In the six months since Mark Zuckerberg announced that Facebook was rebranding to 'Meta' and would invest $50 million in its upcoming "metaverse", the term has been a hot topic. Nevertheless, without any solid definition of what the novel technology is, the hype begs the question: what does the "metaverse" mean? Further still, how might the metaverse accommodate the life of a corporate transaction?
Below, we give a brief description of the metaverse and how corporate transactions may be completed in the metaverse.
What is the metaverse?
The metaverse exists as a rapidly evolving concept and signals the evolution of the internet from web 2.0 to web 3.0. At its core, the metaverse is a user-to-user service in either a single online immersive environment or a series of interconnected environments where users can interact with each other via their digital identities and create, purchase and sell digital assets.
The virtual environments use a blend of emerging technologies, such as artificial intelligence (AI), blockchain, cryptocurrency, virtual reality (VR) and augmented reality, to immerse users in a 3D digital experience.
Life of a corporate transaction in the metaverse
The existence of a metaverse and engagement with it by law firms and other advisers has the potential to change the way corporate transactions are done.
Most elements of the due diligence process have already transitioned from physical to digital format. For instance, prior to circa 2005, data rooms were largely hosted physically, where the seller made available hardcopy documents in a physical room for the other side to physically inspect. However, since then, data rooms have increasingly been hosted virtually in online cloud storage solution and nowadays a physical data room is the exception.
With the natural progression in technology, the metaverse may allow data rooms to be hosted in a digital environment which may appear and be used in a similar way to a physical data room, allowing users to engage with the blended reality. However, cyber security measures, security protocols and data protection measures would need to be implemented by both the data room providers, the respective parties and law firms in order to protect confidential information hosted in data rooms in the metaverse.
Negotiations and signing of documents
Traditionally, negotiations of key documents were held either in person or over the phone and only rarely would lawyers negotiate documents via videoconference.
Similarly, transaction documents were customarily signed in person at one of the parties' or advisors' offices or by email exchange of scanned copies of the signed documents. Since the COVID-19 global pandemic, however, there has been a transition from in-person document negotiations to negotiations conducted over videoconference. Likewise, the use of electronic signatures in corporate transactions has increased and at present the use of electronic signatures on corporate transactions is prevalent.
With the use of VR-headsets and integrating document management systems (DMS) and/or immutable ledgers into the metaverse, negotiation of documents as well as the signing of documents in the metaverse could be held in virtual office spaces, where parties attend with their digital identities in order to negotiate or sign documents. Any negotiations, document amendments or signing of documents could be stored contemporaneously on the firms' DMS and/or blockchain ledgers.
Currently, there are some obstacles to the electronic signing of documents. For instance, although a deed can be signed electronically, witnessing remotely via videoconference is not possible. The Industry Working Group on Electronic Execution of Documents, in its report dated 1 February 2022, recommended that legislators enact laws to overcome these issues by, for instance, creating digital identities for all members of society. Depending on how these recommendations are taken into account and adopted the law may make it easier to execute deeds, for example, in the metaverse and overcome some of the current practical obstacles transaction parties face when it comes to executing deeds. This would add to the flexibility and efficiency of the English legal system.
Deal making in the metaverse may integrate traditional deal making into the virtual world, which would be welcomed by many lawyers. Not only would deal making in the metaverse be more efficient, it would also allow the relevant parties to interact with each other in a secure platform which uses immutable ledgers to track progress and developments throughout a corporate transaction's lifecycle. As with any new technology, the risks of conducting sensitive transactions in a virtual world will need to be carefully managed.
In order for the above to materialise, the law in England and throughout the world would need to adapt and the tools available for interacting in the metaverse need to be accommodating.
Read more about work by Tech London Advocates to address emerging legal issues with Blockchain and associated technologies.