Avatars, Ethics & Law: Navigating The Metaverse Paradigm

In this brave new realm, where human creativity rivals the concept of divine creation, the implications for law and governance are as boundless as the Metaverse itself

Since time immemorial, our sages have spoken of the world as Maya—an illusion, a transient reality woven by forces beyond human comprehension. If the universe is indeed the creation of a divine power, then humanity’s audacious endeavor to craft a parallel world, the Metaverse, seems both inspired and ironic. Traditionally, only divine beings have been believed to take on avatars, incarnating in physical form to interact with the world. However, in this digital age, humans are assuming a similar role, crafting avatars that traverse virtual landscapes, blurring the lines between the real and the imagined raises profound philosophical and legal questions. In this brave new realm, where human creativity rivals the concept of divine creation, the implications for law and governance are as boundless as the Metaverse itself.

As humanity delves deeper into this digital frontier, the Metaverse poses unprecedented legal challenges. Questions surrounding intellectual property rights in virtual creations, data privacy in immersive experiences, and jurisdictional complexities in a borderless digital space demand urgent attention. The laws governing our tangible world must now adapt to this intangible yet profoundly impactful reality, where the lines between creator, consumer, and regulator blur like never before.

Metaverse is the next generation of the internet. This is an immersive environment, a fusion of VR (Virtual Reality) & AR (Augmented Reality) that allows users to participate in social interactions in a similar manner like that of the real world. As digital identities and avatars redefine how we express ourselves, issues of representation, inclusivity, and discrimination come to the forefront. Who governs this new virtual world, and how do we ensure fair access and ethical use of technology? The Metaverse has the potential to democratize experiences but also risks creating deeper divides if unchecked. Addressing these concerns requires collaboration between technologists, policymakers, and society at large.”

The Convergence of the Metaverse

Jon Radoff, a prominent figure who has defined metaverse as “Something that is not 3D or 2D, or even necessarily graphical; it is about the inexorable dematerialization of physical space, distance, and objects.” Further, he has outlined seven key layers that will converge to form the metaverse:

• Experience Layer: Immersive 3D experiences, including virtual reality and augmented reality.
• Discovery Layer: Systems for finding and connecting with people, content, and experiences within the metaverse.
• Creator Economy Layer: Tools and platforms that empower users to create and monetize digital content.
• Spatial Computing Layer: Technologies that enable interaction with digital objects in the physical world.
• Decentralization Layer: Blockchain technology and decentralized networks that underpin the metaverse’s economy and governance.
• Human Interface Layer: Devices and interfaces that facilitate human interaction with the metaverse, such as VR headsets and haptic suits.
• Infrastructure Layer: The underlying computing power, networks, and storage that support the metaverse.

Regulation of Virtual Economies

The Metaverse is rapidly evolving into a vast and complex virtual economy, where users engage in trade using virtual currencies, purchase digital assets like Non Fungible Tokens (NFT’s) which are unique digital assets that represent ownership of real-world or digital items. They are built on block chain technology, which provides a transparent and secure way to track ownership and authenticity. NFTs can represent a wide range of assets, including digital art, music, gaming items, virtual real estate, and even physical items like collectibles or wine. However, this new digital economy presents significant challenges for traditional regulatory frameworks. For example, the purchase and sale of virtual land, such as on platforms like Decentraland or The Sandbox, raises questions about property ownership. While users buy these assets with crypto currency, the rights and ownership are governed by the virtual platform’s terms, not traditional legal systems. In March 2021, a virtual land plot in Decentraland sold for over $900000 raising concerns over taxation, asset valuation, and enforcement of property laws in a borderless, decentralized space.

In terms of taxation, governments are grappling with how to tax virtual transactions. Should NFTs be considered taxable assets? And how will virtual currencies like Bitcoin or Ethereum be taxed? The lack of a cohesive regulatory framework means that many transactions could slip through the cracks, enabling illicit activities like money laundering. Countries like the United States and Japan are already taking steps to regulate digital currencies and virtual assets, while others remain uncertain. The European Union’s Digital Finance Package, for example, seeks to provide clearer guidelines on digital assets and cryptocurrencies, yet gaps remain in applying them to the Metaverse.

Data Privacy and Security

The Metaverse also significantly amplifies concerns around data privacy and security. Unlike traditional internet use, where data is gathered through browsing behavior, the Metaverse collects highly sensitive personal data, including facial expressions, biometric data, and real-time movements. Companies like Meta (formerly Facebook), which owns the social VR platform Horizon Worlds, are collecting vast amounts of personal data to personalize user experiences. In one of the earliest controversies, Meta’s collection of biometric data for facial recognition in its platforms sparked global debates about user consent and privacy rights.

