It is no exaggeration to say that our industry is facing difficult times. We’ve been in the midst of a “crypto winter” for some time now, with the price of mainstays, including Bitcoin (BTC) and Ether (ETH), bowl. In addition, every month nonfungible token (NFT) trading volume has fallen by more than 90% since the multibillion dollar peak back in January of this year. Of course, the decline has only been exacerbated by the many black swan events that have rocked the crypto world, such as the FTX and Three Arrows Capital meltdowns. Taken together, it should come as no 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 stand still if we are to rebound. To overcome the trust deficit that crypto faces, better security for end users against the threat of fraud and hacking must be a priority.
Do not think? According to research firm Chainalysis, $3.2 billion in digital assets is the same stolen in 2021. It doesn’t look much better for our industry this year, with $718 million in overall hacking-related losses reported in October alone. When it comes to scams, the picture darkens as report after report shows that known crypto scams, such as carpet pulling and wallet drains, are on the rise. Between July 2021 and August 2022, a staggering $100 million in investor funds were lost to unsophisticated NFT fraud. And this number may be underestimated because most NFT scams are micro-scams that affect individual users who are never reported.
Phishing links trick end users into emptying their wallets. A scheme that fronts with videos promising “HUGE RETURNS” to convince people to download fake software that gives them access to their assets. Even direct attacks that disrupt bridges like Ronin and Nomad. Take a look and you’ll see that fraud and hacking aren’t just harming the crypto industry’s billions in digital assets – they’re undermining trust in crypto in a way more meaningful than the black swan event of 2022.
Of course, we can avoid and throw out the Sam Bankman-Frieds and the Do Kwons and all the other bad actor CEOs. But if we want to convince the general public and our customers that crypto is safe to interact with and invest in, we have to deal with the problem of fraud and hacks.
How can we make Web3 safe for all? The fundamental principles of cryptocurrency lie in decentralization, transparency and immutability. Crypto should be for everyone, and for that to happen, we as an industry need to lower the effort required of users and the level of risk associated with crypto startups, whether buying or trading NFTs, or buying and selling Bitcoin. As it stands now, crypto is very complex and difficult for everyday people to understand. In the absence of better anti-scam software and software, scams and hacks can take place and spread.
The development of anti-scam tools is definitely one of the ways our industry can fight fraud and hacks. Continued investment in security layers, and a system to compensate users in the event of a hack or scam-related loss will help. But if costs and security headaches for end users remain higher in crypto than in traditional finance, strong mainstream adoption will never happen. This is probably the biggest obstacle to making a comeback as an industry and entering the next 100 million users.
The first step to solving a problem is to identify one. Our industry has a trust deficit, and scams and hacks are linked to the FTX and Three Arrows debacles. Crypto is often referred to as a “dark forest,” where transaction parties identified as exploiters are usually exploited (or destroyed). I do not want to live in the dark forest, and also registered. We must make a bright path. End-user security can no longer be the buzzword for our industry – it must be the main pillar of our transformation.
Riccardo Pellegrini is the co-founder and CEO of Web3 Builders. He previously served in positions including head of product for Amazon Web Services’ Data Exchange, and as CEO of Crossfield Digital. He completed his undergraduate career and earned an MBA at Harvard University.
This article is for general information purposes and is not intended and should not be construed as legal or investment advice. The views, thoughts, and opinions expressed herein are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.