The Metaverse and International Arbitration (Part II): Suing the Metaverse


[This article has been authored by Aryan Tulsyan, a third-year law student at JGLS, Sonipat.]


Keywords: Metaverse, Smart Contracts, Blockchain Arbitration, Arbitration, Blockchain Arbitral Order


Introduction

The extent of the Metaverse has been discussed in Part I of the series, and it is evident that digital platforms such as the Metaverse have become inextricably linked to our society’s infrastructure, which calls for the adoption of principles of transparency and fairness across all social platforms. The existing societal framework of justice is guarded and the secret to an extent, and the adoption of algorithms which promote transparency is the only way forward-algorithms along the lines of Rawls’ ‘Veil of Ignorance’. Secrecy, in the context of justice, is indispensable to the operation of power, and the opacity of the current justice system originates from the very beginning of the selection of the judiciary. Web 3.0 is the future, and dispute resolution in Web 3.0 can be made possible by integration and modification of the basic Web 2.0 ODR mechanisms.


Blockchain arbitration can serve as the overpass between Web 3.0 and Web 2.0 dispute resolution mechanisms, as it is not only based on non-physical ODR methods but also overcomes time-consuming and covert hurdles. Web 2.0 ODR Mechanisms do not provide for the parties and the personnel to be present together, and it could be arbitrary and time-consuming to an extent. Adoption of blockchain arbitration would also give way for including disputes between Metaverse platforms and users. This article will first examine the various types of Metaverse-user disputes and will then analyse how blockchain arbitration can be incorporated as the dispute resolution mechanism in the Metaverse for any and all kinds of disputes.


Disputes between Metaverse Platforms and Users

While Part I of the series discussed the different types of disputes that can arise between users of the Metaverse and the disputes on intellectual property rights present in the Metaverse, this section shall analyse the types of disputes that can arise between the Metaverse platform and its users. One primary cause of the disputes between the platform and its users can be the violation of the users’ privacy and their personal data. As the Metaverse is a growing ecosystem, with predictions that up to 25% of the general populace would spend at least an hour in the Metaverse by 2026 to work, shop, study, get entertained etc., it can be deduced that Metaverse platforms would have an abundance of user data, which can be exploited.


Another expected source of disputes between Metaverse platforms and its users is concerning real estate. The cheapest plot of land on popular platforms such as Decentraland or Sandbox would cost at least 3.7 Ether (or INR 500,000 as of June 7, 2022). The two determinants of the price of Metaverse real estate are its scarcity and its location (similar to real-world property valuation). Both scarcity and location of the real estate can be controlled by the Metaverse platform, which gives the platform some control over the value of the real estate. Let’s take the example of real estate in Decentraland.



As it can be seen, plots are heterogeneous within Decentraland, and the value of the plot depends on its surroundings. If I have purchased a plot in GDA Dragon Estates for 5.88 ETH, and the next day, Decentraland decides to move the waterbody neighbouring my plot out of the code, creating a fall in its value to 4.21 ETH, I have suffered a financial loss. This is a simplified illustration of disputes that may arise between Metaverse platforms and its users. Faults in servers or an increase in the value of the total plots available could also possibly lead to disputes.


Metaverse platforms such as Decentraland, Roblox, Binance, Oculus etc., have provided arbitration as their dispute resolution mechanisms in cases of disputes with the platforms. Article 18 of the Decentraland Terms of Use provides for arbitration under the ICC rules, with the seat at Panama; Article 10 of the Binance Terms of Use provides for arbitration under the HKIAC Rules, with the seat as Hong Kong; and both Roblox (Article 16) and Occulus (Article 6) have designated the AAA rules with Californian seats. The fact that these Metaverse platforms and their users are already equipped with the formal rules and procedures of traditional arbitration paves the way for better implementation and adoption of blockchain arbitration, which would be a more suitable form of arbitration.


Blockchain Arbitration as the Most Suitable Dispute Resolution mechanism.

Transactions in the Metaverse are likely to be enabled by the use of smart contracts. Adjudication of disputes arising from smart contracts in domestic courts is unfeasible and unwanted due to a lack of technical knowledge and jurisdictional challenges. This is where blockchain arbitration comes in. Blockchain Arbitration is a system of on-chain dispute resolution where the blockchain arbitration platform is encoded as an oracle within the smart contract, enabling the modification of the contract based on the award and also allowing parties to initiate the dispute resolution process instantly. Popular blockchain arbitration platforms include Kleros, Jur, Aragon, and Mattereum. The common features of these blockchain arbitration platforms are the random selection of jurors, on-chain automatic enforcement of awards, and anonymity of parties.


