Whether you hate or love Web3, it is hot now because technology influencers like Venture capitalist Marc Andreesen, former Twitter CEO Jack Dorsey, and Tesla chief Elon Musk are recently debating it.[1] The Web3 advocates also believe it is reshaping the economic landscape. Gartner estimates that Web3 will increase global GDP by USD 1.76 trillion by 2030. [2] The rise of Web3 inevitably raises many legal issues such as virtual governance, data privacy, IP protection, regulatory compliance, and infringement. These also provide plenty of business opportunities for technology lawyers and law firms to join this fast-evolving area of law.
What is Web3?
Web3 is a new platform built on decentralized and blockchain technology owned by the builders and users where people can bind cryptocurrencies, NFTs, and metaverses together into a new platform. On Web3, individuals can provide services directly to each user and trade items of value that inherently exist within the system. An example of a Web3 application/network/platform might be a metaverse (an online, 3-dimensional universe that combines multiple virtual spaces in which users will be able to collaborate, meet, play games, and socialize) that works on a decentralized blockchain instead of using a bank.
Does Web3 need legal protection?
There is a misconception that a decentralized platform is unregulated. In addition, digital assets are rapidly growing in many parts of the world where local regulators have introduced laws and regulations governing transactions. For example, the US Treasury’s Financial Crimes Enforcement Network (FinCEN) is developing rules to track cryptocurrency exchanges and report suspicious activities. In addition, Australia and Canada consider Bitcoin a financial asset with a value that can be taxed. In Asia, Japan’s parliament passed a bill into law in June to regulate stablecoins or cryptocurrencies for investor protection.
Legal worries will increase in the metaverse as it is growing dramatically around the world. In general, many users believe NFTs offer undeniable proof of ownership. However, things may not be as simple as we thought. For example the property ownership, according to João Marinotti, Professor of Law at Indiana University, as virtual land ownership falls under contract law rather than property law. Also, purchasing an NFT doesn’t give users ownership over the digital asset. [3]
Although Web3 is an entirely new and complicated landscape, a new kind of legal protection is needed when things go wrong. Cryptocurrency litigation is soaring[4]. Disputes arise with NFTs related to licensing and joint ownership of an asset. Companies nowadays use metaverses as part of their business and marketing strategies that raise many legal issues concerning governance, IP protection, and infringement. [5]
Opportunities in Web3
If any technology landscape wants to grow to its full potential, it needs to incorporate a proper legal framework that includes set rights and obligations to protect all parties’ interests. Legal issues we need to address include taxation, virtual governance, regulatory challenges, licensing and ownership, transaction tracking and reporting, data privacy, and IP protection.
To avoid being left behind, traditional law firms, lawyers, and law students need to understand the development of Web3 technologies and the changing laws and regulations related to Web3 and regional governments.
[1] Sam Shead, ‘Elon Musk and Jack Dorsey are talking about “Web3” – here’s what it is and why it matters’, CNBC.com, CNBC, 21 Dec 2021, https://www.cnbc.com/2021/12/21/elon-musk-and-jack-dorsey-are-talking-about-web3-heres-why.html (accessed 15 June 2022)
[2] Jamilia Grier, ‘Why Law Firms Need To Pivot To Web3’, bytebao.io, ByteBao, 19 April 2022, https://www.bytebao.io/blog/why-law-firms-need-to-pivot-to-web3, (accessed 15 June 2022)
[3] Jack Brassell, ‘Legal Worries In The Metaverse As NFTs And Blockchains Don’t Protect Virtual Property’, beyondgames.biz, Beyond Games, 4 May 2022, https://www.beyondgames.biz/22138/legal-worries-in-the-metaverse-as-nfts-and-blockchains-dont-protect-virtual-property/ (accessed 15 June 2022)
[4] Sam Skolnik, ‘Crypto Lawsuit Deluge Has Big Firms Scrambling to Keep Up’, bloomberglaw.com, Bloomberg, 17 May 2022, https://news.bloomberglaw.com/business-and-practice/crypto-lawsuit-explosion-has-big-law-scrambling-to-keep-up (accessed 15 June 2022)
[5] Jamilia Grier, ‘Why Law Firms Need To Pivot To Web3’, bytebao.io, ByteBao, 19 April 2022, https://www.bytebao.io/blog/why-law-firms-need-to-pivot-to-web3 (accessed 15 June 2022)