The dark side of the metaverse: Investigating cryptocurrency crimes
Is law enforcement prepared to investigate financial crimes in the virtual world?
This article is based on research conducted as a part of the CA POST Command College. It is a futures study of a particular emerging issue of relevance to law enforcement. Its purpose is not to predict the future; rather, to project a variety of possible scenarios useful for planning and action in anticipation of the emerging landscape facing policing organizations.
The article was created using the futures forecasting process of Command College and its outcomes. Managing the future means influencing it – creating, constraining and adapting to emerging trends and events in a way that optimizes the opportunities and minimizes the threats of relevance to the profession.
By Captain Steven Fox
What role will law enforcement play in investigating cryptocurrency crimes that occur in the virtual worlds of the metaverse? Will it be ready when the phone rings for help? The short answer is probably not – but with preparation, law enforcement can brace for the technological storm that will soon make landfall.
While it might be too early to tell exactly what that technological storm will look like, here is a plausible scenario: An individual dons virtual reality goggles and enters the metaverse to purchase accessories for their digital avatar. They go to a virtual reality marketplace and use cryptocurrency to buy name-brand digital clothing accessories from a fellow metaverse user. Later, the buyer realizes the brand-name items were not authentic; fraud has occurred. Who will this person call for help? Their local police department will likely be at the top of their list, but what happens when the agency has no idea how to investigate metaverse crimes?
What’s the metaverse, and why should we care?
The term “metaverse” was coined in the 1992 science fiction novel “Snow Crash,” which described a future where people used virtual reality to escape a dystopian society.  Since then the metaverse has transcended science fiction, and companies like Meta are investing billions of dollars into the platform. By 2029 the global metaverse market value is expected to reach $1.52 trillion. 
The metaverse is a virtual-reality space where users can interact with other users in a computer-generated environment. For an immersive experience, users can put on virtual reality goggles for the sensation of being surrounded by the digital environment.
The metaverse can also be accessed similarly to how people play video games – through a computer or gaming device with a monitor. There are also different uses for it: For example, the metaverse can be used for education and virtual meetings. It can also be used for virtual reality simulation training for high-risk activities, such as space exploration or medical procedures.
The most common form of the metaverse, however, is commercial enterprise, meaning companies have created it to profit from their users. In this form of the metaverse, users can buy and sell digital goods, services and real estate with other users. For example, individuals might choose to purchase virtual real estate as an investment, a way to socialize with other users, or simply a way to express their creativity inside the metaverse. This is likely where users will fall victim to theft, fraud and scams and then look to law enforcement for help.
Digital crimes, digital losses
A payment system is required to buy and sell things within the metaverse. These systems could rely on traditional currency, such as the U.S. dollar, to purchase in-game credit or tokens to buy items such as clothes for their avatar or virtual real estate. Cryptocurrency and other digital assets, such as nonfungible tokens, can also be used as payment systems for buying and selling things in the metaverse. The prevalence of crimes associated with cryptocurrency has increased dramatically. In 2021, an estimated $14 billion worth of cryptocurrency was sent to illicit wallets, three times the number of cryptocurrency scams in 2017. 
The recent collapse of the cryptocurrency exchange FTX has headlined the news and prompted U.S. lawmakers to advocate for regulating digital assets.  This will solve only half of the problem, as the metaverse will remain a murky swamp for anyone attempting to investigate crimes. Only when regulation for cryptocurrency and the metaverse is enacted will law enforcement be able to identify jurisdiction and do their job in these virtual worlds. However, without proper training and expertise, investigators won’t know how to investigate these types of crimes.
While lawmakers sort out the regulatory framework for cryptocurrency and the metaverse, police should consider their role in investigating crimes that occur there. Several questions will need to be answered. For example, how will jurisdiction be identified, and will there be a division of labor between federal and local law enforcement? In other words, will local law enforcement agencies investigate lower-level crimes while federal agencies investigate extensive, more complex cases? The first step in answering these questions might be to look at what the FBI is currently doing to investigate cryptocurrency-related crimes. The FBI has a dedicated cyber division responsible for investigating crimes that involve the use of the internet and other digital technologies, including cryptocurrency. They also have a financial crimes section that investigates crimes involving cryptocurrency.
Questions remain about crimes in the metaverse
Among the challenges of investigating crimes that occur in the metaverse, it is clear there are currently more questions than answers. However, law enforcement should start thinking about how to investigate these crimes while rules are being established. One way to accomplish this is to ensure staff are educated on how blockchain technology and cryptocurrency work. As the metaverse evolves, agencies should monitor developments in the industry to keep pace with the advances. It will also be helpful for agencies to think about collaborating with other agencies, local and afar, since the metaverse and cryptocurrency crimes can have a global reach.
While some agencies might already have some staff trained on cryptocurrency crimes, consider creating a dedicated cybercrimes unit if these crimes become increasingly prevalent. At a minimum, agencies should have at least one investigator who understands how to investigate crimes involving the metaverse and cryptocurrency.
By 2026 it is estimated that one in four people will spend at least one hour a day in the metaverse to socialize, shop, study or work.  Not only could the frequency of crimes occurring in the metaverse increase, but the variety could expand as well. While financial crimes in the metaverse are often associated with cryptocurrency, a virtual world could include other crimes, such as crimes against children, virtual battery and sexual assault, and even harassment. As such, police should understand the threats emerging from this technology could be much more nefarious than even the theft of money.
It’s the future – be ready
With companies like Meta investing billions of dollars into their version of the metaverse, it is unlikely this platform is going away anytime soon. Companies will continue to develop their metaverse platforms, and cryptocurrency could increase in popularity depending on the macroeconomic environment. It could create a perfect storm for law enforcement – people falling victim to theft, fraud and other types of scams in the metaverse, a largely unregulated environment no one knows much about.
Think about it this way: The average citizen who is defrauded of a couple of hundred dollars does not call the FBI for help; they call their local police. It will be no different for those who venture into a virtual world and fall victim to some type of scam. The only question remaining is will your local law enforcement agency know what to do when the phone rings for help.
LEARN MORE: The metaverse is coming – who will police it?
1. Nelson J. (June 11, 2022.) ‘Snow Crash’ Author Neal Stephenson Is Building a ‘Free Metaverse’ Called Laminal. Decrypt.
2. Dujmovic J. (Nov. 16, 2022.) Opinion: Big money is riding on the metaverse. Here’s why it will eventually succeed even though it’s derided by haters. MarketWatch.
3. Dodds I. (March 29, 2022.) Why Crypto Scams Are Driving an Online Crime Boom – and How to Outsmart Them. Time.
4. Michaels D. (Dec. 1, 2022.) FTX Collapse Draws Senate Scrutiny as Lawmakers Push for Crypto Oversight. Dave Michaels. Wall Street Journal.
5. Raj A. (Oct. 31, 2022.) Interpol: Metaverse could lead to increased cyber crime. Techwire.
About the author
Steven Fox is a police captain at the Milpitas Police Department in California with over 17 years of experience in law enforcement. He holds a degree in business administration and has served in various roles within the police department, including detective and task force officer. Steven is a skilled investigator and has received awards for his commitment to apprehending criminals and keeping the community safe. In Steven’s spare time, he enjoys photography and keeping up with the latest technological trends impacting law enforcement. If you have any questions or would like to get in touch, contact him at firstname.lastname@example.org.