AI-driven fraud is accelerating. So must our defenses

In 2025, cybercrime is expected to reach $10.5 trillion in annual damages. To put it in perspective: this figure would make it the third-largest economy in the world if it were a country. What makes this more alarming is not just the scale, but the speed at which these attacks are growing in sophistication.

At the center of this acceleration is generative AI. Tools that were once experimental. Deepfakes, voice synthesis, AI-generated text etc. are now available to anyone with an internet connection. Criminals are using these capabilities to launch faster, more targeted, and more scalable attacks than ever before. What used to be a manual effort to phish a single user has become an industrialized process, operating at the speed of light and grows exponentially.

The rise of identity fraud in the age of AI

The most troubling application of AI in cybercrime lies in identity fraud. Deepfake-driven impersonation attacks have surged; increasing by over 700% in 2023 alone. Large Language Models (LLM's) are now being used to craft highly believable phishing messages, tailored to specific targets and delivered in scale. The barriers to entry for digital fraud have all but disappeared.

These are not abstract trends. Between 2018 and 2022, the U.S. federal government alone lost between $233 billion and $521 billion annually to fraud. Representing up to 2% of US's GDP per year. Maybe something for mr. Trump to look into...

But the damage is not only financial. The human cost is real and rising. In 2022, 16% of identity theft victims in the U.S. reported contemplating suicide, up from 10% the previous year. Behind every fraud statistic is someone whose sense of security and identity has been profoundly violated.

Rethinking identity: a shift toward user-centric models

The traditional model of digital identity, where users hand over personal data to every platform they interact with, is no longer sustainable. It has created a big attack surface, making citizens and organizations vulnerable.

This is where, in my opinion, digital identity wallets can play a significant role. These wallets offer a fundamentally different approach: users retain control over their identity, data and can selectively disclose only the information necessary for a given transaction; user-centric privacy.

These wallets enable secure and privacy-preserving authentication and verification through the use of verifiable credentials. Each credential is cryptographically signed by a trusted issuer, ensuring that in any digital interaction, you are engaging with the authentic legal identity of a real person. Not a synthetic or manipulated impersonation such as a deepfake.

Such solutions are not speculative. In the European Union, the eIDAS 2.0 regulation mandates that all member states offer a digital identity wallet to citizens by December 2026. By 2029, it is expected that 1.5 billion people worldwide will use digital identity wallets, for their identity and attestations.

Digital identity as a foundation for trust

Digital identity wallets do more than reduce fraud. They lay the foundation for a new kind of trust architecture online. They minimize unnecessary data collection, reduce data-oversharing, reduce reliance on vulnerable centralized databases, and give individuals (finally) their self-sovereignty-identity in the digital world.

They also offer a practical path forward for organizations navigating new regulatory environments, such as the EU’s Digital Services Act and forthcoming AI legislation. These regulations increasingly require platforms to verify users, trace transactions, and manage risks without undermining privacy or freedom. Digital identity wallets, when properly implemented, offer a way to realize these goals.

What comes next

The question is no longer whether we need to change how identity works online, but how quickly we are willing to do so. As of today we can already starts using digital identity wallets for authentication and verification. The solutions exists; digital identity wallets.

Sources:

• April 21th 2025, 'Explosion in identity and payments fraud forces governments, private companies to act' by Biometric Update