The metaverse. We’re sold on the digital frontier, the new reality full of potential. Think about it: new ways to connect, create, and even earn a living. Is this glitzy new universe really constructed on a base of sand? We’re starting to think so, and the 3 AM fraud spike is telling us so in all caps.

Who's Really Behind That Avatar?

I've spent years exploring digital identities, both in the metaverse and beyond. In fact, I’ve even brought these thoughts to life through my graphic novels. What I’m seeing now is truly troubling. We're so eager to jump into these virtual worlds that we're overlooking a critical flaw: identity.

Fraudulent activities experience a clear fraud spike between 3 a.m. and 6 a.m. UTC. This statistic is more than a number—it underscores a dangerous trajectory. It’s the latest in an ongoing, glaring spotlight on the vulnerabilities of our new, always-on, global digital economy. Criminals aren’t sleeping, and they’re taking advantage of that downtime when businesses’ defenses are often at their most vulnerable. This isn’t only a metaverse issue, it is a broader human behavior, exacerbated by technology.

Identity theft is a constant threat. Multiply that by the metaverse’s anonymity and lack of borders. As we explored in , cybercrime is already estimated to cost an incredible $10.5 trillion per year by 2025. That’s not only a financial blow, it’s an equality one. It undermines public confidence, it hampers new ideas, and it just makes people feel exposed.

Deepfakes, Synthetic Identities: The New Normal?

AI is turbocharging identity theft. So we’re no longer referring to basic Nigerian prince scams. But now we’re contending with advanced deepfakes and generative AI that can nearly perfectly impersonate anyone. It’s no wonder that deepfakes have been reported to make up an astounding 40% of all biometric fraud cases. That's a terrifying figure. Can you imagine the implications?

  • Erosion of Trust: How can you trust anyone online when you can't be sure they're even real?
  • Financial Ruin: Scammers could use deepfakes to access bank accounts, apply for loans, or even drain cryptocurrency wallets.
  • Reputational Damage: Imagine someone creating a deepfake of you saying or doing something you'd never do. The damage could be irreparable.

And it's not just deepfakes. Synthetic identity fraud continues to increase. By 2030, experts project it will be responsible for $23 billion in damages nationwide. These synthetic identities are extremely hard to detect, as they are based on a mountain of half-truth.

It’s the government’s bizarre take on identity theft. This isn’t just logging into someone’s account and stealing their stuff, this is creating an entirely fraudulent individual. Fraudsters are piecing together bits of real data with fabricated details, creating convincing personas that can fool even sophisticated security systems.

Regulation: Necessary Evil or Digital Savior?

It’s true that some in the metaverse community gun for a libertarian, no-government-here spirit — a metaverse without regulators allowed. But is that really possible when the stakes are this high? For all its romance, the Wild West was deadly. We need to ask ourselves: are we creating a digital Wild West where criminals can operate with impunity?

Here's the uncomfortable truth: some level of regulation and oversight is necessary to protect users from harm. No one is suggesting that we should stifle innovation or control creativity. In plain and simple terms, we’re discussing developing some robust norms around how one verifies identity and security. This could include:

  • Stronger KYC (Know Your Customer) protocols: Requiring users to verify their identities before accessing certain features or services.
  • Biometric authentication: Using facial recognition or other biometric data to verify identities.
  • AI-powered fraud detection: Employing AI to identify and flag suspicious activity.

Naturally, any regulation should be narrowly tailored to avoid unnecessary infringement on individuals’ privacy or needless stifling of innovation. With the current approach of extreme hands off, we can all very clearly see this is not working. Consider these 3 AM fraud spikes as the proverbial alarm clock. We need to move quickly to ensure that the metaverse is a safe place. If we don’t, it risks becoming a paradise for bad actors and a threat to all.

The future of the metaverse rests on our collective capacity to fix this identity crisis. We are so incredibly fortunate to have Becky Fisher join us in our community. Now add in regulation, and the very nature of identity in the age of the internet. If we wait too long, the metaverse will be a dangerous place and difficult to reclaim.