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The promise and the peril of the Metaverse

India’s participation and contribution in the Metaverse is currently limited. However, it is extremely important for Indian legislators and decision makers to ensure that a legal framework is in place to ensure the safety of Indian users on the Metaverse 

May 05, 2022 / 05:56 PM IST
(Illustration by Suneesh K.)

(Illustration by Suneesh K.)

Probal Bhaduri

With the steady advance of technology, particularly in the field of virtual reality and augmented reality, the idea of the Metaverse has gained prominence. The term ‘Metaverse’ is commonly understood to describe a network of virtual worlds, often in three dimensions that are focussed on social connection. The concept is not entirely new and has been explored in various media including the 1999 blockbuster film The Matrix.

While several large corporations have been investing in and building the idea, such as Meta (earlier Facebook) and Epic Games (through its game Fortnite), the technology is still evolving, and it is yet to gain the mass adoption that social media enjoys as on date.  However, with swift progress being made, it is important to understand the legal challenges that may be faced in relation to the Metaverse.

These relevant matters of concern with respect to the legal framework for the Metaverse are:

(a)  Data Privacy and Children’s Safety:  As the Metaverse is built and becomes more popular, it is imperative to secure the privacy and safety of its users, which includes adults as well as children.

The current privacy laws in India (the Information Technology (Reasonable security practices and procedures and sensitive personal data or information) Rules, 2011) do not have any specific provisions dealing with data privacy in the specific context of a Metaverse. As the Metaverse is likely to involve virtual reality, it is fairly certain that the amount of data that will be collected will be far more than is being done today. As an example, there may be advanced biometric data, facial recognition and habit tracking that may can be used for extremely targeted advertising as well as for mass surveillance.

In addition to these concerns, another major issue that needs to be tackled is the fact that the Metaverse allows users to interact with each other. In a virtual reality context, this makes it especially important to address the safety of children.   One of the ways this may be possible is to have in place laws that criminalise acts such as obscene behaviour on the Metaverse, with especially harsh punishments where the victims are children.  Further, another way that behaviour may be controlled may be to require entities operating Metaverses to ensure the identity of users on its service in the form of KYC requirements already in place for banks and financial institutions. Similar requirements are being considered in relation to social media in some jurisdictions.

(b) Digital Assets and Commerce: There is already a significant amount of commercial transactions in the Metaverse and this is only projected to rise as the concept catches on. While online transactions involving sale of digital assets/items have been around for some time, the stakes appear to be much higher in case of the Metaverse. For instance, real estate sales on various Metaverse platforms exceed $500 million, according to MetaMetric Solutions, a provider of Metaverse data and insights.

In light of this, it is important to have in place a redressal mechanism to ensure that buyers of digital assets are not defrauded.  In case of fraud relating to cryptocurrency, authorities in India have applied section 420 (cheating) of the Indian Penal Code, 1860 together with other relevant sections such as Section 406 (criminal breach of trust) and Section 120-B (criminal conspiracy).

(c)  Taxation: Another issue that deserves consideration is the taxation of commercial transactions in the Metaverse. As users buy, sell and trade various virtual assets, the question of taxing these transactions arises. Given that these transactions may be across countries, it is necessary to reconsider the treatment of “goods” under the current taxation regime to include “virtual goods” as well.  As there is no physical delivery/physical transfer of virtual goods, determining a taxation regime that accounts for such a scenario is important. There are also challenges in determining the taxation of ‘virtual concerts’ that may occur on the Metaverse where the performers, audience and the operator of the Metaverse may all be in different countries. Further compounding these issues of taxation is the fact that a lot of these transactions occur using cryptocurrencies which are themselves difficult to track.

India’s participation and contribution in the Metaverse is currently limited. However, it is extremely important for Indian legislators and decision makers to ensure that a legal framework is in place to ensure the safety of Indian users on the Metaverse. With emerging technologies such as cryptocurrency, we have seen that the Indian approach is often reactionary rather than pro-active.  As the momentum for the Metaverse is slowly gathering, it may be time to start planning for the future.

Probal Bhaduri is the Managing Partner, Lumiere Law Partners. Views are personal and do not represent the stand of this publication.

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first published: May 5, 2022 05:56 pm