Carolina Mauro, CyberArb
Disclaimer: ArbTech and Mishcon de Reya are currently working to deliver an official paper of the event. This is just a report written by an enthusiast webinar attendant.
As we embrace the era of the so-called web 3.0 economy, the Metaverse is being talked about a great deal. The explosive phenomenon of non-fungible tokens (NFTs) has already shown the extraordinary potential that the Metaverse has to offer. As opposed to the social media we are familiar with, which are mostly centralised systems where users are not encouraged to, or at all forbidden to, transact with each other, the Metaverse allows economies to flourish among its participants.
Naturally, where there are transactions, there are disputes. Dispute resolution (DR) as we know it in the off-line world belongs to centralised entities – even arbitration could be considered to a certain extent to be ‘centralised’ around generally understood rules and processes. How can this relate to the new Metaverse conceptions of decentralisation, self-sovereign entities, community governance? How better regulate such activities in a way that is responsive to the immediacy and decentralisation of virtual interactions? What learnings can be exported from the Metaverse into the real world to revolutionize traditional practices and processes of dispute resolution?
On Wednesday 15 December 2021, ArbTech in association with Mishcon de Reya LLP (and OGEMID/TDM as media partner) put together a ground-breaking event on dispute resolution in the Metaverse. The event was hosted by Miles Geffin, Legal Director at Mishcon de Reya LLP, and moderated by Sophie Nappert, founder of ArbTech and arbitrator in independent practice at 3 Verulam Buildings. The four panelists are all discussion leaders in the field. The debate flowed through five main themes previously selected by the audience, who was extremely willing to engage with the topic: values, structures, actors, due process, and enforcement.
1. VALUES
Q. How do the facts that the Metaverse is governed by immediacy and is populated by anonymised/pseudonymised entities affect the values that underpin dispute resolution? To what extent should we hold on to the values that we already have, and what should we let go of?
According to Alessandro Palombo, co-founder & CEO at Jur, the main theme within the web 3.0 dimension is the inherent issue of coordination, i.e., redrafting rules of coordination among organisations, communities, groups of people. Indeed, he argued, even dispute resolution could be seen as a matter of coordination between individuals and entities, which has been solved so far essentially delegating to third parties – in the form of public powers – the composition of controversies.
The new landscape is bound to redefine how coordination will operate. Particularly, the Metaverse will benefit from enhanced transparency thanks to the auditability of events offered by blockchain technology. Users’ trust will likely shift from well-reputed and experienced decision-makers – be it entities such as courts, or individuals such as arbitrators – towards the very set of rules that constitutes the architecture of the Metaverse itself. The Metaverse architecture is built by smart contracts that are accessible in advance to all users, and those contracts will guide users’ coordination by providing economic incentives and, perhaps, ultimately preventing disputes among them. In other words, within the Metaverse comes an architecture that will create and dispose of the right set of incentives to ensure that a trusted and enforceable decision will be adopted in case of disputes.
Alessandro also considered that one of the core values behind the evolution from web 2.0 to web 3.0 is the shift towards a purely digital identity. That of Metaverse will arguably be an economy linked to entitles that are digitally represented and with their digital reputation. Thus, the phenomenon of pseudonymised users is expected to play a central role in the development of the Metaverse. Experiments in this sense have already been carried out, assessing how interacting with a pseudonym prevents bias and discrimination typically attached to ‘physical’ identity features.
2. STRUCTURE
Q. A key factor in the success of the online dispute resolution (ODR) platform at eBay was the great engagement of users and their will to make the platform flourish. Is it likely that the same will happen with the Metaverse?
CEO of Mediate.com and Arbitrate.com Colin Rule recalled his experience at eBay, where disputes between users were solved by other eBay users. The sense of community among eBay users was so strong that it was perceived as fair and reasonable doing so. In contrast, the same method did not work for ODR at PayPal. There are different levels of commitment and connection among users across different platforms. He argued that in the next few years we will witness the emergence of many Metaverses, the culture and legal system in each will slightly differ, similarly to what happens among e-commerce platforms.
Similar to the evolution of e-commerce platforms back in the web 1.0 era, there will likely be a patchwork of different Metaverses, developed by different competitors (such as Fortnite, or Meta Platforms), and there will be consolidation around a few big players over time. This means that the administrators of these big companies will have great authority in how to operate the Metaverses.
Colin recalled his experience at solving disputes and wrestling about the same questions about 10 years ago at the online multimedia platform Second Life. He considered that the way people conflict with each other through history does not really change, although the way people communicate with each other keeps changing quite radically. Every society in human history had its own way to provide fast, fair, and consistent DR. So far, it appears legit to say that DR was mostly based on geographical instances. However, questions like what jurisdiction a person is from, or where is the seat of the arbitration, have no meaning in the Metaverse. Although we will need to re-invent DR and adapt it to the new environment, DR will not be fundamentally different in terms of the needs it serves. A new civil society will be built in the Metaverse to address the same needs that are addressed in the offline world. In other words, the values are not changing, it is the structure that is necessarily going to change.
