Property Rights Discussions in the Metaverse

Property Rights Discussions in the Metaverse. The Metaverse promises an immersive digital universe where physical and virtual worlds are intertwined (also referred to in Turkish literature as “fijital” or “phygital”), where users experience interactions through avatars, and where a unique virtual economy is established. This new generation of internet technology goes beyond mere technological innovation, bringing with it groundbreaking legal challenges that deeply affect existing legal systems.

The most prominent implications of the Metaverse on law are seen in the field of intellectual property law. While traditionally, only physically existing goods or services were concerned, these new digital universes have brought virtual goods, services, and designs onto the agenda. Specifically, trademark and design law face the problem of the extent to which limitations envisioned in the physical world will be applied in the Metaverse environment. All these developments, especially with virtual lands and digital art being traded via NFT (Non-Fungible Token) technology, have urgently raised the need for legal assurance and classification.

A. Legal Classification of Virtual Assets: A New Form of Property

The classification of virtual assets is a subject of serious academic debate because they do not fully fit into traditional legal categories. Doctrine suggests that virtual property cannot be accepted as traditional Intellectual Property (IP), but rather as an emerging property form that more efficiently governs rivalrous, persistent, and interconnected online resources.

From the perspective of Turkish law and doctrine, it is generally accepted that digital assets and digital data, including cryptocurrencies, are categorized as intangible goods (gayrimaddi eşya). However, this general classification is insufficient to resolve the absolute property claims arising specifically from virtual immovable properties and NFTs. The high financial volumes generated by the Metaverse—for instance, over $100 million in virtual real estate trade occurring in platforms like Decentraland and Sandbox within just one week—demonstrate that determining the legal status of these assets is vital for investment security.

B. Purpose and Structure of the Study

This report focuses on the legal nature of property in the Metaverse environment. Within this scope, the status of virtual immovable property under Turkish Property Law (specifically the Turkish Civil Code, TMK) and the issues of copyright transfer created by NFTs under Intellectual Property Law (specifically the Law on Intellectual and Artistic Works, FSEK) will be subjected to detailed analysis. Furthermore, international dispute resolution, jurisdiction, and the necessity for legislative reform will also be evaluated.

II. Legal Status of Virtual Immovable Property and the Conflict with Property Law

One of the most striking elements forming the basis of the Metaverse is the assertion of property rights by users over virtual lands, similar to the physical world. Although these virtual assets are typically represented by NFT technology and recorded on the blockchain, the greatest legal uncertainty is whether this digital property falls within the scope of traditional property law.

A. The Legal Nature Debate of Virtual Land: Proprietary Right or Personal Right?

The most critical debate in traditional property law is whether a virtual land should be accepted as a proprietary right (ayni hak)—an absolute right granting direct control over the res—similar to immovable property, or merely as a contractual right of use (kullanım hakkı sözleşmesi)—a personal right (şahsi hak)—made with the platform.

Users perceive that this asset creates an absolute property right similar to physical immovable property due to the virtual land’s uniqueness, persistence, and registration via NFT. However, the dominant view in doctrine argues that the purchase of virtual land might actually be a legal transaction transferring a limited right of useof a specific area within the meta-universe.

This creates a profound divergence between the perception of ownership and the legal reality. Viewing virtual property as a right of use lacks the absolute protection that would come with being accepted as a proprietary right. This situation particularly necessitates adhering to the platform’s Terms of Service (TOS) and accepting the platform’s ultimate sovereignty.

B. The Impossibility of Tokenization Against Turkish Property Law Principles

The strict formalism regarding immovable property ownership in the Turkish Civil Code (TMK) and Turkish-Swiss Law makes it impossible for the tokenization of virtual immovable properties to create ownership rights in its current state.

