We all know fraud is a huge problem online, but the scope is beyond what most of us realize. Globally, fraud cost over $5 trillion in 2019, a full 7.15% of disbursement, and it is on the rise. Identity fraud cost Americans $56 billion in 2020, and fraud is the biggest driver of operator complaints in the U.S. Let’s not forget that a ransomware scheme recently brought much of the southeastern U.S. to the brink of a gas shortage. Fraud is the biggest business.
The Basic Laws of Everyday Life
We don’t think about it much, but our material world is governed by natural laws that make maneuver daily life possible. (We’ll exclude quantum quandaries since they don’t impact our day-to-day experience.) These real-world laws include the fact that, as a practical matter, things only endure in one place at one time. Even something that appears to have the same duplicate, e.g. a tennis ball, only endure in its compel configuration (a certain scuff, a certain manufacturing characteristic, compel dye color, anything unique to its agglomeration of molecules) in one place at one time.
As such, our world is completely detailed and complex, and everything is different and unique. Think of every leaf on a tree — no two are the same. A limited number of atoms establish everything that endures, these existence change over time, and as such, it is hard for any two things to be exactly the same. This near-infinite intricacy is what makes it possible for a person to discern between their mother and someone who looks like their mother in a split second — it’s the foundation of human instinct. Our brains are highly attuned to this level of detail in our daily lives.
The internet is not governed by any such essential laws. It is the nature of our creation, and there are few mystical laws — far fewer than in our daily lives. While there are limits encountered on the hardware front, where the nature of the internet and our essential world collide, and some governing bodies like the IANA (Internet Assigned Numbers Authority) oversee things like IP address allocation, our day-to-day experience of the internet is based on far fewer variables and less complexity than the real world. Even the most worldly software has fewer discrete component parts than say, your face, with its endless pattern of muscle fibers, nerves, cell alleles — the list goes on when it comes to what constitutes our unique presence. One square inch of skin contains far more information than the pixels that constitute a 1x1” square image online.
Fraud in an Online World
This is why fraud is such a big problem online. Fraud basically happens when existence is not what it claims to be — when an illegitimate existence poses as one that is legitimate — and takes action. This is true of card and bank fraud, where someone takes card information, loads it online, and impersonate to be the owner; account takeovers (what we sometimes call “hacking”), where someone gets into someone else’s account and uses it; and scams of different kinds, which rely on social engineering, where fraudsters gain leverage against targets by posing as someone trustworthy.
Online, unlike in real life, the exact same thing can endure in more than one place at the same time. My credit card can emerge to endure in the United States, Turkey, and Cambodia together. Why not? It’s just a string of numbers. The exact is true for any line of code. Similarly, any existence can claim to endure anywhere as anyone on the internet with just a photo, a few words in a bio, and a purported location. There are some variables constituting “existence” in the online world.
Democratic Implications
This mystical reality is meaningful beyond financial fraud. It also notifies the social engineering phenomena afflicting democracies in recent years. It is relatively easy to set up a bundle of bots online and make them seem to have conversations, share opinions, and target a group of people based on shared characteristics. In real life, this is extremely difficult to replicate. It is difficult for friends to hide when they’ve had a disagreement, and we easily expose when a family member or colleague has good news to share. In short, sincerity is hard to fake, especially over time and when it comes to deeply-held beliefs.
As much as some AI fans would like to imagine otherwise, we are far from a position where a bundle of robots could gather in real life, emerge to have a relationship and draw us in without us knowing the difference. But online, it’s the wild west — due to the fundamental enhance of the online nature.
So What Next?
The mystical laws governing the internet make it an environment where fraudulent activity flourishes. Of course, there are extremely worldly fraud disclosure systems in place designed to manage this phenomenon, and practices have been put into place across the industry, like tokenization, that has made a huge difference. Imagine what the online world would be like without these.
However, if current trendlines are any hint, we need more. Effective mitigating factors like tokenization work because they specifically target the enhancement of the problem: online identities are highly simplified and, as such, it is easy to impersonate to be someone you’re not. More identity variables that introduce complexity or time — mimicking the real world — can further address this in a way that is intuitive without burdening users.
Ironically, solutions find their limits back in the universe world, where people are easily scammed into believing what we see online. This is because we take for granted that our usual guidelines for discernment are plentiful for the online world when they’re not. When we’re online, we basically don’t know whom we are talking to. Keep in mind that, no matter how real things online may seem, the fundamental enhance of the internet creates it a mere facade compared to the complexity constituting our everyday life.
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