What many people are asking is what are the main challenges faced in protecting the security and privacy of users in the crypto market? How can the crypto industry overcome these challenges?
The crypto industry cannot overcome these challenges, these challenges are part of the industry. The best we can do is to find a way to mitigate them.
For security and privacy, it can be said as below;
- The security of the coin network: In this aspect, the most secured coin is bitcoin and it is very much decentralized. So, unless you talk about shitcoins which has not good security architecture
- Security of the coin in the custody of the investor: This is when we begin to talk about the type of wallet you use (custodial or non custodial), here we begin to talk the right use of the exchanges. We also talk about how safe your devices where you install your wallets are and more.
- Privacy: It is here we talk about how the projects are about to conceal the data and information of the investor. It is here that privacy coins like Monero comes to play, also here mixers comes in for Bitcoin and more.
So, every problem already has solutions in the cryptocurrency industry.
Crypto industry definitely CAN tackle these issues, just not yet as there are no tools ready for that. But there's going to be.
Privacy trough ZK smart contracts alone and ZK based ID will guarantee that information will be private, and can in fact be a holy grail for GDPR / privacy laws. These are currently being made, they are just not ready for big adoption yet.
I am thinking that by security, OP means investor's security as user is always responsible for themselves. And it's really hard to do anything for the user safety on this. Users will be always the weakest link and vulnerable for social engineering, thefts or hacks. Some coins could technically deal this in token issuancer level and make transactions reversable. But i am not sure what that would look like or what would it do to the ideology of decentralization and permissionless transactions.
These immutable transactions most likely won't fly with regulators when we are talking about altcoins that had an ico, ido or any kind of sale. It's likely that demanding that user is responsible of his tokens (self custodity) will be against consumer protection laws but it isn't yet being dealt with.
Regulators can't really do anything about fairly distributed POW coins, or coins that have achived a certain level of decentralization, except maybe they can ban them from CEXes, but teams of funded coins could technically be sued later on about this. I am actually baffled why they haven't yet used this type of attack yet. Maybe it's coming later.