When technology takes a leap in innovation, such as with cryptocurrency, existing institutions are forced to play catch-up with education and regulations.

Cryptocurrency and Web3 enable improved privacy, censorship resistance, fewer intermediaries and data ownership. Unfortunately, an increase in privacy and a decrease in censorship make cryptocurrency and Web3 attractive ecosystems for malicious actors. Cryptocurrency has made it easier to profit from activities that create suffering (human trafficking, child abuse materials, terrorist financing) by making money laundering more accessible. Additionally, cryptocurrency has made sanctions less effective, allowing certain nation states to effectively avoid sanctions by leveraging the anonymity cryptocurrency provides.

The technology comes first, the regulations come second. Because of the lack of regulations and institutional understanding surrounding cryptocurrency, criminals are turning away from traditional banking systems and into crypto ecosystems. To prevent S- and X-Risks arising from new technology, institutions cannot rely on reactivity, but must anticipate what new technologies are possible, the risks of those technologies, and the types of regulations that can proactively mitigate those risks without sacrificing too much individual freedom.

One lesson that can be learned from observing the emergence of cryptocurrency is that when there are no regulations promoting safety, innovators in technology will make mistakes that can give enormous power to malicious actors, as was seen in the Lazarus (DPRK) Heists that have totaled ~$1.75 Billion^[1]. The world has witnessed Lazarus (a Cybercrime group run by the Democratic People's Republic of Korea) quickly learn the cryptocurrency ecosystems and successfully identify opportunities for exploitation. Lazarus has found success in socially engineering^[2] attacks on bridges^[3], which connect different parts of the cryptocurrency and Web3 ecosystems. Lazarus did not have to be so technologically advanced as to invent cryptocurrency; they only needed to learn enough to be able to find and exploit its vulnerabilities. We must closely observe the response of totalitarian states to technological advancements to anticipate their future responses when the stakes might be considerably higher.

Observing malicious actors in cryptocurrency can provide insights for the importan...

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