The Double-Edged Promise of Cryptocurrency: How Innovation Creates New Vulnerabilities and How Government Oversight Can Reduce Crypto Crime
By Jason H. Meuse, University of Maine School of Law, Class of 2023
Abstract
The fallout from the FTX fraud scheme brought the dangers of crypto front-and-center. Not only did FTX perpetrate a massive fraud, but its fall exposed the cryptocurrency exchange to hacking resulting in the theft of over $477 million in crypto assets. This theft is not isolated to FTX; by October 2022, hackers had already stolen over $3 billion. In addition, new organizational structure and technology in the crypto industry has introduced new vulnerabilities. Cryptocurrency exchanges, decentralized exchanges, and cross-chain bridges are prime targets for hackers to both steal and launder crypto assets. Part of the reason these technologies leave assets vulnerable is that they undermine a central premise of crypto: a currency system accountable to users within a closed ecosystem. While the industry has responded by increasing its security standards and procedures, its anti-government attitude has inhibited cooperation with government that could make the crypto marketplace even more secure. Many firms are incorporated outside of U.S. jurisdiction, lightening the compliance burden at the cost of security. However, establishing industry security standards and cooperating with the government can lead to higher security and greater consumer confidence.
