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© Indic Pacific Legal Research LLP.

For articles published in VISUAL LEGAL ANALYTICA, you may refer to the editorial guidelines for more information.

Regulating Spatial Commerce Projects



This article is co-authored by Poulomi Chatterjee, Contributing Researcher at VLiGTA.

 

Web 2.0 was a significant milestone in the evolution of the internet as it facilitated the rise of decentralized communication. However, Web 3.0 seeks to elevate decentralization to an unprecedented level by empowering end-users with greater control. The centralized nature of Web 2.0, which was dominated by large platforms and aggregators, meant that users had limited control over their data and interactions. In contrast, Web 3.0 leverages decentralized blockchains and smart contracts to create a permissionless system that gives users complete autonomy.


Web 3.0 represents a new era of decentralized infrastructure that prioritizes privacy and empowers users to interact with each other directly. This is made possible by the principle of "programmable trust" enabled by smart contracts. The trust-lessness feature ensures that users can interact with one another without the need for intermediaries such as Google, Facebook, or Instagram. As a result, users can enjoy a greater level of security and privacy.


The possibilities offered by Web 3.0 technologies are truly awe-inspiring. With our imagination and aspirations, we can envision a simulation space that offers unparalleled opportunities for visualizing data, exploring what-if scenarios, and making informed decisions. The potential of Web 3.0 is vast, and we can only begin to scratch the surface of what is possible.


Ushering Possibilities of Web3 in Public Policy


A perfectly woven strategy for availing the surface of Web 3.0 technologies will not only encourage the development of platforms and avenues for Indian businesses and entrepreneurs but will also lead to exponential growth for Indian commerce. This would be made easier particularly with the help of a regulatory sandbox system, which will monitor live testing of new Web3 goods or services in a supervised environment for the purpose of which regulators may permit some relaxations. In this regard, the Government of Telangana has already taken steps to include the possibility Web 3.0 and related technologies in its commercial space to help Indian startup owners working in this industry.

As the commercial space of spatial technology involving technologies familiar with the features of Web 3.0 continues to develop, the lack of regulatory aspects keep on spiralling more and more crimes, especially in context of knowledge-based countries, such as the United States. The FTX Crypto Scandal is just one of the examples in this regard which particularly involve the advent of “cryptocurrency,” i.e., a type of Web 3.0 technology. So far, the following regulatory challenges have been discovered which need to be countered as soon as possible for allowing the full potential of Web 3.0 technologies.


Ensuring Cyber Hygiene

Spatial Commerce, under the purview of Web 3.0 technologies are particularly user-maintained spaces, wherein data privacy is arguably lacking. An example of this could be the fact that although initially Digital Wallets used to be anonymous, the tools existing today are getting better and better at attributing the wallet identities based on the transaction history. This is dangerous because once the border of anonymity ceases to exist, data privacy cannot be maintained.

If this is the future of Spatial Commerce under the purview of Web 3.0 technologies, it is possible that the aforementioned user-maintained spaces may experience a fallout due to the increased potential of data breaches and unsolved cybersecurity issues. Thus, in order to make such user-maintained spaces mainstream in Spatial Commerce, we must be able to implement proper cyber hygiene protocols for the purposes of protecting the users’ data and maintaining the veil of privacy along with anonymity.


Cryptocurrency as Legal Tender

Cryptocurrency, is yet, the only technology that has surfaced amongst the public as an innovative solution that can help solve complex issues in today’s regulatory market, under the purview of Web 3.0 technologies. Moreover, it is even being proposed that cryptocurrency be used as legal tender in order to create a decentralised, permissionless system operating with the help of trust. However, one of the main challenges in this regard is the lack of proper regulatory mechanisms to control the overarching effects of cryptocurrency.


Jurisdictional Issues

One of the biggest features of Web 3.0 technologies is the decentralised nature of regulation, rather than a centralised one, which imposes sanctions through an overseeing body in case of omission of a consideration. When the Internet was introduced, the governments across the globe faced similar jurisdictional concerns, since the Internet did not form part of the exclusive jurisdiction of any particular regulatory body. Thus, with the advent of Web 3.0 technologies that promote decentralisation and a permissionless system, governments across the globe have had difficulty in finding the appropriate means to make such Spatial Commerce spaces safe for consumers and end-users.