1. Registration and Formal Requirement Mandate: In Turkish Property Law, the acquisition of immovable property ownership is, as a rule, only possible with registration in the land registry (TMK art. 705/1). More importantly, both the obligation-creating transaction and the disposition transaction related to the transfer of immovable property must be performed in the presence of an authorized officer (official form requirement) (TMK art. 706/1) and are strictly mandatory.
2. Legal Inconsequence of NFT Transfer: According to the current legal framework, even if an NFT is produced to represent an immovable property, the transfer of this token will have no legal consequenceregarding the right of ownership. Establishing a system where immovable properties can be transferred via tokenization requires comprehensive changes that would necessitate rewriting the Civil Code and related legislation from scratch.

This rigid formalism fundamentally conflicts with the ease of instant, cross-border transfer brought by blockchain technology. If the transfer of a virtual immovable property is not legally valid under current laws, what the buyer purchases remains in the status of a right of claim (personal right) assertable against the platform, or an actionable claim.

C. The Formalism Crisis and Platform Sovereignty

The retention of the legal status of virtual land as a right of use means that the platform provider maintains ultimate sovereignty. Although users may claim decentralized ownership, the property itself is tied to the Terms of Service (TOS) hosted on a centralized server and managed by a corporation. This highlights the structural contradiction between the claim of decentralized ownership and centralized platform control.

If the platform shuts down or unilaterally changes its terms of service, the value of the virtual land represented by the NFTs could be nullified, as the NFT is a derivative asset dependent on the platform’s promise. Such a conflict was seen in an early example of the virtual world Second Life, which resulted in a class action lawsuit settled for $43 million Linden dollars (equivalent to $172,000 at the time) on the claim of fraud and conversion of property after the platform reclaimed users’ property. These examples show that courts tend to apply real-world legal principles even in virtual property disputes.

The table below summarizes the points of conflict between the fundamental principles of Turkish Property Law and virtual immovable property ownership:

Table II.1: Conflict Between Turkish Property Law Principles and Virtual Immovable Property Ownership

III. NFTs and the Multi-Layered Structure of Digital Property

NFTs, also called “Qualified Intellectual Deeds,” are non-fungible digital assets distinguished by their individual characteristics. Although they use the blockchain technology infrastructure like cryptocurrencies, they represent a commodity or product. NFTs have become the primary vehicle for recording and trading virtual property.

A. Concept, Status of NFT, and its Relationship with Intellectual Property Law

An NFT is not the digital artwork, music, or video itself, but a unique record of ownership on the blockchain. This record contains the metadata of the work and signifies the ownership of a copy of that digital work. From a legal perspective, an NFT generally serves as a digital certificate and is accepted as a movable asset(menkul mal) status under Turkish Law (in terms of FSEK).

The Principle of Duality, which forms the basis of Intellectual Property Law, requires the separation of NFT ownership from copyrights. Accordingly, the ownership of the copy of the work (NFT ownership) is entirely separate from the ownership of the Intellectual Property rights (Pecuniary and Moral Rights) over the work. Purchasing an NFT does not automatically mean purchasing the right to reproduce, distribute, or modify the work.

B. The Problem of NFT Transfer and Copyright Assignment (FSEK Analysis)

The fact that an NFT sale does not automatically transfer copyrights stems from the strict formal requirements of Intellectual Property (IP) law.

1. Formal Requirement in FSEK: According to the Turkish Law on Intellectual and Artistic Works (FSEK), a written form requirement is mandatory for the assignment of the author’s pecuniary rights (FSEK art. 48).
2. Inadequacy of Smart Contracts: A simple NFT transfer transaction performed on the blockchain for cryptocurrency does not constitute a written contract as stipulated by the FSEK. Therefore, this transfer does not legally assign fundamental pecuniary rights such as the right to reproduce or transmit the work to the public.
3. Determination of the Scope of Rights: The scope of rights granted to the NFT holder is determined by smart contract codes and the legal documents, called whitepapers, prepared by the creators. These documents may contain limitations on the commercial use of the NFT. However, whether these documents meet the mandatory written form requirement of the FSEK will be evaluated by courts in a potential dispute.
4. Function as Proof: NFTs can function as a timestamp or a means of proof by recording that an intellectual product was first created or tokenized. However, the NFT alone cannot solve all the problems of copyrights or effect their assignment, especially if the smart contract restricts copyrights or if the NFT was created by individuals who are not the true author of the work.

