ABSTRACT
This article discusses how to make contracts in the Metaverse that are part of everyday life, what the contracts should include, the legal requirements that must be met and how they should be carried out, how smart contracts are used in the Metaverse, and potential privacy and security issues.
I. INTRODUCTION
The Metaverse, a term meaning “beyond the universe”, is defined by many different companies and individuals, but there is no universally accepted definition among them. This universe, accessed through augmented reality (AR) and virtual reality (VR) devices, mirrors the real world and establishes a unique economic system through blockchain technology. Major technology companies such as Meta, Microsoft and Apple, as well as brands such as LEGO and Balenciaga, are among those investing in the Metaverse. This means that in the not too distant future, commerce will continue to take place in the Metaverse, and many legal relationships as well as different types of disputes will take place. For example, it will be possible to make purchases from the virtual stores of many brands in the Metaverse. This brings to mind the question of how to validly conclude contracts in the Metaverse, especially sales contracts. Although the Metaverse is a concept that has only recently entered our lives, it will undoubtedly be a part of our lives in the not too distant future. Therefore, governments need to make regulations in their legal systems in line with this technology. First, this article will define the Metaverse and explain how it will be used in our daily lives. Next, it will discuss the conditions necessary for a contract to be enforceable, how contracts are concluded in the Metaverse, and which laws apply to these contracts based on sales contracts and smart contracts.
II. DEFINITION
Although the origin of the idea of the Metaverse is unknown, the concept was first used in the novel “Snow Crash” written by Neal Stephenson, and metaverse means “Meta-universe” or “beyond the universe”. VR (virtual reality), AR (augmented reality), and MR (mixed reality) technologies are among the technical pillars of the Metaverse, bringing the real and virtual worlds closer together than ever before. So, how will the Metaverse affect our lives?
III. THE IMPACT OF THE METAVERSE
The commercial economy is one of the areas that the Metaverse is affecting. As mentioned earlier, in addition to the big tech companies, other businesses and brands in different fields are investing in the Metaverse. For instance, Burberry produced branded NFT accessories for the game Blankos Block Party, Gucci offered non-NFT avatar clothes in Roblox, one of the most popular Metaverse games, and Louis Vuitton introduced a Metaverse game where players can acquire NFTs1. Video games are one of the first areas that the Metaverse will impact. Fortnite by Epic Games, Minecraft and Roblox by Microsoft, are games that already offer the possibility to interact online and are suitable for the use of virtual reality technology. There are also games that use augmented reality, such as Pokemon Go. Another area that the Metaverse will impact is work life. It will be a new approach for users to meet in the Metaverse for business meetings or trainings. There will also be social events within the Metaverse. For example, the aforementioned Fortnite game hosted stage performances by many different names such as Travis Scott and Ariana Grande2, and the Metaverse platform Decentraland hosted Metaverse Fashion Week in March 20223.
Based on the above, it can be safely said that it is inevitable that contracts will start to be entered into in the Metaverse in the near future.
IV. APPLICABLE LAW AND JURISDICTION
The problem of identifying which legal rules should be applied to contracts made between avatars subject to various legal systems and which country’s courts have jurisdiction over the contracts must be addressed because virtual worlds and online communities can transcend national borders. Although many different rules on private international law provide for freedom of contract, there is still a need for legal regulations on choice of law in the Metaverse. The will of the parties should be taken into consideration as the applicable law. Freedom of contract, as provided for in Article 1.1 of the UNIDROIT Principles for International Commercial Contracts, includes the freedom to determine the content of the contract, and therefore the freedom to determine the applicable law to be applied to the content of the contract. In the Report of the Permanent Bureau of the Hague Conference on Private International Law of December 2021, it was stated that there is a strong need for law enforcement in the Metaverse in the areas of jurisdiction and choice of court, determination of applicable law and choice of law, recognition and enforcement of law, cross-border and cross-platform cooperation mechanisms4 nd their mutually compatible declarations of wil. One of the examples for determining jurisdiction is Bragg v. Linden Research Inc. In this case, the US District Court for the Eastern District of Pennsylvania, while deciding whether a dispute arising from virtual property in Second Life is subject to jurisdiction, decided that it is subject to jurisdiction because the parties are located in different states and the virtual property in question has a monetary value5. Therefore, although there is a need for new regulations regarding the rules of law governing the contracts concluded in the Metaverse and the jurisdiction in disputes arising therefrom, in practice, disputes arise and judicial decisions are issued regarding the contracts concluded in the Metaverse.
