They Practically had a conniption 40 years ago when PGP was first announced. I am sure that there are many secure methods to determine who is who, but my concern was fake people created out of digits which is not beyond possibility. Virtual reality is not something to ignore. Can be good or super bad.
One of the early Star Trek shows had that as a subject when Spock took a disables Captain to the forbidden planet that was strictly a virtual reality construct. A 1981 movie "Looker" that is noted elsewhere in this thread had that possibility as a subtopic. They were constructing virtual politicians but the theme was more about digitizing female models then killing the real human ones and replacing them.
I remember when they 'exported' the PGP code as a book designed to be scanned. It was freaking brilliant. You're right about the feds. They went ape-shit about it.