C. Intellectual Property Infringements: Trademark and Domain Name Conflicts

In the Metaverse environment, when users engage in commercial activities such as selling virtual products or offering services through their avatars, there is a risk of infringement of registered trademark rights.

1. Username Infringement: If a username is used for commercial activity (selling virtual products) and does not remain merely a personal nickname, it begins to function as a trademark under the Industrial Property Law (SMK) art. 29. The fundamental condition for infringement is that the username creates a likelihood of confusion for the average consumer with the registered trademark (phonetic, visual, or semantic similarity).
2. NFT Domain Name Infringement (Cybersquatting): The registration of a domain name as an NFT on the blockchain (e.g., mybrand.eth) and its registration by a malicious third party to block a registered trademark or sell it at an exorbitant price (cybersquatting) creates a legal conflict. This action constitutes both trademark infringement under SMK arts. 7 and 29 and unfair competition under the Turkish Commercial Code (TTK) art. 54.
3. Proactive Protection: Trademark owners need to make preventative registrations in trademark classes 9, 35, and 41, which are critical for virtual services and NFT commerce.

D. Legal Binding Nature of Smart Contracts: “Smart Contract Fallacy”

The scope of NFT ownership is largely embedded in smart contract codes. However, the legal binding nature of smart contracts must be evaluated with a critical approach from the perspective of contract law.

The term “smart contract,” which emerged with the promise of automated execution and the desire of crypto-theorists to do away with law, is regarded as an unfortunate early nomenclature. Legal analyses have clearly shown that a smart contract program is not a contract in itself, but functions more as an execution mechanism. A contract is the expression of bargained-for promises and the intention to be bound; the code only helps to automatically execute those promises. Automatically executing programs are not considered contracts if there is no bargained-for exchange or intent to enter into a binding legal relationship.

The resistance of the legal system to this technological claim—which ignores fundamental elements like intent, promise, and bargaining—has pushed dispute resolution back to traditional written texts (TOS, whitepaper) and courts. Most smart contracts are far from legally binding and can create legal enforcement problems when a dispute arises.

Four-Layered Rights Separation and Assurance Problem

This analytical separation also increases the risk of intellectual property theft caused by malicious tokenization. Although NFTs serve as proof, due to the strict formal requirements of the FSEK, if a work is tokenized without the copyright holder’s permission (fake or imitation NFTs), the transfer of the NFT does not transfer the original rights of the work. This makes the theft of unregistered intellectual products particularly easy, as platforms usually do not verify the token’s legal history. Therefore, as in trademark infringements, it is essential that legal proceedings are conducted not only in the digital environment but also through traditional courts (injunction and compensation lawsuits).

The table below illustrates the separation between NFT ownership and the assignment of copyrights from the FSEK perspective:

Table III.1: Separation of NFT Ownership and Intellectual Property Rights (FSEK Perspective)

IV. Legal Proceedings and International Disputes: Solutions for the Future

The global and cross-border nature of the Metaverse creates difficult uncertainties regarding the competent court and the applicable law (conflict of laws) in property disputes. The interaction of users from different geographies in the same virtual environment makes international legal problems inevitable.

A. Jurisdiction and Applicable Law Problem (Conflict of Laws)

No consensus on a specific jurisdictional rule for the Metaverse has yet emerged in international law. Current legal trends indicate that courts tend to fit virtual assets into existing legal frameworks (fraud, unjust enrichment, conversion of property) and are inclined to apply real-world laws based on geographical or contractual ties.

The only way to contractually resolve this uncertainty is for platforms to clearly state in their Terms of Service (TOS) or whitepapers which country’s law will apply and which court will have jurisdiction in case of a dispute (e.g., Delaware or Swiss law).

B. Protection of Virtual Property and Application of Criminal Law

The operation of criminal law mechanisms in case of theft, fraud, or damage to virtual property is another important issue. Doctrine suggests that virtual property, classified as goods or actionable claims in some legal systems (such as India’s Transfer of Property Act), may potentially allow the application of crimes like theft and breach of trust to virtual assets.