V. CONCLUDING CONTRACT IN THE METAVERSE
According to Article 1 of the Turkish Code of Obligations No. 6098, in order for a contract to be concluded, the parties must make an explicit or implicit declaration of will mutually and in accordance with each other. A declaration of will is a reciprocal and congruent declaration of two or more parties’ intentions to establish, alter, or terminate a certain legal relationship or rights. Therefore, the elements of a contract consist of the parties and their mutually compatible declarations of will6.
The type of contract to be established in the Metaverse appears to be twofold. While the first type of contract regulates the legal relationship between users and platform providers, the other type of contract is the contracts that need to be established due to the interactions between users and are concluded between users7. In this article, explanations will be made about the types of contracts that regulate the legal relations between users. At this point, it is necessary to address how the elements of the contract will come to life in the Metaverse.
A. Parties
The parties to a contract may be natural or legal persons. According to Article 28 paragraph 1 of the Turkish Civil Code (“TCC”); “Personality begins at the moment of the child’s full birth and ends upon death.” This article regulates the commencement of personality for natural persons, i.e. human beings. Article 8 of the TCC stipulates that every human being has the capacity of right and that all human beings are equal in terms of being entitled to rights and obligations within the limits of the legal order. According to Article 28, the capacity to have rights is acquired from the moment of conception. According to Article 10 of the TCC; “Every adult person who has the power of discernment and is not restricted has the capacity to act.” In terms of legal persons, the capacity of rights and actions are regulated in Articles 48 and 49 of the TCC. According to these articles, legal entities are entitled to all rights and obligations except for those that depend on human-specific qualifications, and they acquire the capacity to act by having the necessary organs according to the law and their founding documents.
In the Metaverse environment, instead of real people, there are “Avatars” controlled by real people, which do not possess their own independent will. When two avatars enter into a contract in the Metaverse, the actual parties to the contract are not the avatars themselves but the individuals controlling them. Since avatars do not have their own personality, they cannot have legal capacity or capacity to act under Turkish law and therefore cannot be parties to any contract8.
Creating an avatar involves much more than just giving a nickname, just like identity cards and phone numbers. It is important to note, however, that it is not only natural persons that can create avatars. In addition to natural persons, artificial intelligence (AI), internet of things (IoT) and legal entities can also create avatars. In addition, an avatar can contain more than one smart asset, and a single smart asset can be contained by more than one avatar9. Therefore, an avatar in the Metaverse can be controlled by a real person or by an artificial intelligence or an object with IoT technology. So, how will it be understood that the other party’s avatar is controlled by an artificial intelligence or a real person when concluding a contract in the Metaverse in the future? Another question that can be asked in this context is, when a person dies, what will be the fate of that person’s avatar? Although there are cases outside the Metaverse where virtual beings on the internet are the subject of inheritance, in a case where a person’s virtual life is recorded in the Metaverse, this avatar can continue its life exactly as if it was controlled by this person, since it contains personal data belonging to the deceased person. While this may seem like an extreme example, a Metaverse company called Somnium Space has announced that a person can continue to live on through their avatar after their death10. In this example, the avatar in question will now be managed by artificial intelligence instead of a real person. Therefore, in the future, will a natural or legal person who wants to make a contract in the Metaverse be able to make a contract with the avatar of an AI, IoT or a dead person?
As explained earlier, while natural or legal persons can be parties to the contract, what will happen to the contract in cases where avatars, which do not have a personality on their own, are managed by an artificial intelligence or an object with IoT technology, or the person managing the avatar dies and loses their personality? In all these cases, since the avatar in question will be managed by an artificial intelligence, there will be no legal or natural person who can be a party to the contract. In this case, discussions regarding the legal status of artificial intelligence will come to mind. Should artificial intelligence have the legal status of a person?
According to one of the views that does not recognize artificial intelligence as a person in law, there is no need for a personality status for artificial intelligence. The problems that may arise can be solved by integrating insurance systems by giving limited rights and responsibilities to artificial intelligence according to its field of use. According to another view, artificial intelligence can be used just like a slave. Therefore, there is no need to attribute a personality to artificial intelligence11.
One of the views in favor of giving artificial intelligence a personality argues that artificial intelligence can be given a special status, just like a legal entity. According to the other view, artificial intelligence can be given the status of an electronic personality. One of the proposals in the European Parliament’s report of January 27, 2017 is to grant artificial intelligence electronic personality, which is a new type of personality other than a natural or legal person. The report is therefore the first official document to propose a personality status for artificial intelligence. Another view supporting the attribution of a different type of personality to AI is the view of making AI a non-human person12.
