Metaverse without regulation would be a 'very scary prospect,' experts warn

Meta Platforms (FB), formerly known as Facebook, lost an attempt last week to quash a proposal from shareholders who want to know whether its planned virtual world will cause real-world harm.

The question comes as critics of the metaverse voice concerns that the burgeoning virtual world sorely needs regulation to protect its users. The absence of rules to police the metaverse could hurt consumers in the same ways they've been hurt in other online platforms, critics warn. The metaverse could also create brand-new injuries without proper oversight, according to critics.

If the metaverse becomes ubiquitous, regulation could become even more crucial.

“The first question we need to be asking of people, like representatives from the place called Meta, is: What is the business model?” Harvard Law School professor Lawrence Lessig said during a panel discussion last week. “The thing to fear is if [Meta] becomes the dominant default platform that you must participate in to do everything...If it becomes Facebook 2.0, and that is the defining existence, then the fact that there is no law I think means it's a very scary prospect.”

Given the rise of the metaverse, already a focus for a diverse set of companies, lawmakers may be too late. Big Tech stakeholders like Alphabet's Google (GOOG, GOOGL) and Meta Platforms (FB) have already developed software and hardware that power the metaverse. Meta even changed its name as evidence of its commitment to the virtual world. And major retailers like Nike and Samsung are already debuting products and hosting events in the 3-D virtual space.

Lawmakers can combat the influence of a few companies like Meta pioneering the metaverse by adopting rules that encourage creators to build healthy virtual environments, experts said.

New laws should discourage user privacy violations, and data collection abuse, and protect against the unauthorized use of intellectual property, according to Lessig and other legal experts. Of particular concern are injuries to minors, like the psychological harms to teenage Instagram users, exposed by Facebook whistleblower Frances Haugen in a series of reports in The Wall Street Journal.

Some members of the industry are also pushing for consumer protections. Anya Kanevsky, head of the virtual world company Second Life, said at the same panel as Lessig that the metaverse should guard against data collection, regardless of what lawmakers do.

“We are so used to being able to get the most minute data about anybody who interacts with our products — whether it is relevant to their interaction with our products or not, at any time — that as long as we continue building ways for us to gather that data, no amount of regulation that is always 10 years too late will be able to catch up to it,” Kanevesky said.

“So there has to be something built into the design of our systems that actually doesn't allow us to get it,” she added. “Users will give away their privacy. Ultimately, people say they care about their privacy, and then they will accept all your cookies. And then they will give away their mother's maiden name for a 5% off coupon to Vans.”

In a keynote address, Meta’s chief legal officer Jennifer Newstead emphasized that no single company will, or can, create or run the metaverse. There are dozens of unsettled legal questions, she acknowledged. How do we make sense of varying enforcement standards across the metaverse's different platforms? How do we resolve disputes in borderless, decentralized communities? The metaverse also poses challenges for real-time content moderation, Newstead said.

“What do we make of the challenges of content moderation in real time, synchronous environments?” she asked. “How do we define the rights of a digital avatar, and what it means to experience harm in a digital environment? And what remedies are available when that happens?”

While the metaverse complicates risk in some ways, others argue that it can also eliminate certain harms. Venture capitalist Bill Tai said some legal risks inherent in today’s online world could vanish in the metaverse because the blockchain can verify digital contracts.

“There's a much more direct relationship where you know who the person is, you know whether they engaged or not, and you don't have this kind of randomness that is part of the web 2.0 world,” Tai said, referring to the current iteration of the internet.

Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed.

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