Today's Metaverse Difficulties

To set the scene, we'll assume that the term "metaverse" refers to a fictional, three-dimensional virtual environment that is a component of an immersive online role-playing game (Etymology, 2022). The term is derived from the meta element "beyond" and "verse” originating from the word universe.

In order to comprehend this virtual world in which we interact with an avatar, immersing ourselves with various devices such as AR augmented reality glasses, VR virtual reality glasses, haptic gloves, polygonal tracking, and other devices, is necessary. As professionals in various sciences, it is important to know what the challenges or changes are that the operations will face. We'll begin by categorizing them into two groups:

The first refers to those created as centralized metaverses. We'll use the first developed metaverse, Second Life, as an example of this kind of metaverse. This virtual world was launched in 2003 by American business Linden Lab. There are many activities that can be carried out in this virtual environment, including going to concerts, shopping in malls, buying homes, and getting married.

The second category is the decentralized metaverse, a term that is becoming more widely used as a result of the creation of these virtual worlds on the blockchain. 

The answer to the question of why this classification is necessary is surprisingly straightforward: In centralized metaverses, like the that in Second Life, we can make any type of payment using tokens created by this virtual world, while in decentralized metaverses we can make payments with cryptocurrencies. Cryptocurrencies are precisely that which has familiarized us with this book of records (blockchain).

This does not imply that things will remain this way forever; it is possible that at some point in the future, cryptocurrency payments may be supported in all metaverses. Now that numerous commercial actions can be conducted within these virtual worlds, we as legal or accounting professionals must become familiar with these processes.

Example:

To start, let's pretend that our client is a sportswear company. This corporation has purchased certain local metaverses and leased them in other metaverses in order to run its business. This figure already includes a legal analysis.

For purposes of Colombian law, there are two terms that are important in this instance: the commercial establishment and the commercial premises. However, article 515 of the Colombian Commercial Code defines a commercial establishment as a group of goods organized by the entrepreneur to serve the company's purposes, while the commercial premises can be defined as the actual location where the merchant keeps its goods. Due to the fact that we will place things for sale in the virtual space that the client has purchased, the proper classification is that of a commercial institution.

After conducting a brief examination to confirm that our customer has a commercial presence in the metaverse, we will then examine how his acknowledgment would be accounted for. We'll proceed to investigate our client's acknowledgment in accounting matters after a quick investigation has been done to confirm that he has a business establishment in the metaverse.

Although it is true that our customer has performed two different types of operations in this virtual world (buying a property and renting a property), we cannot disregard the fact that what he has initially purchased is a Non-Fungible Token or NFT. On the other hand, if you were to rent space in the metaverse, you would be, in a sense, renting the NFT. Once these operations are differentiated, we can infer their accounting recognition.

When the NFT is purchased, an intangible will be acknowledged. It must adhere to the guidelines in Section 18 of the IFRS for SMEs or IAS 38 in the case of complete IFRS; However, in order to define this classification as an intangible, a legal definition analysis must be done, as our legal system stipulates in article 653 of the Colombian Civil Code:

“Goods are made up of both corporeal and incorporeal items. Corporeal goods are those that have a physical existence and can be sensed, like a house or a book, whereas incorporeal goods are just rights like credits and active easements.”

In light of the fact that an incorporeal thing can be a good and that intangibles naturally follow from the definition of incorporeal, it is evident that the right recognition of premises in the metaverse corresponds to that of an intangible; It is accurate to say that in this situation, our customer will sell items, some of which may be metaverse avatar accessories. As a result, the operation will need to be extended in terms of accounting recognition. However, we cannot confine ourselves to the acknowledgement of a metaverse good buy.

For instance, if various NFT-representational goods are on display in the commercial space with the intention of selling them to users in the metaverse, their accounting recognition equates to an inventory because the NFT serves the purpose of alienation.

Without leaving the products, a new pertinent interpretation of them emerges. This is resolved in a relatively straightforward manner and corresponds to determining if the NFTs acquired in the metaverse are goods on which precautionary actions (embargoes) can be requested, keeping in mind that the legislator's goal is to establish a general rule, it is possible to confiscate all of the defendant's assets in a certain situation.

Contrarily, items listed in article 1677 of the Colombian Civil Code are not affixable. This kind of intangible property is not regarded as unattachable based on its content, thus precautions must be taken. Now, it's important to keep in mind that it is illegal to sell confiscated property because, according to an express clause in Article 1521 of the Colombian Civil Code, doing so would result in the sale of an illicit object.

