By TYRONE TOWNSEND and KIMBERLEY HAAS
The metaverse is attracting a lot of attention from real estate investors, but they are not the only ones looking to the virtual world for a source of profit. Criminals are watching as well.
Non-fungible tokens are reportedly the target of widespread criminal activity, with schemes including fraudulent giveaways, browser wallet hacks, and social engineering, posing risks to participants. Scams, in general, such as fake airdrops and phishing URLs, are also a cause for concern.
The theft of cryptographic assets is expected to account for more than 99 percent of all illicit activities.
How much money are we talking about here?
The metaverse is expected to be worth $13 trillion by 2030, according to Jet Encila at newsbtc.com.
“Citi is the latest banking behemoth to give an optimistic forecast for the metaverse, which envisions the internet’s future as a collection of decentralized technology and virtual environments,” Encila wrote earlier this year. “The multinational lender anticipates that the metaverse’s user base will grow to as many as 5 billion.”
By 2026, 25% of people will spend at least one hour a day on the metaverse for work, shopping, education, social activities, or entertainment, according to Gartner, Inc.
Gartner for Information Technology Executives provides insight to CIOs and IT leaders to help them drive their organizations through digital transformation and business growth, leaders at the company wrote in a press release.
“Vendors are already building ways for users to replicate their lives in digital worlds,” said Marty Resnick, research vice president at Gartner. “From attending virtual classrooms to buying digital land and constructing virtual homes, these activities are currently being conducted in separate environments. Eventually, they will take place in a single environment – the metaverse – with multiple destinations across technologies and experiences.”
Earlier this year, TCG World announced a strategic partnership with Curzio Research after they spent $5 million to acquire 19 commercial real estate properties inside the metaverse.
The acquisition was one of the largest real estate purchases for virtual property inside the metaverse.
At the same time, the metaverse poses concerns about legislation, property, control, fraud, privacy threats, ethics, and security. As its capabilities grow, it is vital to consider these risks.
Numerous fraud threats, including market manipulation, cyberattacks, privacy violations, money laundering, corporate espionage, and identity theft can affect the future of the metaverse.
Users of the metaverse cannot be sure that the information they post will only be seen by the people they want to share it with, unlike users of traditional social media platforms. Thus, user identities may be monitored and disclosed.
The metaverse attracts a lot of investors since it is decentralized, which means that no single entity, like a bank, is in charge of monitoring the transactions. Local, state, and federal authorities have little capacity to safeguard these ordinary investors due to the permanent nature of blockchain transactions.
That is why metaverse platforms are taking action to prevent fraud.
OpenSea leaders have stated that their platform actively seeks for and removes any products employing phishing URLs.
OpenSea has added a reporting feature that enables users to mark a hacked wallet, after which it will stop products from being purchased or sold from it.
What do potential investors need to know?
Phishing attacks promoting fake NFTs and metaverse land sales are already deceiving people. A recent phishing scam fooled users into entering their private wallet keys by pretending to be Decentraland. This well-known Ethereum-based virtual world gave the criminals access to the victims’ Bitcoin.
CNBC Television’s YouTube channel has a video describing how three women had their online land stolen. It was published on May 26.
On August 31, leaders at the North American Securities Administrators Association issued an Informed Investor Advisory cautioning investors to protect themselves from investment scams and frauds offered in the metaverse.
“Investors should keep in mind that every investment comes with risk, and no investment can be guaranteed against loss,” said NASAA President and Maryland Securities Commissioner Melanie Senter Lubin. “Our experience with so-called investment opportunities found in the metaverse, is that we see the same old financial scams simply dressed in new clothes and offered to investors in the metaverse. Investors need to be wary of any investment that is promising unrealistic returns with minimal risk.”
Most investment offerings are regulated. In most instances, any person or entity who offers or promotes some type of venture as an investment opportunity – whether in the real world or a virtual one – must be registered with one or more securities regulators. The same is true for most investments themselves. If the person or the entity is not registered, there is a real risk that the solicitation is fraudulent, and the investment is a scam. The easiest way to protect yourself is to contact the securities regulator in your jurisdiction1 to verify that the investment and the person/entity offering it are registered. Remember, though, that registration does not necessarily mean the investment is a good one or right for you.
Don’t fall for the hype! Look beyond the flashy online marketing. Fraudsters use popular and emerging social networks to push out hundreds, even thousands, of posts to promote illegal investment offers. They may also create videos that will circulate widely on various platforms to explain how and why the investment is the next big thing. Even if a video, post, or article receives a lot of views, likes, or comments, it does not mean the investment offer is real or worth investing in.
Avoid discussing investments with avatars. Fraudsters will chat with you about an investment offer if you let them. In the metaverse, avatars add another layer of complexity, because you may feel some commonality with the way a person has chosen to portray or represent themself. If someone brings up investing, asks you for money, or discusses finances, it’s best to move on to a different topic. If they are persistent, it’s probably a good idea to avoid the person, and their avatar, altogether.
Don’t share personal or account information. The metaverse is designed to encourage immersive, one-on-one interaction with others through avatars and virtual spaces. Such interactions may build trust and users may divulge their personal financial information or passwords, thinking that the individual they are interacting with is a trustworthy friend. Scammers are good at building trust – both online and in the real world.
Steer clear of metaverse crypto or NFT investment offers. Crypto asset scams have dominated the headlines for the past few years. Fraudsters have stolen billions from investors through various means, including fake NFT and cryptocurrency offers. Rug pulls, also known as pump and dumps, are a common scam. This happens when fraudsters feverishly promote an NFT or crypto project, causing the perceived value of the asset or project to rise, and then abandon it, taking investors’ money and leaving them with a now-worthless digital asset.
Be wary of fake news and online celebrity gossip. Scammers write fake online articles and social media posts that create buzz by falsely stating a celebrity or public figure is involved in a technology investment. They are playing on the fact that this individual is known to invest or have an interest in online trends or financial innovations, like NFTs or crypto. These posts and articles are often part of an online misinformation campaign aimed at attracting investors.
Verify information by making direct real-world contact. Fraudsters may use the name of a real-world business to legitimize a fake investment or financial service offered in the metaverse. Many companies are still evaluating whether to operate in the metaverse. It is best, therefore, to verify metaverse investment promotions by making direct contact with a representative of the real-world business or brand outside of the virtual world where you encountered the offer.
Avoid investment advice in the metaverse. Firms and individuals that provide investment advisory services in the U.S. are typically registered with the Securities and Exchange Commission or one or more state securities regulators. In Canada, firms and individuals must be registered with the securities regulators in the provinces and territories where they operate. Check with your state securities regulator, the SEC’s Investment Adviser Public Disclosure database, or FINRA’s BrokerCheck to verify the registration of status of individuals or firms. In Canada, use the CSA’s National Registration Search.
Look for investment fraud red flags. Fraudsters may say a metaverse investment has little or no risk, while offering guarantees that your money will be safe because you are part of an online community. Remember: every investment comes with risk, and no investment can be guaranteed. Understand the risks and make sure you are comfortable with them, including the possibility that you might lose your entire investment.
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Story idea? Email Editor Kimberley Haas: [email protected]