Intrusive Nature of ICETs

The intrusiveness of emerging digital technologies included under the purview of Web 3.0 that have the capability of putting the State's sovereignty to the test, misusing consumer data, attached privacy concerns, the spread of false narratives, as well as any other bias in the algorithms that could influence unfair means of transactions are only some of the problems that policymakers may need to think about when trying to make Web 3.0 technologies applicable in the existing space.


Enforceability of Smart Contracts

One of the biggest challenges with regard to making Web 3.0 technologies appropriately applicable is the enforceability factor of smart contracts. Since smart contracts are not yet legally enforceable, it limits the potential for adapting to the Web 3.0, by limiting the role of heavily regulated entities, and thus limits the ability to develop expansively.


Ensuring Consumer Protection and Security

As mentioned previously in the article, ensuring consumer protection and security to the data of such consumers and end-users is an extremely big factor in being able to decide whether the technologies brought forth under the purview of Web 3.0 will be adopted en masse or not.


Amongst the plethora of Ponzi schemes happening across the world, Cryptocurrency, one of the products of Web 3.0 technologies, is one of the sectors wherein scams are frequenting. This not only increases the chances of money laundering schemes, but also poses as a bad sector to invest in, especially since enough consumer protection is not provided.


While the potential of Web 3.0 is undoubtedly immense, it is important to acknowledge the current limitations and challenges. Decentralized systems are still in their early stages, and as a result, there are concerns about scalability, interoperability, and user adoption. These issues are particularly pressing as Web 3.0 seeks to challenge the dominant centralized models of the internet.


Furthermore, it is essential to distinguish between the hype surrounding Web 3.0 and the actual capabilities of the technology. While the promises of complete decentralization and user autonomy are enticing, they are not yet fully realized. It is crucial to approach Web 3.0 with a critical eye and to recognize that the technology is still evolving.


In fact, it is true that certain aspects of Web3 technologies are being adopted while the technologies as a whole are not yet fully realized. This is due to the fact that the development of Web3 technologies is still in its early stages, and there are many challenges to be addressed before they can be adopted on a larger scale. Additionally, there is a significant amount of hype surrounding Web3 technologies, which can lead to unrealistic expectations.

A rules-based system that embraces accountability for using Web3 products, systems and services may be emphasized for letting the full potential of Web 3.0 technologies to be unlocked. This is especially true in the context of the 2021 NASSCOM Industry report on Cryptotech, which estimated that more than 800,000 jobs may be generated by 2030 in the Indian Web3 Industry alone. Thus, in order to avoid the vacuum of regulatory policies leading to outflow of capital from the country, we must cement the regulatory loopholes in this conundrum of a spatial commerce.


Spatial Commerce is an example of a project that is using certain aspects of Web3 technologies while not fully utilizing them. Spatial Commerce refers to the use of virtual and augmented reality to create immersive shopping experiences. While Spatial Commerce is using some aspects of Web3 technologies such as decentralized marketplaces and cryptocurrencies, it is not fully leveraging the decentralized nature of Web3. Additionally, there are still many technical and usability challenges that need to be addressed before Spatial Commerce can become mainstream. In this article, we discuss the legal and regulatory aspects of Spatial Commerce Projects.


What is Spatial Commerce?


Spatial Commerce refers to the use of virtual and augmented reality to create immersive shopping experiences. From a legal perspective, Spatial Commerce raises a number of issues related to intellectual property, data privacy, and consumer protection.


One of the key legal issues in Spatial Commerce is intellectual property. Virtual and augmented reality environments require the creation and use of digital assets, including 3D models, textures, and animations. As such, there is a need to ensure that these assets are properly protected by copyright, trademark, and other intellectual property laws. Additionally, there may be issues related to the ownership of virtual property and the use of real-world trademarks and logos within virtual environments.


