Buying Property in the Metaverse

Originally based on the 1992 science fiction book Snow Crash, metaverse (a blend of “meta” and “universe”) refers to the internet in an immersive virtual reality form, where users can connect socially using wearable headsets. In the metaverse, participants can use avatars to circumnavigate virtual spaces that can be used for social interaction, business, commercial trade, and entertainment.

Though still relatively in its early stages, the technology behind the metaverse is viable enough to allow users to purchase virtual real estate. With anticipated future wide-scale adoption of virtual reality headsets, accessible internet in developing countries, and the ever-increasing interconnectedness of the internet backbone, many speculators are looking to metaverse real estate as a viable investment vehicle.

Intending to simulate real life, virtual land in the metaverse may be used for dining, shopping, musical events, sports, and almost every other imaginable retail or recreational activity. While real-world land requires earth, brick, and mortar to be viable, metaverse real estate is developed using 3D engines and programming native to most video games. Buyers can pay for virtual space using US dollars and cryptocurrencies like Bitcoin, MANA, Ethereum, and other digital assets.

Though the space cannot be physically occupied in the real world, users in the metaverse can set it as a virtual travel destination, and the owner of a space can place limitations on who may be able to enter and what, if any price, users must pay to gain entry or tenancy.

How Can I Buy Real Estate in the Metaverse?

Because the metaverse is decentralized, there is no central authority where digital real estate is developed, exchanged, or occupied. A person or company can build their own metaverse platform and offer users the opportunity to conduct activities on that platform.

For example, platforms like the Sandbox and Decentraland allow users to create content, explore different spaces, and engage in commercial “real estate“ trade in virtual worlds. Visitors can purchase virtual real estate on these platforms using NFTs (non-fungible tokens) which are a form of digital data stored on the blockchain that allows users to identify ownership of online properties using digital wallets like Metamask, Coinbase, and Binance.

NFTs differ from cryptocurrency in that their value is derived from the digital file that they reference, given that unlike currencies, NFTs are used to prove ownership of an underlying item.

Another way to purchase digital land across the metaverse is to engage in resellers markets. Much like real estate brokers in the physical world, these third-party markets allow buyers and sellers to list and bid on virtual properties that may be available for sale on the various metaverse platforms.

Examples of resellers markets include OpenSea and NonFungible, though many competitors in the NFT marketplace exist given the decentralized nature of metaverse property.

How Does Real Estate Law Apply?

It does not. A common misconception among users is the notion that metaverse land across the digital world has the same legal protections as physical real estate that exists in the real world. Classical real estate law is founded on centuries of well-established legal principles that guide the ownership and operation of land and improvements made thereupon. These principles protect landowners and allow the public at large to purchase or rent valuable locations for enjoyment and use, accordingly.

Real estate law across the various states concerns itself with real-world use of land because mankind’s history has always revolved around physical existence and use of the environment to provide for subsistence and safety. Though each jurisdiction might have nuanced laws about the treatment of land and buildings, ownership is established through chains of title whose records are maintained in the local county registrar where land is situated. Though the metaverse attempts to mimic this using virtual blockchains that establish ownership through public ledgers, the law is a long way away from treating virtual spaces as actual real estate.

Metaverse enthusiasts should also understand that ownership of NFTs that purport to establish property rights to virtual land do not confer any legal rights upon owners. While NFTs’ use of the blockchain is a clever way to establish authenticity and provenance, an owner of an NFT does not own any intellectual property rights, such as patent, copyright, or trademark rights in the underlying information represented by the NFT.

At best, ownership in NFTs and virtual real estate may be recognized by basic principles of contract law; that is, so long as something of value (“consideration”) is exchanged between two parties in relation to an item of virtual property, contract law may recognize that each party has a legal duty to the other in the way of fulfilling the terms of that contract and ensuring that both sides receive the benefit of the bargain or exchange.

Risk-benefit Analysis

Because the metaverse and the technologies powering it are still in their relative infancy, it is difficult to predict if the metaverse will still be around even five to ten years from now. Additionally, given the largely nonexistent legal backbone upon which metaverse properties are developed and exchanged, ensuring that transactions are safe and fair may be challenging for platform operators and users alike.

Notwithstanding the murkiness of the technological and legal grounds upon which the metaverse stands, there is no doubt that the virtual property market has found strength in recent years. Owners of virtual lands who may have paid only pennies for certain metaverse real estate may find themselves flush with cash if speculators bid up property prices. Sometimes purchasing virtual property that is adjacent to metaverse land owned by a celebrity could itself bring intrinsic value to the investment, and the opportunities for growth certainly do exist given the long path ahead for this emerging technology.

On the other hand, the intersection of new technologies and unique products has historically lent itself to dangerous speculation. Where speculation exists, bubbles are ripe for the making—and there is no telling how much the virtual real estate bubble could grow before it bursts and takes down the entire metaverse with it.

The biggest risk to virtual land and the metaverse is the possibility that it might never enjoy the widespread mass-adoption that metaverse speculators hope will come about in future years. Older users might recall the Dot Com bubble and the frenzy of buzzwords around the infancy of the internet in the late 1990s and early 2000s; needless to say, it did not end well for many investors.

Therefore, while the metaverse presents exciting opportunities for users to discover the world in a new and unique way, investors of virtual real estate would do well to research their options and ensure that they minimize their risk before investing money into the metaverse. Though real estate law does not apply to virtual land, a discussion with a real estate attorney might be prudent for investors wishing to gain perspective on the novelty of the metaverse against the backdrop of classical real estate law. If the metaverse is here to stay, perhaps the law will evolve to recognize at least some aspects of its existence.