Security Summit 🦺 Striking the Balance Between Innovation and Safety in Crypto

[Music] hello my name is Micah I'm super excited to be here um and this topic is actually pretty timely because we're we're going through one of the biggest crypto cases in history right now at least within the United States um we've got all the ETF stuff going on too and then there's also a global conflict happening that's been tied to some sort of crypto funding um it's a very exciting time to be alive um but I mean this week to make things even more dramatic uh I started reading this book I'm not sure if you can see this number go up by zeko uh there's another book on FTX out there that has actually gotten a little bit more attention I haven't read that one um but it's actually this book has been pretty Illuminating on the backstory of everything that's happened um within the crypto industry and kind of the the conniving side of crypto which gives cryp like the crypto industry kind of a bad name at this point right now with regulatory eyes so it's really fascinating um kind of wanted to dive into a lot of those things but back to today today's talk I'm really pumped to to dive deeper into some of the things that I had prepared for today um we're kind of living in this moment of inception right now um regulatory decision-making uh and we're probably going to be alive long enough to see the repercussions of this new technology and how it ends up affecting um kind of the world based on how the decisions are made so for the time I have with you today I'm going to dive into some ideas and perspectives around how we can strike the right balance between uh Innovation and Security in crypto that both benefits us U as Builders and operators in the ecosystem but also providing value to the real world so uh a little bit more on timeliness of this topic uh if you're active in the ecosystem which I assume you are you've probably read a headline or two over the past couple months uh that have to do with crypto regulation so each of these three screenshots on this slide in particular um it covers a different category of topic but if you look at like for example the upper left um Middle East regulatory City drives crypto industry growth um I'm calling from California but we all recognize that cryptos a super Global industry um eth isn't from any state or jurisdiction it's more of like an internet Global thing um so that's one new paradigm that the world is going to start to have to get used to but each region again is making their own crypto laws so historically a lot of these crypto companies that ended up being rugs or having Shady practices decided to actually post up shop on countries that have more favorable laws more flexibility looser regulation less checks and balances and rules and so on and so forth um and that brought a lot of wealth and actually to the country too uh but also left doors open for things which Al ultim led to collapse of what we're seeing today uh so luckily or unluckily countries are getting a bit smarter about um taking more care with their regulatory stances uh for the most part um so with the right regulation that balances things like openness to and Innovation for Builders technology like blockchain can bring a lot of opportunity to the countries so you're seeing decisions being made favorably or more favorably in places like Hong Kong um Middle East Japan and so on and then if you look in the upper right um this is very like current events kind of topic and we'll get more into the numbers later but there's been news lately about crypto being utilized by um groups causing harm right and then we've heard Lazarus and we'll get into the numbers of what's actually gone there too um so that's another thing to keep in mind as Builders is that there are real world connections to this technology that we prize and are super excited about that are causing real world harm and there's a reason why regular leaders need to be involved so um that as an underlying tone very brief I'll introduce myself uh so my name is m usawa I'm the CEO of a company called websy uh we're working on safety R Digital assets and I'll explain a little bit later uh what that actually means uh my background's in computer science and Ai and then prior to starting the company I was at Microsoft uh doing cyber security with the government um and then I'm more on the Innovation security side of things of the whole regulatory triangle and so I actually brought in uh a little bit of help from someone who's absolutely incredible um his name is Michael Mosier he's an adviser to my company um I could list all of his accolades here but it would actually just go off the screen um but he's just like the guy to go to if you want to know anything about crypto regulation anything going on and so a lot of the views from the regul regulatory perspective are actually from Michael so very very valid and very um um very good points uh so I'd like to attribute that to him as we go through this so little bit of a context on historical hacks uh we've heard them all before but uh at this point you've heard of hacks um and again the ones I listed on this chart that doesn't even begin to cover them on their hacks in the space uh you can see starting on the left 2011 Mount gox is probably the biggest name hack back then uh and then over the years 2018 2021 2022 the Ronin Network hack and so on and we're still seeing many of them today actually kind of seeing a little bit more even with all the security tools we have in place um it's still happening right and these are just traditional hacks and draining it's not taking into account things like stable coins collapsing or individual fishing uh hacks on consumers and so on so the numberers on the left hand side this is by millions uh 2022 was a pretty bad year um chus says like 3.8 billion I think it's actually more than that if you think about what hasn't been found what hasn't been reported uh so it was a pretty bad year I would say we're doing quote unquote better but if better is still a billion dollars we're not really doing um very well and so um this is kind of the context of where we're sitting at within the hack space um and all this to say like we as builders in the ecosystem we um we we may look at at Regulators it's bad or restrictive but at this point there's kind of like so much money being stolen from consumers and institutions alike that they have to get involved so I'll be repeating that point kind of over and over um the second Point here another reason why Regulators have to get involved is that it's not just a financial crime like the money is being stolen and goes somewhere and then gets used somehow so it's not good if that money is being used for inferis activities or to cause harm to others um Lazarus I'm sure all of you know what it is but for those who don't it's one of the bigger names of hacking groups in the space allegedly tied to North Korea but over the past um couple years they've been doing quite a bit of activity and it's kind of wrapped up um in the recent months so this number is from September so I know we're in the middle of October now but if you think back in the past 104 days um they were responsible for stealing almost 240 million across different projects uh