However, the lack of legal precedent and low awareness among law enforcement agencies in practice make the enforcement of criminal law difficult. Therefore, to protect themselves, investors need to prepare legal documents such as virtual lease agreements or multi-owner agreements (especially in platforms like Decentraland that offer multi-user access) with professional support.

C. Decentralized Autonomous Organizations (DAO) and Dispute Resolution

Decentralized Autonomous Organizations (DAOs), as blockchain-based governance structures, have developed alternative dispute resolution mechanisms that offer speed and decentralization advantages over traditional court processes. Robust DAO governance utilizes multi-tiered resolution mechanisms that combine community mediation with on-chain arbitration.

However, even though DAO solutions promise decentralization, the outcomes of these mechanisms still need to depend on the centralized state’s court system for the assurance of recognition and enforcement, similar to international commercial arbitration. For a DAO arbitration decision to be enforceable in a Turkish court, it must seamlessly interact with national laws. Unless recognized by national laws, an on-chain arbitration decision remains merely a technical event, failing to gain legal validity. This indicates that future legislative reforms will require special laws, similar to international agreements, for the recognition of DAO arbitration decisions.

D. Taxation and Inheritance Issues

The taxation and transfer by inheritance of virtual assets that have reached high value contain implementation gaps due to the lack of legal classification. If virtual property is accepted as a personal right or right of claimrather than a proprietary right due to the strict formal requirements in the TMK, taxation, inheritance, and foreclosure procedures should be conducted according to the law of securities or claims, not the rules for traditional immovable property (real estate).

In the US, Second Life, one of the earliest examples of virtual worlds, started issuing Form 1099-Ks for tax declarations to users who received proceeds over $20,000 in 2013. This is an indicator that the economic value of virtual assets forces legal recognition. Legal adaptation is also mandatory in Turkish Law for the transfer by inheritance and taxation of these assets. If virtual land remains a personal right, its transfer and declaration should be regulated not in the land registry, but in a special digital asset registry or securities registry.

V. Conclusion and General Assessment

Debates on property rights in the Metaverse environment are in serious conflict with the fundamental principles of traditional law, especially in the fields of Property Law and Intellectual Property Law. Legally, virtual property is a complex structure that must be addressed in four layers: Property Law (personal rights/license), Intellectual Property Law (license and copyright infringements), Contract Law (TOS/Smart Contracts), and Public Law (taxation and jurisdiction).

A. Summary of Key Legal Challenges

Analyses show that the recognition of virtual immovable property as a proprietary right is legally impossible against the mandatory official form requirement and registration obligation in the Turkish Civil Code (TMK). The purchased asset, for now, is a right of use (personal right) that is assertable against the platform, limited, and dependent on the platform’s Terms of Service.

On the other hand, the assignment of pecuniary rights over the work by NFTs under the FSEK is not possible due to the mandatory written form requirement. Smart contracts are accepted not as an independent legal contract but only as an execution mechanism. This situation creates a large gap between the perception of ownership and the actual legal assurance for both virtual immovable property and NFT-based artworks.

B. Future Legal Recommendations

The resolution of the current legal crisis necessitates inevitable legislative reform. Specifically, the acceptance of a system where immovable properties can be transferred via tokenization mandates rewriting the TMK and related legislation. In this context, the following legal steps are proposed:

1. Establishment of a Virtual Asset Registry (Digital Deed): Creation of a special digital asset registry or registration mechanism, independent of the strict rules of the traditional land registry, but ensuring the principles of legal publicity and specificity for virtual assets qualifying as immovable property.
2. Flexibilization of Formal Requirements in FSEK: Addition of flexible written form requirement regulations to the FSEK that recognize blockchain- based solutions and smart contract provisions for the assignment of digital work copyrights, while guaranteeing the protection of rights holders.
3. International Dispute Resolution Framework: The establishment of international agreements or specific legal frameworks is necessary to resolve the conflict of laws issue and to ensure the recognition and enforcement of DAO arbitration decisions by national courts. These steps are essential to solidify the future legal ground of virtual property.