Regulation in the Metaverse

The metaverse has been generating a lot of buzz lately. What is it? The metaverse is a network of 3D virtual worlds created on blockchain technology. It’s a digital universe where virtual experiences can either simulate the real world or imagine worlds beyond it. It’s a lot more than virtual reality or augmented reality games or activities. You could create your own avatar, conduct meetings in the metaverse, buy or sell digital property, wearables etc.

This definitely will be the future in the coming years. Unfortunately, there have already been several instances of virtual crime. I’m pretty sure virtual financial crime is a possibility given the businesses that take place in the metaverse and its influence on privacy and ethics. There is a large amount of money spent on digital land and wearables nowadays which could make it an easy way for criminals to launder money.

While it may not be as much as cryptocurrency or NFTs, the property prices have soared thanks to the celebrity appeal as well. High profile musicians like DJ Steve Aoki and Snoop Dogg have replicated their real-life properties in the Sandbox. Properties surrounding theirs is valued at around $45,000. Despite property prices going down this year, the said property is supposed to be worth $25,000, which still is a high value number for a virtual plot.

This increases the scope for money laundering in a digital network. As per, Opportunities in the Metaverse, JP Morgan stated that, “Every year, $54 billion is spent on virtual goods, almost double the amount spent buying music”. Digital fashion is not only expensive but also another interesting way for criminals to launder their illicit proceeds given the high-priced items.

Is there a way to regulate this universe? It wouldn’t be easy, but there seems to be a way if we comply with the real-world principles for the metaverse. Ensuring compliance with tax regulations, privacy, KYC and due diligence depending on the nature and value of transactions, anti-fraud mechanisms and setting up robust risk-management frameworks are some of them.

The need for regulation and governance will increase with time as more people start understanding and using the metaverse, because at the end of the day it is a real person using the metaverse. AML and Privacy compliance regulations, a code of conduct and a streamlined list of real world identities of people registering are so important to make sure there are no compliance failures.

Looking forward to seeing more virtual compliance officers, ready to make a difference!

Reference Links:

https://www.forbes.com/sites/davidwestenhaver/2022/08/14/metaverse-real-estate-under-water/?sh=4ea6aea560c9

https://style.me/fashion-nfts-and-metaverses-how-wearable-digital-assets-are-going-to-transform-the-industry/

https://dl.acm.org/doi/10.1145/2480741.2480751

Please note that all opinions made on this blog should be treated as a guide and not legal advice. Sources have been linked.