and I'm sure there's more to come and then again Hamas has raised a pound of money through crypto this isn't like a political statement it's just fact about taking from the internet but it's it's not a good thing if the crypto is going towards or the assets are going towards funding harm um so again with regulation I bet Regulators would love to have to not worry about crypto but this is just so obviously tied to it that they have to do something um and they're trying to figure that out right now uh the last piece of context here I think is most important to us as Builders um so tornado cash you know the history it launched in 2019 it's mixed a bunch of money uh a tool for privacy and decentralization which is something that philosophically I think we can all get behind as human beings that we have our right to privacy um but around 30% probably more has been tied to elicit actors and elicit activities so um US Department of Treasury ended up uh blacklisting it in 20122 and we also saw people um like developers getting arrested for that so um this is kind of scary because as Builders it's it's difficult to know if something we build is going to be deemed wrong or illegal by jurisdictions down the road um and that's one big reason to push for regulat regulatory Clarity first but also an opportunity for our ecosystem as Builders to guide some of that decision-making by building responsibly in the Geto um so in the projects that you build like now during saon or later that's something to actually keep in mindly because we don't want a situation like this where your tools supporting elicit activity but you also don't want to restrict yourself in terms of innovation so it's really this um this balance game that we're playing so big point I want to dive into number one is that Regulators have a lot of stuff to do um and we should let them do the other stuff if you think about regulation there is no crypto only set of regulators so they cover all of trp um and crypto is really only a really small piece of that Financial stack um to give you a look visually um this is uh like kind of like you versus the guy she tells you not to worry about or a tiny tiny piece of the overall Global markets um 2.5% um so the crypto Market is 2.5% of the global greater stock market um so looking at this we're kind of like this FAL wall that's causing a lot of problems and in terms of value and volume trfi is actually a lot bigger and so regulatory people have a lot more to worry about second Point here uh the best way to strike balance between Innovation and safety in crypto is to manage risk ourselves as an industry um so the innovators which is us and all the builders uh who are watching and building this weekend we know the technology best uh we know the innovation opportunity that is probably still unrealized but we're also the ones that can Envision that predictive future uh and we don't want to stump our freedom to achieve that that's completely understandable as Builders but The Regulators would probably love to see that great Innovation and so on but they have to focus on the like managing the nefarious and bad activity that's going on so yes regulation is both to control and to protect but at the end of the day regulation is meant to help govern and keep people safe um so when we go into the role of Regulation um I talked to a bunch of people that are more on the regulatory side of things but there was very much Common Ground about the role of Regulation and the primary job is to spot and manage risk um and regulation is meant to balance cost and benefit uh but regul Regulators are naturally going to see risk way more than the opportunity in new technology they're just wired that way because that's their job uh their primary job again is spotting and managing the risk not building the new tech that's our job so we should let Regulators be able to focus on the bigger issues like what's going on in triply um by managing the risk ourselves so if you think about it like if we had been better as a community from the beginning of putting guardrails and risk mitigation in place maybe some of these things would have happened um and Regulators may have a different opinion of what the space looks like right now luckily it's not too late and we can start today last point I want to make here so self-risk management by innovators is the key to finding the best balance of innovation and safety so we have to build the safety not just rely on Regulators because they're always going to be trailing the cut a edge so I do want to talk about some companies that are actually working on it uh companies that have been doing this without being told to do so and like CH analysis is one of the biggest ones um love them or hate them they're creating products and services that are helping the ecosystem mitigate risk and analyze the onchain data so now organizations um government institutions and so on they're coming to chainalysis to help investigate things like cyber crime and other things that are going on um there's other companies like CH analysis trm elliptic and so on just to name a few of them um and they're not just relying on Regulators to help them govern and understand the industry um and on the other hand other projects should actually be leveraging some of the tools and services that they're building to build security and safety and management from the ground up it's not about restricting it's more about keeping your your company safe as well as the people that using the tools that you've created um I'll also briefly talk about us so we are working directly on the risk mitigation problem too uh the space from for a while now has kind of lacked some of the tools and services to help consumers and Retail users keep their digital assets safe so our approach is three-fold we do things in the assessment space like Risk mitigation real-time monitoring on the monitoring side and then action oriented items like emergency evacuation through a panic button and so on but we build these tools and services with the consumer in mind and then also have apis on the back end to help projects protect their end users as well as their teams um so like in and nutshell Regulators hear more about the risk of censorship resistance and the benefit of the resilience of the tech so they're going to hear the bad news way more than the good news uh because the times people are going to be a victim that's when they're going to go to The Regulators to ask for help they're not going to The Regulators to shill how great crypto is or how much value they got from the ecosystem they're going to go there when they get hacked from Mil and so they're just hearing all the bad news and we have to keep that that in mind that it's kind of on us to change the narrative so take away from this whole thing um the road has not been easy and it's not going to be easy but the less a government Hees about needing to regulate us or get involved to help the more we're going to be left alone uh so I think it's on us to build for a safer web 3 um and that's pretty much it thanks for the time please feel free to get in touch if your team wants to leverage our risk mitigation tools my DMs are open uh we're building you're all building hope everyone's having a good time