Crypto Hacks Soar: Is Rewarding Hackers the Solution? FTX CEO Sam Bankman-Fried Thinks So

In the volatile world of cryptocurrency, where fortunes are made and lost in the blink of an eye, a sinister threat looms large: crypto hacking. Recent months have witnessed an alarming surge in these digital heists, particularly targeting the decentralized finance (DeFi) sector. Are your crypto assets safe? Let’s dive into the escalating crisis of crypto hacks and a rather unconventional solution proposed by none other than crypto billionaire and FTX CEO, Sam Bankman-Fried (SBF).

The Alarming Rise of Crypto Hacks: A Deep Dive into the Numbers

The numbers paint a stark picture. According to a recent Chainalysis report, October 2022 alone saw a staggering $750 million vanish into thin air due to crypto hacks. To put that into perspective, that’s nearly a billion dollars lost in a single month! The DeFi realm has become a prime hunting ground for these digital bandits.

But how big is the problem really? Consider these key statistics:

• $750 Million+ Lost in October 2022: This figure highlights the severity of the recent spike in crypto hacking incidents.
• $4.4 Billion Lost in DeFi in 2022: DeFi protocols are clearly the most vulnerable targets, accounting for the lion’s share of losses this year.
• Consistent Growth in Hacking: The trend is upward, indicating that crypto hacking is not just a passing phase but a growing threat.

These figures are not just numbers; they represent real people’s investments, savings, and trust in the crypto ecosystem. The rampant nature of crypto hacks erodes confidence and hinders the wider adoption of digital assets.

SBF’s Controversial Solution: Rewarding Crypto Hackers?

Amidst this growing crisis, Sam Bankman-Fried, the influential CEO of FTX, has stepped forward with a rather…unorthodox solution. Buckle up, because it involves rewarding the very hackers who perpetrate these attacks. Yes, you read that right.

SBF’s proposal, dubbed the “5-5 standard,” is outlined in his recent blog post. Here’s the gist of it:

• The 5-5 Standard: Hackers who return the majority of stolen funds would be allowed to keep either 5% of the total amount stolen or $5 million, whichever is less.
• Good Faith Requirement: This reward is contingent on the hacker acting in “good faith” and demonstrating a clear intention to cooperate in returning the bulk of the assets.

Essentially, SBF is suggesting a bounty system, but not in the traditional sense of preventing hacks. Instead, it’s a bounty for *partially* returning stolen funds after a successful hack.

3) Third, the '5-5' standard.

If you return 95% within 48 hours, you keep 5% or $5m, whichever is lower.

If you return 90% within 1 week, you keep 10% or $10m, whichever is lower.

(And if you return 100% within 1 week, you get a job at FTX, if you want!)

I think that this would have curbed the impact of hacks by >98%

— SBF (@SBF_FTX) October 20, 2022

Why Reward Hackers? Understanding the Rationale Behind the 5-5 Standard

SBF argues that this approach, while seemingly counterintuitive, could significantly mitigate the damage caused by crypto hacks. His rationale is rooted in the idea that it’s better to recover a substantial portion of stolen funds than to lose everything.

According to SBF, as stated in his tweet, the “5-5 approach would have curbed the impact of hacks more than 98%”. His logic likely revolves around these points:

• Incentivizing Fund Return: The reward acts as a powerful incentive for hackers to return the majority of the stolen assets, rather than disappearing with everything.
• Reducing Overall Losses: Even with a 5% or $5 million ‘finder’s fee,’ recovering 95% of stolen funds is far better than a complete loss for victims and the ecosystem.
• Discouraging Complete Theft: By offering a reward, it might disincentivize hackers from draining wallets completely, knowing they can profit more by cooperating.
• Practicality in Recovery: Recovering stolen crypto is notoriously difficult. This approach could be a pragmatic way to improve recovery rates.

White-Hat Hackers: The Ethical Side of Crypto Security

It’s important to note that the crypto hacking landscape isn’t solely populated by malicious actors. There’s also a significant presence of “white-hat” hackers, also known as ethical hackers or cybersecurity researchers. These individuals play a crucial role in strengthening crypto security.

What do white-hat hackers do?

• Vulnerability Discovery: White-hat hackers actively seek out security flaws and vulnerabilities in blockchain protocols and DeFi platforms.
• Responsible Disclosure: Instead of exploiting vulnerabilities for personal gain, they responsibly disclose their findings to the project teams.
• Bug Bounty Programs: Many crypto projects operate bug bounty programs, rewarding white-hat hackers for reporting vulnerabilities.
• Improving Security: By identifying and reporting weaknesses, white-hat hackers contribute significantly to making the crypto space more secure.

SBF’s 5-5 proposal could be seen as an extension of the white-hat hacker concept, albeit in a post-exploit scenario. It blurs the lines a bit, but the underlying principle of incentivizing cooperation for the greater good remains.

Beyond Hacks: FTX and the Regulatory Landscape of Crypto

Sam Bankman-Fried’s concerns extend beyond just hacking. He is also actively engaged in navigating the complex and evolving regulatory landscape surrounding cryptocurrencies. FTX, under his leadership, is taking proactive steps in this area.

FTX’s Proactive Approach to Crypto Regulations

FTX’s American division is taking a significant step towards regulatory compliance. Before listing any crypto assets on their platform, they will now conduct thorough internal research to determine if these assets qualify as securities under US law.

This move is highlighted in SBF’s blog post, where he outlines FTX’s intention to utilize its own internal framework for classifying cryptocurrencies as securities. This internal framework will be used until the Securities and Exchange Commission (SEC) provides clearer guidelines and regulations for the crypto industry.

While this internal structure demonstrates FTX’s commitment to compliance, it’s crucial to remember that it does not guarantee immunity from SEC scrutiny or investigation. The regulatory landscape is still developing, and navigating it requires ongoing vigilance and adaptation.

Conclusion: A Controversial Solution for a Critical Problem

Crypto hacks are a serious and escalating threat to the digital asset ecosystem. The losses are substantial, and the impact on investor confidence is significant. Sam Bankman-Fried’s proposed “5-5 standard” to reward hackers is undoubtedly a controversial approach, sparking debate and raising ethical questions.

Whether this solution is truly effective remains to be seen. It highlights the desperate need for innovative solutions to combat crypto crime and protect users’ assets. As the crypto space matures, finding the right balance between security, regulation, and innovation will be paramount. The conversation around rewarding hackers, even partially, underscores the urgency and complexity of the challenges facing the crypto world today.