Digital Assets

Digital assets – While the term ‘digital assets’ has been increasingly featuring in legal literature as well as public discourse over a few decades, a consensus is yet to emerge on what exactly this concept entails. It usually refers to any intangible asset of value, both in economic and non-economic terms. This broad view will cover anything from online digital content, social network profiles, emails, online games and any associated game items, avatars, and currency, as well as user-generated content, documents created and stored online, e-books, online music, crypto-tokens and crypto-assets, and metadata relating to any of these types[1]. This is a non-exhaustive list and one that will continue to expand, especially in relation to new and emerging technologies.

In the absence of a legal definition and recognition of digital assets by different branches of law (property, tort or succession law), those that acquire digital assets (by opening a social media account, purchasing a skin, or minting an NFT) cannot avail of a legal remedy in case their digital assets are stolen, lost, cannot be accessed, or if they are to be included in a trust or estate.

Consultation Paper

For example, the recent Law Commission’s Digital Assets Consultation Paper[2] aimed to address this legal uncertainty by examining the suitability of property laws in England and Wales with regards to digital assets. It proposes creating a third category of personal property, encompassing ‘data objects’. What exactly qualifies as a data object and how it may relate to the third category of personal property is, however, unclear. From all the different types of digital assets the Law Commission examined, only crypto-tokens attract property rights based on the necessary criteria (for instance, to be identifiable, excludable, rivalrous, separable, and of value). The Consultation does not directly address issues arising under succession or tort law and available legal remedies.

NFT

It is worth providing a brief explanation of crypto-tokens, namely non-fungible tokens (NFTs), as they have dominated the debate with regards to digital assets in the last few years due to high-profile media coverage. NFTs are the result of tokenisation of assets, where any object, physical or digital can be represented in a digital form (an image, audio, or 3D representation), as a token, which exists as a digital unit of value, recorded on the blockchain as a unique computer code. NFTs can take different forms, but most commonly exist as metadata files containing information that has been encoded with a digital version of the object that is being tokenised[3].

However, the issues surrounding property rights (distinct from intellectual property rights, especially copyright) in digital assets are not new; they have been identified, debated, and examined for over two decades in the context of video games and interactive entertainment. The terms ‘virtual property’ and ‘virtual economy’ was famously coined by Castronova in 2002 in relation to his economic analysis of the virtual world Norrath[4]. When it comes to players’ accounts, avatars, in-game items or game currency, players currently do not have any property rights in these digital assets, and only limited safeguards guaranteed by privacy and consumer protection laws. This position is further reinforced by licence agreements and terms of service, and the de facto technological dependence on the provider of the platform or service. Addressing the gap between players’ expectations about acquiring rights in digital assets through gameplay, creativity or genuine transactions, and the position of the law, is the main objective of the concept of virtual property.

Conclusion

From this brief introduction, it is clear that this issue is not confided to video games and interactive entertainment but has a fundamental question for the post-digital era and, most crucially, the Metaverse[5], which relies on the concept of virtual property as one of the core features facilitating a truly immersive, interactive, and interoperable experience.

[1] Michels J.D, Hartung S. and Millard Ch., ‘Digital Assets: A Call To Action’ (2021). Available at SSRN: https://ssrn.com/abstract=3925439 (Accessed:15 March 2024).

[2] Law Commission (2022) Digital Assets – A Consultation Paper, 28 July. (Accessed:15 March 2024).

[3] Guadamuz A, ‘The treachery of images: non-fungible tokens and copyright’ (2021)16(12) Journal of Intellectual Property Law & Practice 1367.

[4] Castronova E, ‘On Virtual Economies’ (2002) CESifo Working Paper, Series No. 752. (Accessed:15 March 2024).

[5] Dimita G, Lee Y.H, MacDonald M, Catton A, Kavcar Penbegullu Z.K, and Pulido Lock J.A., ‘IP and Metaverse(S)’ – an Externally Commissioned Research Report (February 1, 2023). Published by the Intellectual Property Office, February 2024, Queen Mary Law Research Paper No. 427/2024, Available at SSRN: https://ssrn.com/abstract=4756583 (Accessed:15 March 2024).