Navigating the Metaverse

Navigating the Metaverse: Challenges and Opportunities for Businesses and Regulators

The concept of the metaverse, a vast interconnected digital world, is not fading away. It continues to gain momentum as more people embrace digital interactions, and businesses invest billions in its development. The metaverse presents a unique set of technical and organizational challenges, as well as opportunities, primarily driven by Web3 technologies like blockchain and cryptocurrencies. Deloitte's 2023 Digital Media Trends survey reveals that digital experiences are becoming increasingly meaningful, with many users considering them as substitutes for in-person interactions. This shift, especially among Gen Z and millennials, raises questions about the regulation and management of metaverse environments.

This blog summary delves into why the metaverse is different from existing digital spaces, the regulatory focus on content, conduct, privacy, and trade, and critical considerations for businesses and regulators as they navigate this evolving landscape.

Why is the metaverse different? The metaverse represents a new kind of digital space that mimics the physical world, complete with its own physics and embodied users. In popular social video games with millions of players, we already witness challenges related to moderation, behavior, harassment, and misinformation. As the metaverse expands to accommodate even more users, these issues could intensify. Questions arise about content ownership, liability for user-generated content, and the rules governing user conduct. The absence of a fixed location in the metaverse complicates the application of traditional legal categories.

The Regulatory Focus: Content, Conduct, Privacy, and Trade Regulators are grappling with the impact of digital technologies on content, conduct, privacy, and trade in the Web2 era. Content moderation, conduct monitoring, and privacy protection are vital concerns. However, as the metaverse blurs the lines between reality and the virtual world, these challenges become more complex. Content moderation in metaverse spaces may require novel solutions, and the rules for user behavior may need to be redefined. Privacy concerns are amplified when users' gestures, expressions, and conversations are digitized, recorded, and stored. Ownership of digital assets and virtual territories and the use of cryptocurrency within the metaverse present further regulatory challenges.

Critical Considerations

1. Protection by Default, Trust by Design: Companies should prioritize user safety by implementing default protections and clear user controls for content and conduct in metaverse environments.

2. Real-time Content Moderation: Given the scale of content in the metaverse, AI and large language models can play a significant role in moderating content effectively and avoiding legal issues.

3. Risk Analysis: Companies should proactively identify and address potential risks in metaverse interactions, involving users and regulators in awareness-building.

Global Regulators Put People in the Center The European Union has been at the forefront of consumer protection regulations, with the GDPR and DSA emphasizing individual user safety. The UK is advancing an Online Safety Bill applicable to metaverse environments. In the US, federal regulations tend to be industry-specific, while states are adopting their own data privacy laws. The potential applicability of these regulations to the metaverse raises significant challenges.

Privacy In the Web2 era, tech companies have thrived on collecting and monetizing user data. Privacy concerns have led to regulations like the GDPR, which require transparent data handling. However, the metaverse introduces new dimensions to data collection, including capturing users' emotions and 3D-generated content. Digital twins and AI influencers challenge existing licensing models and data privacy laws.

Tax and Finance Web2 businesses have navigated evolving tax jurisdictions and the taxation of digital goods and services. The metaverse introduces identity and location considerations, expanding the definition of goods to include digital assets, and complex cryptocurrency transactions. Global tax regulations must adapt to metaverse economies, and businesses should collaborate with regulators to establish clear tax frameworks.

Do the Work Today for a More Successful Tomorrow As the metaverse gains momentum, businesses and regulators must work together to establish guidelines for content moderation, conduct, privacy, and trade. Proactive measures can lead to safer and more equitable metaverse experiences, encourage public adoption, and inform future policy development. The metaverse may represent a sea change in how we interact with digital systems, and its implications should not be underestimated.