Legalities of Web 3.0 Investing – Challenges and Prospects

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As the next step from our current iteration of the world wide web, Web 3.0 promises to be a decentralized alternative to the corporate giants that currently control most of the world’s data. The possibilities it offers to users reach far beyond simple financial matters, though those certainly exist—and they’re getting the attention of both investors and lawmakers.

Investing in Web 3.0 is possible through various avenues, but it’s important to know the implications of this technology, including in terms of its legal landscape.

Web 3.0 Investing Prospects

Investing prospects for Web 3.0 include decentralized currencies—i.e. cryptocurrency like Bitcoin and Ethereum—as well as non-fungible tokens (NFTs). Augmented reality and VR are both being employed to create entire digital worlds as well. Companies working to build these worlds as part of the recently-named “metaverse” may be worth investing in as their propositions begin to show promise.

As with any investment, all of these prospects should be approached with care. The legal ramifications of purchasing virtual tokens, stocks, etc. are multitudinous and complex, and the novelty of these technologies means there will need to be new legal definitions and policies implemented as time progresses.

Intellectual Property and Royalties

One of the legal areas of note is that of intellectual property. This is especially relevant for NFTs, which often have creative works as underlying assets. When used with smart contracts, NFTs make it easier for artists to receive royalty payments for use of their work, which can be highly advantageous in jurisdictions that aren’t otherwise friendly toward creators in this area.

That said, there are some important IP issues that buyers and sellers should be aware of. It may not always be clear to buyers that they aren’t necessarily purchasing the copyright to the artwork, and as a result they may end up trying to use their NFT for purposes that are not technically legal (as was the case with the recent fiasco with Spice DAO, who thought they were purchasing rights to Dune). Being aware of these legal particulars can prevent costly mistakes.

AML and Securities Laws

On the investment side of Web 3.0, regulatory bodies are still trying to figure out how virtual currencies should be treated in terms of securities laws. The SEC is pushing for cryptocurrencies to be defined as securities under their jurisdiction, as evidenced by their lawsuit against Ripple/XRP. This would make many of those who trade cryptocurrency subject to strict registration and reporting requirements.

Anti-money laundering is also of high concern for governing entities. For this reason, it is strongly advised that anyone who wants to participate in crypto-trading implement sound preventative measures to make sure money laundering isn’t inadvertently facilitated by their platform or activities. Emphasizing transparency and implementing know-your-customer protocols may help, especially since these measures may come to be required by law.

Cybersecurity

While the data stored on the blockchain is generally secure, it’s not perfectly immune to theft or other attacks. If bad actors can get hold of a private key, they can compromise entire accounts, leading to long-lasting damage for the account holder and (potentially) other entities. It may be hard to track them down as well, given that blockchain technology is highly effective at protecting privacy.

Those who manage platforms or participate in trading on virtual platforms should take steps to prevent data from being compromised. Investing in organizations or individuals who build or implement sound security measures may be wise.

State Laws

In addition to federal and international laws, state laws should also be considered. Each state seems to handle this technology differently, and it may be worth seeking out jurisdictions that tend to be friendly toward Web 3.0. For instance, Wyoming has implemented rules condoning crypto-banking, which represents a significant opportunity for investors.

Additional Considerations

Finally, international laws, taxes, and even current legal conflicts can help guide your investment strategy when it comes to investing in Web 3.0. The way judges rule on matters of dispute and uncertainty will likely impact the way this technology develops in addition to the legal framework surrounding it. As always, an adaptable approach with multiple preventive law tactics in place will likely provide the safest course forward.

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