Moral Hazard: SEC’s War to Blame for Rising Crypto Cybercrime (Opinion)

Crypto cybercrime has been on the rise. Meanwhile, blockchain sleuths just found some big security gaps for crypto exchanges. Maybe the industry is worn out by the SEC’s relentless war on blockchain companies.

Thursday, Aug 10, was a black letter day for blockchain security.

Binance, Coinbase May Have Left Your Keys out

Cyber sleuths at Fireblocks revealed multiple zero-day vulnerability patches to MPC protocols used by crypto exchanges like Binance and Coinbase:

“If left unremediated, the exposures would allow attackers and malicious insiders to drain funds from the wallets of millions of retail and institutional customers in seconds, with no knowledge to the user or vendor. The series of vulnerabilities, dubbed BitForge, had impacted popular wallet providers like Coinbase WaaS, Zengo, and Binance.”

On Tuesday, Aug 8, just two days earlier, blockchain researchers disclosed a flaw in a BTC command line password generator that they believe was used to steal funds across various blockchains. The software’s creators dispute the claim.

If you generated a wallet using Libbitcoin’s Bitcoin Explorer, including as described in the appendix to Mastering Bitcoin, your funds are at risk (or already stolen).

Full details: https://t.co/Crlw63lUr4

— David A. Harding (@hrdng) August 8, 2023

The SEC filed lawsuits against both Coinbase and Binance this summer.

The commission has been litigating against Ripple Labs since 2020. Ironically, the SEC might be doing more harm than good for the investors it’s supposed to be looking out for.

SEC’s ‘Ghostbusters’ Dust-up with Blockchain

The SEC has hogged up so much attention from crypto companies that undoubtedly could have been better spent keeping the products current and secure for users.

Meanwhile, cybercrime related to crypto took a roughly $600 million bite out of blockchain in the first half of 2023. Crypto cybercrimes cost the industry an estimated $3.7 billion in 2022.

The SEC ramped up its war with crypto companies over the same period. Under Gary Gensler’s direction, the commission is acting like Walter Peck, the fictional EPA agent from “Ghostbusters.”

[SPOILER AHEAD]

In the 1984 supernatural comedy film, Peck says:

“I want to know more about what you do here! Frankly, there have been a lot of wild stories in the media and we want to assess for any possible environmental impact from your operation!”

The regulator eventually orders the Ghostbusters to shut down a critical security measure. When it goes offline, the city is flooded with irksome ghosts. The SEC today is doing its best, Walter Peck.

If a fable about the government makes Harold Ramis and Dan Aykroyd seem prescient, check out: Which television show’s fandoms made more off their early Bitcoin mentions: Simpson or Family Guy?