Q. Is it not the type of disputes that will arise in the Metaverse the driver to what structure we are going to need? Are the disputes within the Metaverse going to be that different from those we are used to?
Imagination is definitely required as there are going to be new concepts, and thus new questions, in the Metaverse. In his life, Colin has solved housing disputes between ‘virtual’ neighbours at Second Life, and World of Warcraft items sales disputes at PayPal. Handling disputes between gamers will inevitably be very different from handling disputes between NFT traders, for example. He considered that the degree of cohesion among users is a decisive factor in shaping the DR structure, as seen above with the eBay/PayPal scenario.
Colin recalled that DR at PayPal was especially efficient because administrators have full control over the software, and users cannot interfere in any way. They could simply take the money from a party’s account without their consent, they could shut down users’ accounts, or even ban them forever from their ‘walled garden’. All in all, administrators’ power is equal to that of a God. The same could be said about administrators of the Metaverse. It will be up to them to provide fair, consistent, transparent, and impartial rules and DR, so that users do not feel at the Gods’ mercy. May the users perceive that the administrators are using their power capriciously, they will use their power to choose and leave to another Metaverse.
3. ACTORS
Q. What will be the role of artificial intelligence (AI) – is there really a threat in AI resolving disputes in the Metaverse? Is there ever going to be a partnership with AI working alongside humans?
Sean McCarthy, the co-founder of ArbTech and arbitrator in independent practice, argued that the current state of the art does not allow for relying solely on AI for decision-making. That is because at the current state there is hardly any degree of control and visibility over the methodology used to feed inputs to the machines. Consequently, there is no transparency as to what criteria and factors guide AI decision making. Thus, it is difficult to instill confidence in users.
Q. However, picking up on the concept of shifting trust towards a technological process rather than individual decision-makers mentioned above, could it be that humans’ role will become secondary?
While it is likely that AI and machine learning (MI) become time and effort savers at the point when the web 3.0 economy hits scale, Sean argued that, from the users’ perspective, confidence in the human element of the decision-maker will remain. He suggested that the legal community should perhaps recalibrate and take back its primary role as (human) decision-makers rather than merely advocates within the Metaverse. Otherwise, the concrete risk is that legal professionals fall behind the very efficient, easy-to-make AI programmes.
Q. What will be the role of advocates in the Metaverse?
Sean considered that there is a risk that to average Metaverse users, who are crypto natives, so to speak, advocates and legal experts may be perceived as ‘middlemen’ obstructing the immediate and transparent streamline of their disputes. He suggested that the Metaverse environment will necessarily be user-led and that it is important to frontload the whole DR design. Arguably, users will be willing to engage with a tool that they know from the outset, speedy and transparent, to get an immediate decision and then quickly move on.
4. DUE-PROCESS
Q. Due process is considered as one of the most overrated concerns in arbitration. Does it have a future in the Metaverse?
Founder & CEO at Kleros Federico Ast reported that using blockchain technology reinforces the perception of ‘due process’ also for users with no legal background. At Kleros, he uses blockchain within the arbitration process to make sure that no one can tamper evidence, nor can interfere with the appointment of the anonymous jurors. He stressed that it goes for Kleros founders too, who, in this sense, are different from ‘godly’ administrators of e-commerce platforms and Metaverses. This means the arbitration is carried out exactly in the same way as coded in the Kleros arbitration clause. Thus, parties trust the system.
5. ENFORCEMENT
Q. The concept of ownership in the Metaverse is completely challenging the notions of ownership that we have in the offline world. How do we deal with the transition from the real world to the Metaverse, and back again, in terms of enforcement?
Federico mentioned that he can foresee a New York Convention for the Metaverse age, in 20-30 years to come.
According to Sean, while it would certainly be desirable to have on-chain enforcement for DR in the Metaverse, having efficient and diverse off-chain enforcement types is just as much important. We do not live our full lives on-chain, after all. Considering that smart contracts are merely execution mechanisms, establishing private autonomy and valid consent from the outset will be necessary to implement on-chain enforcement in a decentralised environment. In contrast, in a centralised dimension, such as Meta Platforms’ Metaverse, the provider has the power to push any terms of use on the users, including on the management of users’ assets (e.g., Meta software could just take assets from a party’s account without its consent, as in the PayPal scenario above).
Finally, Colin argued that blockchain and smart contracts are not necessarily needed. Users can just walk in and abide by the provider’s terms of use, and they would not be able to tamper with the software. He anticipated that users will likely be drawn to centralised systems, where they know an administrator is providing a trustworthy infrastructure and managing the system. Blockchain technology could still be desirable with regards to evidence, for example, or to get information about arbitrators’ challenges – it would resemble having an unchangeable information security camera 24/7 in the Metaverse.
In conclusion, the field is evolving at incredible speed, shaping its architecture around users’ expected preferences. Is now the time when the vision of a shared space comes to fruition? One thing is for sure: we need to watch out for who the next Gods are.