On the other hand, to date, the International Financial Action Task Force (FATF) has published reports in which it addresses the warning signs of money laundering and financing of terrorism using virtual assets as a means, and in doing so, the FATF discusses stable coins, peer-to-peer transactions, non-fungible tokens, and decentralized finance (DeFi).

However, a quick examination of the application on this subject reveals that at the moment, only cryptocurrencies are subject to control related to the danger of ML/TF. This is because compliance officers don't have a thorough understanding of the metaverse and the kinds of operations that can be done there. As a result, compliance officers are required to expand their counterparties' knowledge of assets owned or traded in the metaverse in order to properly segment their counterparties and lower risk in the face of ML/FT. 

Subjects of Law:

Nevertheless, the term "avatar" by itself does not fall under the purview of the legislation. The subjects of individual rights—individual people capable of obtaining rights and obligations, often known as physical or natural persons—are what our legal system defines as the subjects of law. The crimes that can happen in the metaverse—which correlate to the deeds we commit in this virtual environment with our avatars—have become another topic of discussion. On the other hand, there are those who establish themselves as legal persons, or collective rights subjects. In this context, it's crucial to bring up a case that was given in the META metaverse in December 2021, which can be summed up as follows:

A harassment complaint was lodged with the corporation in the beta version of Horizon Worlds, a virtual environment accessible in the US and Canada. One of the users asserted that her avatar would have been touched by another without their consent. 

The exposed case poses a challenge in terms of rights, so it is crucial to investigate the case to determine whether or not new rights are indeed created as a result of the metaverse. For instance, it is important to determine whether or not it is illegal to morally affect a person by "handling" his avatar, as this would result in the development of new penal typologies. Other issues include determining the appropriate jurisdiction when the facts have been presented in a court of law. What would you do if the metaverse were decentralized, that is, if it were housed on nodes all around the planet rather than a single server?

Language Barriers:

Last but not least, labour issues present significant obstacles that, in one way or another, create incredibly intriguing business potential. For this scenario, we can envision that the language barrier will be at its lowest point as soon as we enter a meeting with participants from various nations; in other words, if the meeting participants do not speak the same language, the connection in the metaverse will immediately perform the necessary translation. Business prospects will readily overcome the language barrier as a result, which is a very positive development. Case studies do, however, occur in the areas of money and employment, including the kind of work contract that needs to be divorced from the services offered in the metaverse.

It's important to keep in mind that being fully immersed in a virtual world necessitates a constant connection to outside devices, which can lead to occupational diseases. Another case study is the work schedule, as it won't be possible to connect to a meeting with a client on another continent due to time differences.

Although it is true that I can prove the employer's address and present a contract signed by all parties as evidence, there may also be disagreement regarding who will be the appropriate judge to solve them. In the extreme case, if the employer only exists in the metaverse, how will jurisdiction be established to resolve disputes?

To address harassment claims or other issues in labour-related affairs, a meta-legislation will eventually be developed. The market volatility creates a challenge for the accounting department in terms of recognizing their expenses for employee benefits if this type of payment is agreed upon given the fluctuation. Finally, if the payment of the salary in crypto assets is established, we must ask ourselves if we have sufficient knowledge to accept this payment.

References:

Etimología . (2022). Metapolis. Obtenido de https://n9.cl/c5wr1
Farrés, H. (2021). Denuncian el primer caso de acoso sexual en el metaverso de Mark Zuckerberg. Obtenido de lavanguardia.com/: https://n9.cl/bgnjdb

Author:

Óscar Rodrigo Opayome Ramírez is Managing Partner at AGA Accounting firm member Visión Contable & Financiera Ltda. For more information email oscaropayome@vcfauditores.com

Further Reading:

Blockchain from the Perspective of a Public Accountant

About Visión Contable & Financiera Ltda:

With foundations based on ethical, responsible, and quality principles, at VCF we are dedicated to meeting the needs of individuals and commercial organizations through the provision and delivery of fiscal review and related accounting and other science products, thereby contributing to the consolidation of the country's business sector.

As Alliott Global Alliance's accounting representative in Bogota, Colombia, our experts have a wealth of experience auditing social and solidarity enterprises as well as for national and international clients in the building, agricultural, oil and gas, and trade sectors. We take great delight in providing clients with high-quality services while staying at the forefront of technical advancements, therefore giving our clients peace of mind.