As the scale of web3 and the metaverse continues to grow, apps and services may have to contend with an influx of duplicate accounts seeking to steal user identities to defraud and deceive. Experts believe that many of the malicious actors will be AI-based.

But that may be already starting to change. In the last few months, web3 outfit Identity Labs launched NFID,  a decentralized identity and login tool that does not require a password, allowing users to verify their identity by linking their phone number to their account.

The identity platform uses zero-knowledge (zk) cryptography, a technology that can prove the validity of data without revealing any other personally identifying information. NFID is built on Dfinity’s Internet Computer blockchain.

Digital identity for web3 and metaverse

According to Identity Labs founder Dan Ostrovsky, enabling what he calls unique “proof-of-humanity” may be key to eradicating AI adversaries and opportunists to guard against the risk of fraud in web3 and the metaverse.

“By leveraging zero-knowledge cryptography, biometrics, and other verification methods to confirm a user’s identity, NFID ensures that a person is who they say they are while safeguarding user privacy,” Ostrovsky told MetaNews.

He described “proof of humanity” as a concept that proves that humans are who they say they are when interacting with applications in the digital realm. The idea is to prevent people, or non-humans as it were, from abusing internet systems through multiple accounts.

0/ We're often asked why the @IdentityMaxis are building #NFID on @dfinity's #ICP, especially in this tremendous bear market. Here's how I respond 🧵👇

— Dan Ostrovsky ₿ Ξ ∞ (@danostrovsky) November 14, 2022

Digital identity is the cornerstone of web3 and the metaverse, according to Ostrovsky, as it enables trust and security in decentralized systems. In web3, digital identities will be used to govern interactions between users and the metaverse, as well as financial transactions.

Digital identities can take two forms. The first is a digital version of an official physical ID document, like a passport, stored on a mobile crypto wallet. The other is a credential for accessing online services such as DeFi apps, NFT marketplaces, and other web3 services.

In both cases, digital identities are used to verify the identity of the user and ensure they have the necessary permissions to access certain services or perform certain actions. But the rise of AI poses a significant threat to web3 and metaverse activities.

AI security risks

As AI becomes more advanced, it will become increasingly difficult to distinguish between real and fake identities, according to experts. AI has the potential to undermine the security and privacy of digital identities. As one example, it can be used to create deepfakes, realistic but fake images or videos used to impersonate someone else, including their voice.

Deepfakes can be deployed to create false digital identities, something cybercriminals could leverage to commit fraud or other malicious activities. AI can also be utilized to analyze large amounts of data to identify patterns and vulnerabilities in digital ID systems, which can be exploited by hackers.

To combat this threat, Ostrovsky suggests developing new technologies that can detect and prevent the use of fake identities. This could include the use of biometric data, such as facial recognition or fingerprint scanning, to verify the identity of users.

“The ubiquity of digital avatars in the coming metaverse will likely result in an uptick in fraud and phishing attacks,” he told MetaNews.

This may be already a common practice on social platforms like Twitter, he said, adding:

“The ability to easily imitate these avatars could catch many off guard, tricking them into thinking they’re interacting with a friend when they’re actually conversing with a fraudster harvesting details to pull off social engineering scams.”

Ostrovsky emphasized the importance of privacy in digital identity.

“Users need to have control over their own data and be able to decide who has access to it,” he said.

It means that digital ID systems need to be designed with privacy in mind, and users should have the ability to revoke access to their data at any time.

Privacy threat

Put simply, web3 is a decentralized internet powered by blockchain and token-based economics. Non-fungible crypto tokens are expected to play a key role in web3 as a medium of exchange.

Experts are concerned about the risk of fraud and a lack of safeguards on the biometric data collected for creating digital identities in web3. Big tech has in the past failed to secure personal information, and there are concerns about private firms collecting biometric data in a crypto industry that largely operates beyond regulatory oversight.

It is inevitable that comparisons have been drawn with Worldcoin’s ill-fated plan to scan the irises of one billion people in exchange for free money. The project was roundly criticized as a disaster waiting to happen for harvesting people’s biometrics in an unethical way.

Also read: Goldman Sachs Report Warns AI Could Impact 300 Million Jobs

Identity Labs’ Dan Ostrovsky believes that digital identities, as epitomized by his company’s NFID system, will play a crucial role in the development of web3 and largely address such concerns.

As the internet becomes more decentralized and open, these IDs will be used to ensure trust and security in decentralized systems.

Last year, layer two protocol Polygon also launched its Polygon ID, a decentralized and private identity service for web3 and DeFi. Polygon hopes the ID will be a useful tool in determining credit scores in web3 and decentralized finance lending.

The Sandbox, one of the most patronized decentralized virtual worlds, recently announced that it has teamed up with Ledger Enterprise, a company whose infrastructure solutions safeguard businesses’ crypto assets. As part of the deal, Ledger will provide security integration to all of The Sandbox’s enterprise brand partners. 

An ongoing collaboration

The alliance will enable brands to easily and simply secure their LAND, virtual parcels digital real estate within The Sandbox metaverse. LAND allows game designers create digital experiences such as dioramas or games and populate them with assets.

