Money laundering will be too easy in the metaverse


An illustration of how Meta sees people using the metaverse in work environments. Source: provided.

We have been told for some time to prepare. Let the metaverse come.

We saw Mark Zuckerberg excitedly showing off his avatar during the Meta showcase. And even though Facebook has changed its name, apparently trying to pave the way for this globally evolving technology, “owning” the trend is simply impossible for a single entity. This goes against the very core of Web3.0.

Very different from the tech oligopoly we’ve known, Web3.0 is seen by some as an empowering reclamation of their own content and data, which for so long has been centralized in Big Tech.

In many ways, Web3.0 brings us back to the original World Wide Web, where anyone can post anything without having to go through intermediaries and without needing permission from a central body. .

At its essence, Web3.0 is a decentralized, trustless and permissionless token-based economy on the blockchain.

Blockchain is a digital ledger used to record transactions. It is the technology used by cryptocurrencies (digital currencies used as a medium of exchange through a computer network) and non-fungible tokens, or NFTs (a unique unit of data that uses technology to enable digital content such as images, videos and songs to be recorded and authenticated on blockchains).

And while crypto markets are growing and maturing and many small businesses are now accepting it as a form of payment, the thing to know about crypto is that it’s not dependent on a central authority – like a government or a bank – to maintain or maintain it. We don’t even know who invented it. The founder(s) of Bitcoin, the first cryptocurrency launched in 2009, use the pseudonym Satoshi Nakamoto.

It is likely that soon many of us will be using digital currency in a virtual world.

There will be many metaverses. Many fully virtual computer generated realities to connect and interact with other users.

Of course, it’s exciting to think about how this new technology will revolutionize work and play.

But do we pay enough attention to the consequences?

For example, if all you need is a Facebook account to join the metaverse, how will users be protected against fraud and identity theft? How will the user age restriction be enforced? And how will young users be protected from criminals who can easily manipulate them?

While the blockchain is visible and one can have copies of the transactions, the identity of the people behind those transactions is not visible. There is no way to know if the source of the currency is legitimate, which means the metaverse is primed for criminal activity.

In the good old days, i.e. before 2010, money laundering was a highly manual process.

It’s like we see it in Hollywood. Criminals move the money they earn through illegal activities by buying gems, artwork, property, businesses, or boats before converting those assets back into cash.

But before it gets to that point, the money needs to be physically moved into a cash-intensive business to combine dirty and clean money. It is then divided into smaller amounts and deposited into several accounts, including offshore accounts. The rest of the physical silver had to be hidden.

Money laundering in the metaverse can be done the same way. Only it’s much easier because once the criminals turn their money into untraceable and easily hidden currencies, just clicking a button over and over again buys and sells items in the metaverse, producing a long ledger lightning-fast transactions that are impossible for humans to trace.

The absence of traditional intermediaries in Web3.0 means that users do not need to undergo Know Your Customer (KYC) or Anti-Money Laundering (AML) due diligence checks or compliance with sanctions. While this approach supports a considerably more inclusive type of financial innovation, policymakers are right to be concerned about the ease with which illicit transactions will be possible.

After all, how can you ever “know your customer” if the “customer” is an avatar?

We have already seen an increase in crypto-related crime. According to On-chain analysisa blockchain data analytics platform, “cryptocurrency crime hit an all-time high in value last year, with illegal addresses receiving $14 billion in digital currency, up 79% compared to $7.8 billion in 2020.”

What we are looking at here are huge sums of money earned through illicit means held in crypto that can easily be used in unregulated, fast-paced, all-digital environments like the metaverse.

Additionally, crypto can now be stored in mixed wallets such as Join with hidden transactions through anonymous browsers such as Tor thus, not only can illegally obtained funds be mixed and hidden with legitimate sources, but they can also be layered through online entities. It is a simple step to go from there to integration and then to illegal activities.

These activities are highly complex, lightning fast and cross multiple borders. All of this is far too difficult for humans to detect using old approaches that worked in the old-school scenario I described above.

Many people will be affected by cybercrime on Web3.0 without the proper policy and technology in place to protect them.

It is imperative that policy adapts and that cutting-edge technology is used to address these emerging challenges. For example, artificial intelligence (AI) and machine learning could be used for transaction monitoring and identity verification.

Information sharing and cooperation between agencies and between countries will become necessary. Perhaps a more metaverse-friendly version of KYC will need to be developed. Sure, you might only need a Facebook account to create an avatar and enter the metaverse, but if you want to buy or sell, KYC and Customer Due Diligence (CDD) are absolutely essential. .

It took 13 years for banks to catch up with crypto. We simply cannot afford the same delay in monitoring the metaverse.

It’s time to act.


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