Although all these views are still very new, it is likely that in the not too distant future, if artificial intelligence is given personality, it may be a party to legal transactions and may have rights and responsibilities arising from them. In this case, it may be possible to establish contracts with Avatars controlled by artificial intelligence in the Metaverse.
B. Declaration of Will
According to Article 1 of the Turkish Code of Obligations, a contract is formed when the parties declare their wills mutually and in accordance with each other, and the declaration of will may be explicit or implicit. As mentioned earlier, in Metaverse, individuals become parties to the contract through their avatars. Therefore, the declarations of will in contracts concluded in the Metaverse belong to the persons using the avatars. A contract is formed with a validly made proposal in the Metaverse environment and a valid and appropriate acceptance statement from the other party. The existence, content and interpretation of the parties’ declarations of will and the determination of whether the contract has been formed are evaluated within the scope of the trust theory. Accordingly, if a person is justified under the rule of good faith in accepting the behavior of another person’s avatar as a declaration of will made to him/her, this declaration of will must be deemed to exist. Furthermore, in order for the contract to be validly concluded, it is sufficient that the parties have agreed on the objective essential elements13.
C. Subject of the Contract
According to Article 26 of the Turkish Code of Obligations No. 6098 titled freedom of contract; “The parties may freely determine the content of a contract within the limits stipulated by law.” The freedom of contract, which is valid only in the law of obligations, also known as “liberty of contract”, includes not only the freedom to determine the content of the contract, but also the freedom to make a contract or not, the freedom to choose the counterparty to the contract, the freedom to make the contract of one’s choice and the freedom to change the content of the contract as one wishes. However, of course, there is a limit to this freedom. According to the first paragraph of Article 27 of the Turkish Code of Obligations; “Contracts that are contrary to the mandatory provisions of the law, morality, public order, personal rights or whose subject matter is impossible are absolutely null and void”. Therefore, although the parties are free to determine the subject matter of the contract, they must comply with the limitations in Article 27 of the law.
Although the most common type of contract is the contract of sale, it is quite possible to encounter different types of contracts since individuals can do almost all of what they can do in real life in the Metaverse. For example, it can be easily foreseen that real persons will work in different fields in the Metaverse and therefore employment contracts will be concluded. Or it may be possible for a person to make a contract with another real person to have a painting made for the house where their avatar lives in the Metaverse. Considering that we can do most of the things we can do in real life in the Metaverse, it is an inevitable fact that the subjects of traditional contracts that we encounter in real life will also appear in the Metaverse, and beyond that, different types of contracts will be concluded.
D. Form of the Contract
The Turkish Code of Obligations applies the principle of freedom of contract. Provided that it is not contrary to the mandatory provisions of the law, morality, public order and personal rights, persons can make contracts in any subject, content and form they wish. Therefore, it seems possible for avatars managed by real persons to come together in Metaverse and be bound by a valid contract in terms of the Turkish Law in force.
As a matter of fact, according to the second paragraph of Article 4 of the TCO, “The proposal made during direct communication by means of communication tools such as telephone and computer shall be deemed to have been made between those who are present”, the validity of the agreements made by different tools and the validity of the agreements made between those present is ensured by citing tools such as telephone and computer as examples14.
However, at this point, it should be noted that it is not possible in the Metaverse to conclude contracts that are regulated by the law to be concluded formally. For example, it is not possible to conclude a contract for the sale of real estate in the Metaverse. However, at this point, a distinction should be made according to the subject matter of the contract. Although it is not possible to make a real estate that occupies space in the real world the subject of a contract of sale in the Metaverse, it is possible to sell the real estate located in the Metaverse through a contract established in the Metaverse. The reason for this is that the asset in the Metaverse, which we characterize as real estate, is actually a virtual digital asset in the nature of NFT, that is, an intangible asset of movable nature15.
VI. PERFORMANCE OF CONTRACTUAL OBLIGATIONS
Contracts are divided into two types: contracts that obligate one party and contracts that obligate two parties. Since one of the most common contracts is the contract of sale, we will discuss the performance of debts in the Metaverse with an example from this type of contract. In this type of contract that imposes obligations on both parties, one party owes goods or services to the other party, and the other party must pay a price in return. So how will the parties perform these debts and contractual obligations in the Metaverse?
Since the consideration to be paid in exchange for the goods or services provided by one of the parties in a sale contract is money, it is necessary to examine separately how this consideration will be paid in the Metaverse and what kind of money will be involved. No external currency (such as Turkish Lira, US Dollars) can enter the Metaverse; instead, a different currency is used in each Metaverse.
