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Hackers don’t await regulatory decisions, advocate for new laws, or engage in oversight committees. They operate outside established systems, as they always have. However, as the U.S. advances with crypto deregulation, we are inadvertently offering more opportunities than ever for their activities.
Summary
- Deregulation isn’t producing hackers; it’s creating victims by inundating the space with unprotected, inexperienced users while removing oversight.
- Weak regulations broaden the attack surface, introducing systemic vulnerabilities across finance, defense, and digital identity.
- AI-driven finance increases risk, as autonomous agents managing finances and trades can be compromised on a large scale.
- Well-intentioned builders lack support, competing against those who bypass security standards and shared infrastructure.
- Security must precede scalability, with public-private partnerships investing in open-source protections, enforcing disclosure standards, and embedding safety measures from the outset.
The prevailing belief is that deregulation will spawn more hackers. In reality, it will lead to a larger pool of victims.
By welcoming more users into the ecosystem without adequate protections, we drastically increase the attack surface. These inexperienced users become easy targets, leading to systemic vulnerabilities with national repercussions.
Ticking time bomb
Recent regulatory easing initiatives, such as disbanding critical enforcement units or halting regulatory actions, have been portrayed as pro-innovation. Yet, they also dismantle the systems intended to monitor, control, and deter misconduct.
This scenario is akin to removing traffic lights to accelerate traffic flow; friction is temporarily reduced, but collisions are guaranteed. Similarly, diminished oversight invites exploitation by malicious entities.
Hackers and state-sponsored groups are alert. They are unimpeded by bureaucratic delays or awaiting committee meetings. They execute actions in milliseconds across jurisdictions, often concealed by anonymizing technologies and decentralized systems. Within such a landscape, each new user, every wallet, and every smart contract becomes a potential target.
Broader digital risk
To view this exclusively as a crypto issue is to overlook the broader implications. We are witnessing a blurring of lines between financial infrastructure, national defense, and digital identity.
AI systems are being integrated into this framework at an unprecedented rate. Code now makes financial decisions on a large scale, crossing borders without human input. As we delve deeper into an AI-driven economy, the risk of catastrophic breaches increases.
If these systems are not created with security as a priority, they will become the weakest link across various sectors, from consumer finance to defense logistics. Even minor breaches can trigger significant consequences across global markets and infrastructure.
Builders are set up to fail
Simultaneously, honest developers and companies find themselves in a precarious situation. They are urged to innovate, act swiftly, and compete globally, yet receive no clear regulatory guidance, standardized protocols, or supportive infrastructure for secure innovation.
This results in a fragmented ecosystem where every company operates in isolation, drafting its own rules. Some endeavor to do the right thing, focusing on security, privacy, and compliance, but without enforced standards or benchmarks, they compete against those who disregard safety.
The message is unmistakable: to thrive, cut corners. This breeds systemic failure.
The wake-up calls we ignored
In the past year, multiple high-profile breaches should have triggered substantial reforms but didn’t. The Bybit breach, which cost $1.5 billion, highlighted issues not with blockchain infrastructure, but due to social engineering and verification failures. Human operators were deceived into approving fraudulent withdrawals.
This was a breach stemming from poor process design, not faulty code.
Phishing attacks surged by nearly 60%, targeting both individual users and institutions. Advanced deepfakes are being employed to impersonate executives, reroute funds, and mislead entire organizations. We’ve entered a phase where attackers need not crack codes; they simply need to replicate trust.
The common factor? Every attack targeted the human element, precisely where deregulation exposes the most vulnerabilities.
AI agents are next
As the U.S. invests over $500 billion in AI research and development, we are venturing into a new domain of digital finance. Soon, AI-driven programs capable of managing wallets, executing trades, and engaging with DeFi protocols will act on behalf of users and institutions.
These programs will make decisions, transfer funds, and interact with other agents instantaneously. Without built-in safeguards such as zero-trust architecture, behavioral verification, and real-time fraud detection, we risk releasing autonomous systems into financial ecosystems that lack the necessary safety mechanisms.
Consider a future where AI agents are hijacked, manipulated, or misdirected. The potential for damage transcends a single wallet—it could involve millions of transactions, impacting thousands of users, executed in mere minutes before detection.
This represents a significant scale of risk.
Builders can’t do it alone
Promising technologies are already in development. Send-to-name protocols, for instance, replace vulnerable public addresses with cryptographically secured, human-readable names that generate new receiving addresses for every transaction. This innovation makes phishing nearly impossible and mitigates the risk of funds being sent to the incorrect recipient.
Other tools, such as decentralized, off-chain KYC/AML systems, can ensure compliance while preserving user privacy, a long-standing concern for regulators and builders alike.
However, the adoption of these solutions remains sluggish, underfunded, and fragmented. Builders acting in isolation cannot bear the responsibility of securing an entire industry. A coordinated effort is essential.
Security-first strategy
To safeguard the future of digital finance, we need a public-private partnership focused on secure-by-design principles, funding open-source security infrastructures that are auditable, improvable, and adoptable across the industry; standardizing exploit disclosure programs, incentivizing zero-day reporting rather than punishing it; and supporting identity frameworks that verify users without exposing sensitive information.
Crucially, security must be viewed as a driver of growth, not merely a cost. A secure ecosystem is a trusted ecosystem, and trust is what enables real, scalable adoption.
Deregulation alone is not a strategy
Hackers aren’t waiting. They are already infiltrating smart contract environments, using AI to impersonate users. They exploit fragmented infrastructures to transfer value invisibly and instantaneously.
Deregulation doesn’t generate them, but it certainly simplifies their operations.
The only path to establishing a genuinely resilient crypto economy is to prioritize security before scaling. Without this foundation, every advancement is an added risk ripe for exploitation.