What’s more, enterprise brands will be able to secure wallets that house their Sandbox NFT collections. To be more specific, brands can add The Sandbox as a decentralized application (dApp) on Ledger Enterprise.

Additionally, users of Ledger’s live desktop application will see the integration of a widget for the Sandbox. The Sandbox will recommend Ledger Enterprise to clients, while Ledger returns the favor by recommending The Sandbox to those interested in breaking into the possibilities of the metaverse.

We are partnering with @ledger_business to enhance security for enterprises in the #metaverse! 🔒

Bringing scalable security and treasury management to #TheSandbox, and allowing for seamless integration for brand partners.#LedgerEnterprise @Ledger pic.twitter.com/WELaF0MiXm

— The Sandbox (@TheSandboxGame) March 23, 2023

Lastly, with crypto hacks soaring by 15% from 2021 ($3.3 billion) to $3.8 billion in 2022, the alliance with enable clients to migrate all Sandbox NFT collections to a secure Ledger Enterprise wallet that benefits from additional security. 

The latest collaboration between The Sandbox and Ledger comes seven months after the two firms partnered to develop “Ledgerverse” in August 2022. 

Ledgerverse was created to educate people about the need for crypto security education, with detailed content on how users of the entire DeFi sector can protect their wallets from cybercriminals. 

Tommy Hilfiger partners with the Sandbox 

On March 28, Tommy Hilfiger announced via its verified Twitter handle that it has teamed up with several metaverse-related firms including Roblox and The Sandbox. According to the post, this will bring the brand’s lifestyle into multiple digital communities.

The Sandbox remains one of the most sought-after digital collections in the market. As of 09:30 UTC on March 29, the project’s highest seven-day sales ranged from $2,000 to $5,000 despite a sharp decline in the total number of sales, data from Nonfungible.com showed.

Sandbox token up over 60% this year 

Unlike other metaverse tokens that have seen mild gains in 2023, SAND is one of the cryptocurrencies that has brought multiple percentage returns to its holders. 

Following the market rebound earlier in the year, SAND soared by 114% to a yearly high price of $0.9365 on February 8 after opening the first day with a trading price of $0.3831 amid a substantial rise in investor demand. 

As of 09:30 UTC on March 29, SAND was exchanging hands for $0.6455. Overall, this brings the SAND gains year-to-date (YTD) to 68%, data from crypto price tracker CoinMarketCap showed. 

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Government-backed non-fungible tokens (NFTs) were in the news last April, after the UK made a bold move to create digital collectibles to foster the country’s commitment to tech. While this was seen as a positive one year ago, a statement released on March 27 has thrown the once-innovative idea into complete disarray. 

The Treasury of the UK has nixed the idea of releasing a government-backed NFT which would have placed the country ahead of other crypto-friendly nations as a leading global crypto hub. 

Economic uncertainty across the entire decentralized finance (DeFi) sector due to a muddied regulatory picture was cited as one of the main concerns leading to the scrapping of the token. That’s according to statements made by Harriet Baldwin, Chair of the Treasury Select Committee, to the BBC. 

Current British PM proposed idea last year 

Last April, John Glen, the minister and economic secretary to the Treasury, told an audience at the Innovative Finance Global Summit that then-Chancellor Rishi Sunak, the current Prime Minister, petitioned Royal Mint to make an NFT before the end of summer 2022. 

According to Glen, the whole idea was part of the UK’s forward-looking approach towards utilizing the latest technology in the country’s development. 

Brutal for NFTs/online worlds and it's not even 8am: Disney has folded down its metaverse team and Rishi Sunak's dream of a UK government issued NFT has ended…. sad!

— Lucy HM (@LHM1) March 28, 2023

While a government-backed “NFT for Britain” now appears off the table, economic secretary Andrew Griffith has made it known that the proposal will remain under review.

Shadow city minister Tulip Siddiq was quick to put the boot in, saying: “I’m glad the Royal Mint has finally made the Conservatives see sense, but we’ve been calling on the chancellor to drop this crypto gimmick for months.”

Global NFT market soars past $50bn in  sales 

Despite the negative market sentiment occasioned by the UK Treasury’s decision, the digital collectibles market remains the most profitable in the crypto-economy after the deepening of bearishness in the second half of 2022 due to the collapse of Terra and FTX. 

Global NFT sales in the past 24 hours stood at $41 million from the activities of 74,786 users involved in more than 180,000 transactions. Lifetime sales volume, meanwhile, has surpassed $50 billion.

Popular NFT project CryptoPunks holds the record for the four highest-selling individual NFTs, Axie Infinity remains the number one NFT collection by all-time sales volume with $4.2 billion, and Vitalik Buterin’s Ethereum remains the biggest NFT blockchain by all-time sales volume of about $38 billion. 

NFT users are spread throughout the globe, with the majority hailing from the United States, Thailand, Brazil, China, Vietnam, India, Canada, Indonesia, Germany, and South Africa