For example, the Second Life Metaverse uses “Linden Dollars”, the Roblox Metaverse uses “Robux” and the Decentraland Metaverse uses “MANA”. Moreover, Linden Dollars and Robux can be exchanged for US Dollars in real life. People who earn Linden Dollars by selling their NFTs in Second Life or by playing games here can also earn money by exchanging them into US Dollars at the exchange office there and transfer them to their bank account16. Before joining a Metaverse, users need to create a digital wallet where they can deposit cryptocurrencies, NFTs or tokens used in the Metaverse, such as Linden Dollars, Robux, etc17.
What has been mentioned so far are the issues that are in question when traditional contracts are concluded in the Metaverse. There are also electronic contracts in which the parties express their mutual and compatible declarations of will through electronic means of communication, which are no different from traditional contracts except for the method of formation18. However, it is also possible to conclude a smart contract in the Metaverse, and in this case, the legal relationship between the parties can be established in a more practical way.
VII. SMART CONTRACTS IN METAVERSE
Smart contracts, which generally run on blockchain technology, are self-executing digital contracts that automatically enter into force when certain conditions are met. Smart contracts, which have been similar to automatons due to these features, consist of software programs. While they can be programmed in any language that can be compiled in a given blockchain environment, Ethereum is the leading platform for smart contracts19.
In the Metaverse, a platform of virtual worlds and digital economies, users buy and sell digital assets, provide services and interact in various ways, and smart contracts automate and secure it all. In the Metaverse, trade and exchange are regulated through smart contracts.
VIII. CONFIDENTIALITY AND SECURITY
It is an indisputable fact that confidentiality and security issues, which are of great importance in the conclusion of traditional contracts, should also be taken into consideration in contracts concluded in a digital product such as the Metaverse. As a matter of fact, the issue of cybersecurity stands as one of the biggest obstacles to the Metaverse. The most common cybersecurity threats encountered in the Metaverse are phishing attacks, ransomware attacks, metadata security, avatar piracy, NFT (Non-Fungible Token) fraud. While all these cybersecurity threats are outside the scope of this article, they pose a major threat to contracts concluded in the Metaverse20. For example, in avatar piracy, the avatar of a person is used by others. In this case, what will be the fate of the contract if the contract is concluded with the avatar of the person who is harmed by the crime in question without being aware of the situation? Or what will be the result of the acquisitions made to this avatar within the scope of the performance of a contract? Although all these questions have not yet been answered, it should be noted that the problem of confidentiality and security applies not only to real persons, but also to the Metaverse itself.
In addition, information sharing is unconditional as Metaverse is conceived based on the principles of openness and transparency. Metaverse stores and manages huge amounts of users’ information, including personal data21. What are the rules to be followed in Metaverse? In this universe where real and legal persons from different countries are involved, which legal rules will ensure the confidentiality and security of individuals?
IX. CONCLUSION
Although the Metaverse has only recently entered our lives, it will undoubtedly take up a large part of our daily lives in a very short time. In addition, certain agreements will be reached and contracts will be established as a result of the interactions of the parties in this other-universe, which is certain to deeply affect commercial and economic life. Although there is a need for the existence of legal rules regulating the contracts established by avatars that can be controlled by natural persons, legal entities, objects and artificial intelligence, this gap is currently covered by the rules of contemporary customary law. Although this article discusses the formation of contracts in the Metaverse under current legal rules, as the uniformization and accessibility of this other-universe increases, the need for new legal rules on this subject also increases.
BIBLIOGRAPHY
AHMET CEMAL RUHİ, Sözleşmeler Hukuku, Ağustos 2013.
ANONİM, BBC News: Ariana Grande Sings in Fortnite’s Metaverse https://www.bbc.com/news/av/technology-58146042.
ANONİM, Metaverse White Paper, 2017.
AURORA JILLENA MELIALA/ AKBAR KURNİA PUTRA, Tacit Choice of Law in Metaverse: What Law Applies?, 2023.
CEMAL ARAALAN, Metaverse Teknolojisinin Sözleşmeler Hukukunda Sebep Olacağı Değişimlere İlişkin Değerlendirmeler, 2022.
ELIZABETH HOWCROFT, Crypto Fashion: Why People Pay Real Money for Virtual Clothes, Reuters, https://www.reuters.com/business/finance/crypto-fashion-why-people-pay-real-money-virtualclothes-2021-08-12/
GÖKÇEN YÜCEL/ MUSTAFA AYKUT, Metaverse’ün Hukuk Sistemleri Üzerindeki Muhtemel Etkileri ve Global Metaverse Pazarı, BEYDER, 2022.
