The Metaverse will be the new financial crime battleground
Technology, its benefits and illicit use, will always be in an arms race with regulations that protect us and prevent bad actors. And the metaverse will be the latest in a long line of historical innovation versus regulation battles.
The global economy is worth roughly $100 trillion, with about $2 trillion connected to illicit funds. Using this same ratio, the metaverse market size is estimated to be worth roughly $1.5 trillion by 2029, which means that there may be $300 billion in crime-related transactions. This is a conservative projection of the value of metaverse crime as the anonymous nature of transactions and the opaque nature of asset prices make the metaverse—by design—far more crime-friendly.

Metaverse Opportunities

The opportunity for trade-based money laundering on illiquid virtual goods—anonymously transacted—is terrifying. Who can say what the price of a virtual piece of Malibu is worth? The top 10 land deals average over $2 million each, and I would suggest there has been very little oversight as to the fair market value of these transactions.
It is exceptionally easy to purchase an in-game or in-metaverse item for a hugely inflated price as a means of transferring funds. But, it’s important to note that it isn’t all doom and gloom. There’s time to get this right and implement supervision before the volumes become immense. However, we likely said this about crypto and the value of that market has ballooned before regulations were close to being implemented.

3 Challenges to Overcome

There are a few hurdles the metaverse will need to overcome to impact financial crime. This includes the true value of metaverse assets, preserving transaction anonymity while understanding source of funds, and comparing transactions to a user’s on and offline patterns to establish whether they suggest illicit activity.
Let’s dig a little deeper.
The first challenge is likely the hardest because the metaverse is in its nascency and there aren’t a lot of comparables for assets. For instance, what do you think a monkey NFT is worth? Now, ask the person next to you.
The second challenge is easier. I can have a metaverse handle of my choosing to protect my anonymity as long as my metaverse service partners know who I am. In the real world, the holder of this risk is my financial institution. It’s up to them to know who I am when I open an account, and to regularly confirm that through the lifecycle of my relationship.
But who owns this risk and obligation in the metaverse? Is it the digital wallet provider, is it the owner of the particular metaverse I’m in, or perhaps it’s the third-party gaming or retail firms. Whoever owns the risk must take the necessary first steps, including a diligent KYC (Know Your Customer) program for all metaverse participants.
We know how to do this in the real world—it’s standard practice for all financial institutions. And we need to take those same lessons to the metaverse. What’s clear is that a fragmented online series of metaverses, potentially each with different policies, is a nightmare for transparent financial governance.
The final challenge, for me, feels like starting from zero. To understand an individual’s income, expenditure, and relationship profile is already incredibly difficult in the offline world—even with the variety of data sources and the majority of transactions settled in dollars. To do this effectively in the metaverse, you would need to do it for each user’s handles/avatars, across all metaverses and combine that with their real-world profile.
As with many challenges facing us the answer is surely collaboration. Governments, universe creators, and participants—both individual and corporate—must work together and produce guidelines.
There are a very small number of people who could or would spend $2 million on a slice of meta-Malibu. Starting with such edge cases seems like the perfect place. If we don’t, then the volume and diversity of metaverse participants, vendors, and transactions will make it impossible to actively supervise

 

Link: https://www.paymentsjournal.com/the-metaverse-will-be-the-new-financial-crime-battleground/

Source: https://www.paymentsjournal.com

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