Data privacy is another important legal consideration in Spatial Commerce. Virtual and augmented reality experiences may require the collection and processing of personal data, including location data, biometric data, and user preferences. As such, there is a need to ensure that appropriate data protection measures are in place, including obtaining user consent, providing adequate notice, and implementing appropriate security measures.

Finally, consumer protection is a key legal consideration in Spatial Commerce. Virtual and augmented reality experiences may involve the purchase of virtual goods or services, which may not be subject to the same consumer protection laws as physical goods and services. Additionally, there may be issues related to product safety, misleading advertising, and unfair commercial practices.


Now, in Spatial Commerce, transactions and business relationships can be formed in a variety of ways, depending on the specific application and platform being used. Here's an example of how transactions and business relationships might be formed in a virtual reality (VR) shopping experience:

  1. Let's say a consumer is browsing a VR shopping experience for a new pair of shoes. They find a pair they like and want to purchase. To make the purchase, the consumer selects the shoes and initiates the transaction through a digital interface within the VR experience. The transaction is processed using a cryptocurrency or other digital payment method.

  2. At the same time, the VR shopping experience may use smart contracts to establish business relationships between the consumer, the seller, and any third-party intermediaries involved in the transaction. For example, a smart contract might be used to automatically transfer the payment to the seller once the consumer confirms receipt of the shoes.

  3. In addition, the VR shopping experience may use data analytics and machine learning algorithms to personalize the shopping experience for the consumer. This could include recommendations for other products the consumer may be interested in, based on their browsing and purchase history within the VR experience.

In Figure 1, the example is presented as visualised.

How Spatial Commerce Transactions work.
Figure 1: Spatial Commerce Transactions, Explained

Now, the main selling point of Spatial Commerce is the virtual experience of understanding the products and services offered. This may very well work in frugal industry sectors like shopping, gaming, entertainment & arts, FMCG, influencer marketing, cosmetics, furniture, etc. These are still few sectors but there could be a lot of such frugal areas where using virtual reality (VR) or extended reality (XR) could be a game-changing effort. Like in the case of Generative AI, there are some genuine solutions, more into art, visual and audio and not many in text-based large language models; it could be limitedly safe to state that Spatial Commerce is a much better way to see how Metaverse could really work. The Metaverse was always overhyped. However, encouraging digital interactions which Mark Zuckerberg calls as "embodied internet" must mean something in real life. Why these interactions matter is always the point, which even regulators should necessarily ask.


Where Regulation Begins in Spatial Commerce


Unlike the case of Virtual Digital Assets, whose regulation would begin with a restrictive overtone, Spatial Commerce could be observed to estimate its impact in advertising, marketing, consumer ethics, intellectual property and product liability issues. In a generic fashion, if we are not mixing technologies like artificial intelligence here in a sense that it disrupts something in ordinary course of impact that demands legal recourse, then there are two aspects which could be taken as starter points in all the fields stated. Spatial Commerce could be considered a Web3 achievement, but in reality it still exists in the Web2 framework and can easily be regulated in a positive and flexible sense.


Now, the two aspects that could make Spatial Commerce interesting to estimate are - (1) Use of Spatial Commerce as a generic tool whose digital interface is familiar to consumers in a normal sense; and (2) the Digital Interface of Spatial Commerce by design is regularly unfamiliar. Now, case 1 is easy to understand and there is no doubt about that. In Case 2, one can understand that there are certain use cases which are tested and presented. These use cases could involve the use of other classes of disruptive technologies, in physical, digital or any forms (considering that metaverse is not the default here). Questions related to human autonomy and consumer choices will come in future and there is no doubt that the environmental costs of Spatial Commerce would be taken on radar.


One more interesting aspect, that may turn up is how jurisdictional concerns may rise on digital connectivity and transnational engagement. Although there is no need to have a restrictive approach towards this - it is better to analyse relevant trends and estimate how would Spatial Commerce be put into use. For sure, how would platforming and holding an intermediary status for e-commerce platforms may also come in if necessary, in case - hypothetically, Spatial Commerce goes the Social Media or Recommendation Media way, thereby becoming social spatial commerce.




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