Can We Shift Corporate Transactions into the Metaverse?
What is the Metaverse?
Ever since Facebook’s decision to revamp itself as “Meta” and founder Mark Zuckerberg’s vision to invest in the “Metaverse”, there has been a lot of hype around this novel concept, and more particularly around the possibilities that exist in the virtual parallel universe, that is the metaverse. Being the latest buzzword in the tech universe, there is a lot of inconsistency in the general understanding of what a metaverse is. Generally speaking, the metaverse can be considered a type of cyberspace. Comparable to the internet, it is a universe, or possibly a reality, that exists outside our physical world on Earth.
In our understanding, the metaverse promises a wonderfully realistic 3D digital world in which you can acquire and sell products and services, sign and execute contracts, recruit and develop talent, and connect with customers and communities, among other activities. As envisioned by some technological futurists, the metaverse will not primarily operate on platforms whose owners control data, governance, and commerce, and customers (and businesses) will instead be able to carry their identities, currencies, experiences, and assets anywhere they choose by using emerging technologies such as Artificial Intelligence (AI), blockchain, Virtual Reality (VR) among others. Like many other processes, corporate transactions are also expected to become a part of this virtual space, which holds the potential to change the way these transactions are carried out in the real world. This is what we aim to discuss through this article.
Evolving due-diligence trends
Due Diligence is the process by which a buyer or investor in a company, asset, or business checks the target’s records to support its value and to decide if there are any concerns on which it requires additional information or on which it should renegotiate the conditions of the transaction. Most due diligence processes have already undergone a tremendous overhaul by transitioning from physical to a virtual format. For example, prior to 2005, the majority of data rooms were physically hosted, with the seller providing hardcopy documents in a real room for the buyer to verify them physically. Since then, data rooms have increasingly been housed remotely in the cloud, and physical data rooms are becoming a rarity. With the natural advancement of technology, the metaverse may permit data rooms to be hosted in a digital environment that appears and functions similarly to a physical data room, allowing users to interact with the blended reality. Of course, there will be an emerging need to implement cyber security measures, security protocols and data protection measures to ensure protection for both sides in a transaction.
Negotiations and Execution of the deal
While before Covid-19, the negotiations were held most preferably in person and sometimes over a teleconference. The aftermath of Covid-19 has practically reduced the physical meetings to video conferences by a significant amount. To date, various organizations are working remotely and managing their end-to-end coordination virtually over video-conferencing software or telecommunications. Similarly, transaction paperwork was typically signed in person at one of the parties’ offices or by exchanging scanned copies of signed documents over email. Since the COVID-19 global pandemic, there has been a shift from in-person document discussions to video conference-based agreements. Similarly, the prevalence of the use of electronic signatures on corporate transactions (subject to local regulations) has expanded and is now widespread. This is also expected to evolve with the widespread implementation of VR headsets and immutable ledgers into the metaverse, as the signing of documents could potentially be carried out at virtual offices using the digital signatures, the record of which could also be stored on blockchain ledgers of the concerned party.
Land/Real-Estate Transactions in Metaverse
There is significant hype around the fact that users can also purchase virtual land on metaverse and can even lease it out for monthly rentals or use it for advertising or running virtual marketplaces. There is a lot of conundrum regarding the application of property laws, applicable jurisdiction on the land and ownership of a real estate in the metaverse. However, it is relevant to note that in the metaverse, the land is a non-fungible token (NFT) that is considered personal property and not actually real estate. The jurisdiction would rely on a number of factors and be governed by the same regulations applicable to business transactions.
Potential risks and threats to look out for
Deal-making in the metaverse may incorporate traditional deal-making into the virtual world, which many attorneys would appreciate. Not only would deal-making in the metaverse be more efficient, but key parties would also be able to connect on a secure platform that employs immutable ledgers to track progress and advancements throughout the lifecycle of a corporate transaction. As with any new technology, it will be necessary to properly control the risks associated with conducting sensitive transactions in a virtual world.
Some commonly discussed potential threats would include but shall not remain limited to data protection issues, user interactions, IP-related issues, legitimacy of ownership in the metaverse, taxation and enforceability of virtual transactions in the real world. When assets, transactions, and identities exist concurrently in the real and digital worlds shared by billions of individuals and organizations, the traditional methods of establishing and maintaining trust may no longer be applicable. To avoid the risk of potential breaches and legal threats and to materialize the fair use of the metaverse, the law throughout the world would need to adapt to changing technology landscape, and the tools employed to interact in the metaverse would need to be accommodating.
As businesses consider the possibilities of conducting corporate transactions in the metaverse, it is important to carefully consider the legal implications. Our team of experienced attorneys can help you navigate the complexities of the emerging virtual business landscape and ensure that your company’s interests are protected. Contact us to learn more about how we can support your business as you explore the potential of conducting transactions in the metaverse.
