Web 4.0 and virtual worlds: The next frontier

As public awareness of Web 3.0, the metaverse and other associated technologies increases, there is further pressure on governments, businesses and regulatory bodies to keep abreast of both the possibilities and the risks of these new worlds. In light of this, the European Commission (the Commission) is looking even further ahead than Web 3.0 and recently published a communication entitled “An EU initiative on Web 4.0 and virtual worlds: a head start in the next technological transition”.

The communication:

• Sets out the Commission’s proposals on the use cases, legal frameworks and potential pitfalls of Web 4.0 and virtual worlds.
• Focuses on the application of Web 4.0 in the European Union (the EU), but its proposals are also relevant in the UK and globally.

What is Web 4.0?

To understand what Web 4.0 is, it is helpful to have an appreciation of what is meant by its precursor, Web 3.0.  In short, Web 3.0 is an idea for a new iteration of the World Wide Web which incorporates the concepts of decentralisation, blockchain technologies and token-based economics.

It is important to note that, at this stage, Web 4.0 is effectively a concept rather than an operational technology (in contrast, some of Web 3.0’s constituent parts are already being deployed). The Commission notes that, by publishing the communication, it intends to keep the EU at the forefront of Web 4.0 (despite the fact that it has not yet been fully developed).

Overall, the Commission does not present a clearly defined scope of what Web 4.0 will entail. As defined by the Commission, Web 4.0 is the “expected fourth generation of the World Wide Web”, which will employ a multitude of different technologies including advanced artificial intelligence (AI), the internet of things, trusted blockchain transactions, virtual worlds and extended reality (XR) capabilities.

The vision for Web 4.0 appears to build on Web 3.0’s decentralisation to create an internet experience that is even more collaborative, with user interaction at the forefront.

Application of Web 4.0 and virtual worlds

The Commission takes a broadly positive view of the potential of Web 4.0. Many existing and future use cases for AI and virtual worlds are already being developed and discussed (for further discussion of virtual worlds in the metaverse, see NRF’s guide to Doing business in the metaverse).

The key sectors for use cases that the Commission highlights are:

• Health.
• The green transition.
• Industry.
• Art and design.
• Education.

In the Commission’s view, all of these sectors will benefit from the use of interactive worlds to enhance training, create more accurate stimuli and models and increase efficiencies. In each case, it will be important to ensure that appropriate education and training are widely available to mitigate any risk of a “digital divide” whereby the benefits of Web 4.0 are only available to those who can access advanced technical training.

Key legal issues and regulatory framework

Web 4.0 raises similar legal issues to those that exist for Web 3.0 and other nascent technological advances. From a contractual perspective, some of the most common issues are those of responsibility, liability and contractual rules.  Many of these arise from the fact that parties are expected to be able to use digital avatars to do business in a virtual world. This means it may not be clear who the counterparty to the contract is, or indeed what jurisdiction applies to the transactions being effected under it.

Another important question is whether smart contracts formed over a blockchain constitute legally binding contracts. The answer to this varies according to the applicable law and the nature of the contract, and these issues are likely to remain prevalent in Web 4.0 given its reliance on blockchain transactions. Businesses should therefore consider developing specific contractual terms and conditions when transacting in a virtual world, so it is clear who is transacting, the terms on which they will contract and which jurisdiction will govern the transaction.

Other important legal risks relate to cybersecurity and data protection. These risks are already prevalent in Web 3.0, but will become even more so if people increase their reliance on virtual worlds. If, as the Commission proposes by way of example, virtual worlds could be used to enhance democratic participation or to educate schoolchildren, it follows that there is potential for these worlds to be hacked or misused to, for example, promote disinformation.

There are also financial crime and money laundering risks associated with Web 4.0, due to the lack of regulation and relative anonymity of the parties involved in virtual transactions. These risks are likely to increase as digital assets become more embedded in day-to-day B2B and B2C transactions, as is envisaged in the Web 4.0 sphere.

In terms of the legislative framework, some existing legislation will likely be applicable to transactions in Web 4.0, albeit its application to these transactions may need to be tested in court. This includes data protection legislation (such as GDPR), existing intellectual property legislation and existing labour rights laws for those working in a virtual world.

However, existing legislation will not be sufficient to address all of the specific concerns relevant to Web 4.0. One important piece of the puzzle is how AI will be regulated. The EU is moving towards adopting the AI Act, but this is unlikely to enter into force until 2025 at the earliest. In the UK, the government is developing principles and implementation guidance for a non-statutory principles-based regulatory framework for AI but these are still at an early stage. Given that AI will be central to the Web 4.0 universe, business should bear in mind the principles of this developing legislation even before they become law.

The regulation of crypto-assets also remains in flux. The EU has introduced MiCA as a single EU regulatory framework for crypto-assets (see our webinar, Beyond MiCA: European regulatory regime for crypto-assets), while the approach in the UK has broadly been to bring crypto-asset regulation within the scope of the FCA and the PRA (see our blog, Treasury Committee published government’s response to Regulating Crypto report).

Final observations

Given that Web 3.0 is still itself nascent, it is likely that some time remains until Web 4.0 is incorporated into daily life. That said, the host of regulatory, consumer and security issues that came about following the relatively sudden advent of social media have shown that it is better (from a risk management perspective) to be ahead of technological developments than to lag behind. Businesses, consumers and regulators alike should ensure that they pay close attention to both the risks and the opportunities and Web 4.0 before it emerges as a new technological platform for doing business.