Avatars, blockchains and tokens are all concepts which may seem like something you would expect to find in a video game. However, they are aspects of what is expected to be a major part of people’s lives in the coming years – the metaverse.
The metaverse is an online world which is the next iteration of social media – a virtual reality experience in which you interact with other users (represented by cartoon-like characters called avatars). You can immerse yourself into a colourful world filled with animals, businesses and houses where you can attend virtual events such as concerts or museums.
Entry to the metaverse is accessed through virtual reality headsets. Users are able to create, buy and sell goods and services, and communities develop around new and existing traditional brands and desirable locations. It offers both residential and commercial opportunities and experiences.
Although the metaverse is still in its infancy, digital land in the metaverse is now selling for a premium, as investors chase for sought after locations on one of the four main platforms – Sandbox, Decentraland, Cryptovoxels and Somnium. 2021 saw sales top $500m and sales for 2022 are projected to exceed $1bn. In December 2021, a plot of land on Sandbox was purchased for $4.2m.
The purchase of virtual land creates not only new opportunities, such as to develop your own virtual property in any manner you see fit, but also raises many legal questions, such as what happens to these properties on the owner’s death?
The ownership of property in the metaverse is held in a similar way to cryptocurrencies such as bitcoin, in as much as they are based upon ‘blockchain’ technology. In its simplest form, the owner is provided with a private key (usually held digitally), which contains a number of digits. In order to sell the property, the key is provided to the buyer who is then able to access the funds held.
This may seem straight forward, but if the private key cannot be located upon death, either because it is stored on the deceased’s computer or other electronic device which the family cannot access, or they are not aware of its existence to begin with, it will not be possible for the ownership to pass to the beneficiaries.
On death, the transfer of ownership of the private key is not dependent on having a grant of probate. If the private key is accessible, it can be given to a beneficiary or sold to a third party as appropriate. However, if the property is required to be sold through an online exchange, then the relevant exchange is likely to want to see a copy of the grant of probate in order to effect a sale or transfer.
Another difficulty, attributable to several digital assets, is the ability to obtain an accurate valuation for the virtual property. Properties are tradable and consequently a valuation should be able to be obtained. However, whether the valuation would be challenged by HMRC when it comes to reporting the assets as part of the Inheritance Tax account is a separate issue.
The Law Society have recently urged people to refer to any digital assets in their wills, as these are less likely to be discovered otherwise by the executors of the estate and so are more likely to remain unadministered.
It is also advisable to keep a clear record of online passwords to allow your relatives/executors to gain access to digital assets. This could also be something to consider incorporating into your Lasting Power of Attorney for Property and Financial Affairs, so that you can direct and authorise your attorneys to access your digital assets in the event that you have lost mental capacity during your lifetime.
The metaverse is certainly expanding and whether it is here to stay and is not just another ‘internet bubble’ is yet to be seen. What it does remind us of is that the growth of digital assets is certainly something to be aware of and to make sure that these are addressed and covered when preparing your will.