Crypto’s recovery requires more aggressive solutions to fraud
It’s hardly an exaggeration to say that our industry is facing tough times. We’ve been in the midst of a “crypto winter” for some time now, with the prices of mainstays, including Bitcoin (BTC) and Ether (ETH), tumbling. Likewise, monthly nonfungible token (NFT) trading volumes have fallen more than 90% since their multibillion dollar peak back in January of this year. Of course, these declines have only been exacerbated by the numerous black swan events rocking the crypto world, such as the FTX and Three Arrows Capital meltdowns. Taken together, it shouldn’t be a surprise that crypto is facing a trust deficit.
While the destructive actions of reckless CEOs must be addressed and the individuals responsible for these events must be held accountable, our industry cannot stop there if we are to rebound. To address the trust deficit that crypto faces, better security for the end user against the threat of scams and hacks must be a priority.
Don’t think so? According to research firm Chainalysis, $3.2 billion worth of digital assets were stolen in 2021. It’s not looking better for our industry this year, with $718 million in overall hacking-related losses having been reported in October alone. When it comes to scams, the picture darkens as report after report shows that known crypto scams, such as rug pulls and wallet drainers, are on the rise. Between July 2021 and August 2022, an eye-popping $100 million in investor funds were lost through unsophisticated NFT scams. And this number is likely an under-count given that most NFT scams are micro-scams impacting individual users that never get reported.
Related: Developers could have prevented crypto's 2022 hacks if they took basic security measures
Phishing links trick end users into emptying their wallets. Front-running schemes with videos promising “HUGE RETURNS” to convince people to download bogus software that gives con artists access to their assets. Even direct attacks that disrupt bridges like Ronin and Nomad. Look around and you’ll see that scams and hacks aren’t just costing the crypto industry billions in digital assets — they’re eroding trust in crypto in a more meaningful way than even the black swan events of 2022.
Sure, we can shun and cast out the Sam Bankman-Frieds and Do Kwons and all the other bad-actor CEOs. But if we want to convince the general public and customers that crypto is safe to interact with and invest in, we must tackle the problem of scams and hacks head-on.
How exactly can we make Web3 safe for all? The basic principles of cryptocurrency lie in decentralization, transparency and immutability. Crypto should be for everyone, and for that to be the case, we as an industry must lower users’ required effort and associated level of risk with regard to getting started with crypto, whether that’s purchasing or trading NFTs, or buying and selling Bitcoin. As it stands, crypto is too complex and difficult for everyday people to understand. With the absence of better tooling and anti-scam software, it’s simply too easy for scams and hacks to take place and spread.
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The development of anti-scam tools is certainly one way our industry could turn the tide against scams and hacks. Continually increased investment in security layers, and systems to compensate users in the event of hack or scam-related losses will help. But if the cost and headache of security for end users remains higher in crypto than it is in traditional finance, robust mainstream adoption will never occur. This is perhaps our biggest barrier to rebounding as an industry and onboarding the next 100 million users.
The first step in solving a problem is recognizing one. Our industry has a trust deficit, and scams and hacks have just as much to do with it as the FTX and Three Arrows debacles. Crypto is often colloquially referred to as a “dark forest,” where transacting parties that are identified as exploitable typically end up exploited (or destroyed). I personally don’t want to live in a dark forest, and neither do users. It’s on us to create a lighted path forward. End-user security can’t be just a buzzword for our industry anymore — it must be a key pillar of our turnaround.
Riccardo Pellegrini is the co-founder and CEO of Web3 Builders. He served previously in positions including head of product for Amazon Web Services' Data Exchange, and as CEO of Crossfield Digital. He finished his undergraduate career and obtained an MBA both at Harvard University.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.