall as it would in real life and respond to the behaviour of the user. A skirt could digitally swirl in response to the user spinning through its own physical environment. The Metaverse thus facilitates online shopping by mimicking the physical benefits of examining goods with the easy accessibility of virtual reality. In addition to facilitating the online purchase of physical goods, the Metaverse will generate its own economy. The ownership of digital goods is expected to increase. As seen in the previous section, in earlier game environments the ownership of virtual items generates real value. Previous virtual realities differ from the Metaverse in an important aspect: Non-Fungible Tokens (NFTs). These are digital certificates of ownership that digitally guarantee a sense of unique ownership. The NFTs are considered to be the fourth illusion. These NFTs provide the illusion of digital ownership.¹⁰ They are mined on a blockchain and cannot be replicated. Through the use of NFTs digital scarcity is created. Scarcity is the foundation of the economy, yet it was not present before the introduction of blockchain technology.¹¹ The Metaverse therefore offers new opportunities to create a virtual economy. With virtual pieces of art that sell for high value. The most famous example of this is likely the Bored Ape virtual imagery which ranges in price from $63,000 to $13 million.¹²

In addition to generating a new type of economy, the Metaverse is also adaptable to generate new types of learning environments.¹³ The Metaverse can be used to provide a realistic type of training environment for vocational training. Such as providing a realistic environment for police officers or giving aspiring surgeons the possibility to practice in a realistic operating theatre. Metaverse applications can help students develop their soft skills in simulated environments.¹⁴ The Metaverse can furthermore be used in high school history classes to experience the Stone Age. Or to provide children with a classroom experience during a pandemic. Metaverse can facilitate attendance to training courses across the globe at low costs. A student from a developing nation could attend university lectures without having to travel. The university providing the course does not need additional physical space for the student. The additional costs of receiving that student are relatively low. In combination with AI, the Metaverse can be used to generate personal lesson plans for students. This could help provide a more tailored learning approach for the individual students.¹⁵ The potential educational opportunities of the Metaverse are large.

In addition to educational opportunities, the Metaverse can help provide tools for public bodies. Tools can be generated for urban planning.¹⁶ Whereby the designer, potential users and neighbours can virtually walk through the planned urban development. Similarly, tools can be generated for traffic planning. Or the design of a public facility such as a new sports centre or community building.

These are just a few of the potential applications of the Metaverse. The limitless opportunities make it that it is expected that VR and AR will increase global GDP by $1.5 trillion in 2030.¹⁷ The Metaverse is a large part of the VR experience. The Metaverse market is expected to reach $1.35 billion by 2025.¹⁸ Thus demonstrating the big expectations of companies and their willingness to enter the Metaverse.

The combination of different virtual world providers makes the legal governing of Metaverse more complex. This complexity is enhanced when considering some of the latest developments in financial technology such as cryptocurrency. The legislation will therefore have to take into consideration that there are different structural designs of transactions. However, before analyzing the different legislative conundrums the next section will first describe the potential payment structures available in the Metaverse.