Blockchain arbitration can serve as an effective dispute resolution tool in both types of Metaverse disputes: inter-user and user-platform. The relationship between the parties can be either defined as a smart contract, where the blockchain arbitration platform existing as an oracle would automatically lead the way to dispute resolution through blockchain arbitration, or the relationship could be defined by traditional contracts. A traditional contract could have a dispute resolution clause which specifies blockchain arbitration as the appropriate dispute resolution mechanism. The Carrera Report on enforcement of blockchain arbitration awards shows how traditional contracts can have blockchain arbitration clauses. In both the relationships explained above, having blockchain arbitration as the dispute resolution mechanism would be beneficial.


Let us take the example of the Miramax-Tarantino dispute discussed in Part I of the series. If blockchain arbitration had been the dispute resolution mechanism in their contract on the intellectual property rights of Pulp Fiction, the decision of the jurors could be automatically enforced by either allowing or removing the trade of the particular NFT. While this is an illustration of a traditional contract dispute, disputes in the Metaverse arising from smart contracts become even easier to resolve because they are usually accompanied by digital evidence and the validation of facts. For example, circling back to the real estate dispute, if Decentraland decides to the move the waterbody neighbouring my Metaverse plot, causing the devaluation of my property, and if this is a violation of the warranties guaranteed by Decentraland, a blockchain arbitration award would modify the smart contract and restore the waterbody near the plot. The blockchain ledger would allow the blockchain arbitral tribunal/jurors to verify if the waterbody was, in fact, moved and if it is in violation of the guarantees.


Through an automatic enforcement mechanism and freedom from reliance on domestic courts, blockchain arbitration is the closest one could get to truly autonomous arbitration. The arbitration mechanisms, which govern disputes between Metaverse platforms and users currently in place, are still limited to local governments to an extent in matters of applicable law and enforcement. Blockchain arbitration essentially resolves the enforcement aspect of arbitral awards while maintaining transparency and anonymity. Traditional arbitral rules have some restrictive aspects if they are to be viewed from the lens of the Metaverse. The requirement of seats and signatures becomes a hassle and needs to be resolved by what Sir Tim Berners-Lee, inventor of the World Wide Web, calls “A Magna Carta for the Web ”.


A Magna Carta for the Web (3.0) would be accompanied by a Blockchain Arbitral Order, which has the potential to provide for Metaverse-seated arbitrations. The applicable law of the Metaverse could be derived from international law, as international conventions, customs, and general principles are its sources as per Article 38 of the ICJ Statute. Conventions, customs, and general principles which apply to arbitral tribunals currently could be unified and be applied mutatis mutandis to the Metaverse. Jurors involved in blockchain arbitration could make use of this law to render arbitral awards in the Metaverse. This is not to say that jurors would lose autonomy and discretion, but the principles may be used as a vantage point by them, allowing for the convergence of a technical and judicial award. A codified Law of the Metaverse could also provide for the resolution of disputes occurring outside of the Metaverse. For example, if traders from country X and country Y decide to trade any commodity, their contract can stipulate the use of blockchain arbitration for dispute resolution, with the applicable law being that of the Metaverse.


These kinds of disputes which are wholly outside the domain of the Metaverse can be resolved and enforced through escrow of funds, and the Metaverse can serve as a one-stop dispute resolution arena, not just for disputes pertaining to the Metaverse but also for those arising elsewhere. The objective of this would be to choose the jurisdiction of arbitration as the Metaverse. A so-called Law of the Metaverse could also provide for integrating various cryptocurrency exchanges so that digital assets held by parties outside a specific Metaverse platform can be attached and used to enforce arbitral awards.


Conclusion

Blockchain arbitration would be somewhere along the lines of Anonymous Crowdsourced Online Arbitration proposed by Dusko Martic, who argued for a model of arbitration based on the anonymity of parties and subject-area expertise of jurors. The problems associated with the applicability of traditional forms of arbitration in the Metaverse leave open a vacuum which can be occupied by blockchain arbitration. With the evolution of the digital identity and ‘avatars’, anonymity is cherished by people, and this has substantially proliferated with the COVID-19 pandemic. The Metaverse can incorporate blockchain arbitration more easily at the present stage because people have the post-pandemic legal framework at their disposal, which comprises the use of electronic communication and virtual reality. Therefore, now would be the perfect time to adopt blockchain arbitration to resolve disputes in the Metaverse.

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