MARIA KALYVAKI, Navigating the Metaverse Business and Legal Challenges: Intellectual Property, Privacy, and Jurisdiction, Journal of Metaverse, 2023. MEVCİ ERGÜN, Sözleşmeler Hukuku Genel Hükümler Cilt 1, 2024. Metaverse Fashion Week: https://mvfw.org/ PRIMAVERA DE FLIPPI/ CHRIS WRAY/ GIOVANNI SILENO, Smart Contracts, Internet Policy Review, 2021. SAFARI KASIYANTO/ MUSTAFA R. KILINÇ, The Legal Conundrums of the Metaverse, Journal of Central Banking Law and Institutions, 2022. SEDA KARA KILIÇARSLAN, Yapay Zekanın Hukuki Statüsü ve Hukuki Kişiliği Üzerine Tartışmalar, Yıldırım Beyazıt Hukuk Dergisi, 2019. ŞERAFETTİN EKİCİ, Metaverse ve Metaverse’de Sözleşmelerin Kurulması, Akdeniz Üniversitesi Hukuk Fakültesi Dergisi, 2023. ŞERAFETTİN EKİCİ, Metaverse Hukuku, Ekim 2023
FOOTNOTE
1 Elizabeth Howcroft, Crypto Fashion: Why People Pay Real Money for Virtual Clothes, Reuters, https://www. reuters.com/business/finance/cryptofashion-why-people-pay-real-moneyvirtual-clothes-2021-08-12/ (Access Date: 07.07.2024).
2 Anonim, BBC News: Ariana Grande Sings in Fortnite’s Metaverse https://www.bbc.com/news/av/ technology-58146042 (Access Date: 14.07.2024).
3 Metaverse Fashion Week: https:// mvfw.org/ (Access Date: 14.07.2024).
4 Aurora Jillena Meliala/ Akbar Kurnia Putra, Tacit Choice of Law in Metaverse: What Law Applies? 2023.
5 Maria Kalyvaki, Navigating the Metaverse Business and Legal Challenges: Intellectual Property, Privacy, and Jurisdiction, Journal of Metaverse, 2023.
6 Mevci Ergün, Sözleşmeler Hukuku Genel Hükümler Cilt 1, 2024.
7 Safari Kasiyanto/ Mustafa R. Kılınç, The Legal Conundrums of the Metaverse, Journal of Central Banking Law and Institutions, 2022.
8 Şerafettin Ekici, Metaverse ve Metaverse’de Sözleşmelerin Kurulması, Akdeniz Üniversitesi Hukuk Fakültesi Dergisi, 2023.
9 Metaverse White Paper, 2017.
10 Gökçen Yücel/ Mustafa Aykut, Metaverse’ün Hukuk Sistemleri Üzerindeki Muhtemel Etkileri ve Global Metaverse Pazarı, BEYDER, 2022.
11 Seda Kara Kılıçarslan, Yapay Zekanın Hukuki Statüsü ve Hukuki Kişiliği Üzerine Tartışmalar, Yıldırım Beyazıt Hukuk Dergisi, 2019.
12 Kara Kılıçarslan, Yapay Zekanın Hukuki Statüsü ve Hukuki Kişiliği Üzerine Tartışmalar, Yıldırım Beyazıt Hukuk Dergisi, 2019.
13 Ekici, Metaverse ve Metaverse’te Sözleşmelerin Kurulması, Akdeniz Üniversitesi Hukuk Fakültesi Dergisi, 2023.
14 Ekici, Metaverse Hukuku, Ekim 2023.
15 Ekici, Metaverse ve Metaverse’de Sözleşmelerin Kurulması, Akdeniz Üniversitesi Hukuk Fakültesi Dergisi, 2023.
16 Ekici, Metaverse Hukuku, Ekim 2023.
17 Kasiyanto/ Kılınç, The Legal Conundrums of the Metaverse, Journal of Central Banking Law and Institutions, 2022.
18 Cemal Araalan, Metaverse Teknolojisinin Sözleşmeler Hukukunda Sebep Olacağı Değişimlere İlişkin Değerlendirmeler, 2022.
19 Primavera De Flippi/ Chris Wray/ Giovanni Sileno, Smart Contracts, Internet Policy Review, 2021.
20 Ekici, Metaverse Hukuku, Ekim 2023.
21 Kasiyanto/ Kılınç, The Legal Conundrums of the Metaverse, Journal of Central Banking Law and Institutions, 2022.