Under existing frameworks like the EU’s GDPR, companies are required to obtain clear consent from users before collecting personal data. But the Metaverse, with its immersive nature and interactive experiences, complicates this. Users may not fully understand what data is being captured or how it will be used, let alone how long it will be stored. Real-time, location-based data can be exploited for targeted advertising or sold to third parties, creating new avenues for privacy breaches. The 2023 scandal involving the VR Company Oculus (owned by Meta) revealed how users’ interactions in the virtual space were being tracked without sufficient disclosure.

India’s Digital Personal Data Protection Act (DPDP) could play a pivotal role in regulating these practices within the Metaverse, especially given the rapid digitalization in the country. However, the effectiveness of such regulations in the Metaverse remains untested.

Intellectual Property Rights

Intellectual property (IP) laws are already struggling to keep pace with the digital age, but the Metaverse creates new layers of complexity. In virtual worlds, users can create and sell digital art, music, clothing for avatars, and even experiences that are captured as NFTs. However, ownership of these creations isn’t always clear. A well-known example is the legal battle over the virtual art piece “Everydays: The First 5000 Days” by Beeple, which was sold as an NFT for $69 million at Christie’s auction house. The buyer purchased the NFT, but the IP rights to the underlying digital artwork remained with the artist. This distinction—between ownership of the token and ownership of the artwork—has confused many, sparking debates over whether NFTs truly represent intellectual property rights or just digital proof of ownership.

The proliferation of user-generated content on Metaverse platforms further complicates IP issues. For instance, platforms like Roblox allow users to create games, while platforms like Second Life allow for the creation of virtual goods. If these assets are later sold, who holds the IP rights—the creator, the platform, or the user who purchased the item? Traditional copyright law is not equipped to address these issues in the virtual space, and courts have yet to fully decide how digital content in the Metaverse should be protected.

Jurisdictional Challenges

The global, borderless nature of the Metaverse presents significant challenges for enforcing laws. Traditional legal systems are based on national borders, but the Metaverse exists beyond these limits. A user in India can interact with a virtual store owned by a company based in the United States or buy virtual real estate in a platform based in Europe. This raises questions about jurisdiction—where should legal disputes be settled? Which country’s laws apply?

In 2021, the Australian government proposed new regulations to address issues in the virtual space, including how to deal with online harassment and virtual crime in the Metaverse. However, the sheer complexity of cross-border law enforcement, especially when dealing with decentralized platforms, makes it difficult to track illegal activities, enforce IP rights, or even collect taxes. For example, the international reach of Decentraland’s virtual land sales means that national laws regarding property taxes or intellectual property may conflict with platform terms or local regulations.

Ethical Concerns and Governance

Beyond the technical and legal issues, the Metaverse presents profound ethical concerns that require new frameworks for governance. With digital identities becoming more significant, questions arise around privacy, inclusion, and representation. How do we ensure that virtual worlds reflect diverse experiences and don’t create spaces that marginalize certain groups? Platforms like Horizon Worlds, for instance, have been criticized for lacking sufficient mechanisms to prevent harassment and hate speech, forcing companies to rethink how moderation can work in immersive digital spaces.

Moreover, the decentralized nature of the Metaverse—especially when using blockchain technology—raises ethical concerns about who controls the platforms. Are decentralized platforms truly democratic, or do they simply replace one form of centralization with another? In this new frontier, governance will need to balance freedom of expression with accountability, while ensuring fair access and protecting vulnerable users from harm.

Future of Legal Practice

The emergence of the Metaverse is also reshaping the legal profession itself. Just as the internet transformed how lawyers practise, the Metaverse is creating new avenues for legal work, such as virtual courtrooms and AI-driven legal tools. Platforms like Virtual Courtroom are already experimenting with hosting legal proceedings in virtual spaces, offering an efficient way to conduct hearings while reducing costs associated with travel and logistics. This could have profound implications for the future of dispute resolution, allowing lawyers to represent clients in virtual spaces with greater ease.

Additionally, with the rise of AI-driven tools, law firms will increasingly turn to technology to navigate the complexities of the Metaverse, automating tasks like contract review, IP rights’ enforcement, and compliance checks. In fact, there’s already a growing demand for legal professionals who understand both the law and the technologies driving the Metaverse. Lawyers will need to become well-versed in both traditional legal principles and the emerging challenges posed by these virtual environments.

Disclaimer – The views expressed in this article are the personal views of the authors and are purely informative in nature.