How Crypto Users Get Rekt and How You Can Stay Safe

This episode analyzes the systemic shift in crypto security from smart contract exploits to sophisticated social engineering and the infiltration of North Korean operatives into decentralized finance (DeFi) organizations.

The Evolution of the Attack Surface

• Security at the smart contract level has matured, forcing attackers to pivot toward human vulnerabilities and operational failures. Pablo Sabatella asserts that 99% of stolen funds now result from operational security (OpSec) lapses rather than code vulnerabilities. Social engineering (the psychological manipulation of individuals into performing actions or divulging confidential information) serves as the primary entry point for these breaches.
• Attackers now deploy traditional Web2 hacking techniques, including private key leakage, malware, and domain hijacks.
• The industry has moved from simple code exploits to complex "long-con" interactions that build trust over weeks.
• Verification of identity remains the most effective defense against these evolving strategies.

• “99% of funds stolen are due to operational security issues not smart contract hacks.” — Pablo Sabatella

The SEAL Defense Infrastructure

• The Security Alliance (SEAL) has developed a multi-layered response system to address the lack of preparedness in crypto protocols. Isaac PKA explains that SEAL 911 provides a volunteer-led emergency response bot to connect hacked protocols with white hat researchers immediately. This infrastructure aims to eliminate the chaos of public Telegram "war rooms" where attackers often lurk.
• SEAL 911 functions as a decentralized emergency dispatch for onchain incidents.
• Safe Harbor (a legal framework providing immunity for white hats rescuing funds) now protects over $50 billion in Total Value Locked (TVL).
• SEAL Intel coordinates data sharing between exchanges and wallet providers to freeze stolen assets in real time.

• “Safe Harbor provides an actual onchain guarantee from the protocol.” — Isaac PKA

The North Korean IT Worker Threat

• North Korea (DPRK) has industrialized the process of infiltrating crypto companies to fund state operations. Pablo Sabatella reveals that nearly 50% of job applications for certain technical roles in the industry originate from DPRK operatives. These actors are highly skilled, work long hours, and often hold multiple positions simultaneously to maximize revenue and access.
• Operatives use "laptop farms" where US-based accomplices host hardware to provide a domestic IP (Internet Protocol) address.
• Attackers hire US citizens to act as "fronts" for video interviews, providing them with scripts to bypass KYC (Know Your Customer) checks.
• Detection requires rigorous OSINT (Open Source Intelligence, or the collection of data from public sources) to verify the digital history of applicants.

• “Nearly half of the applications received by web three organizations are from North Korea.” — Pablo Sabatella

Corporate Countermeasures and the Bybit Post-Mortem

• The $1.5 billion Bybit hack represents a milestone in technical sophistication, involving a malicious UI (User Interface) that deceived signers. Isaac PKA notes that the attackers used a "delegate call" (a low-level function allowing a contract to execute external code while maintaining its own storage) to trick the multisig into a malicious upgrade. This exploit appeared as a standard token transfer to the signers.
• Isaac PKA warns against relying on test transactions, which can expose users to address poisoning (an attack where a hacker sends a tiny amount of crypto from a visually similar address to pollute a user's transaction history).
• Organizations must implement the principle of least privilege, ensuring no single individual, including founders, has total access to funds.
• Intentional friction, such as mandatory time delays for protocol upgrades, allows teams to detect and intercept malicious transactions.

• “It’s all about minimizing the blast radius of one specific thing going wrong.” — Isaac PKA

Hardening Individual Defenses

• Retail and institutional users remain vulnerable to basic hygiene failures, particularly regarding seed phrase storage. Pablo Sabatella argues that any user holding more than $2,000 must utilize a hardware wallet (a physical device that keeps private keys offline). Digital storage of seed phrases in password managers or cloud backups remains a primary cause of multi-million dollar losses.
• Hardware security keys (FIDO2/WebAuthn) provide the only robust defense against phishing by requiring physical interaction to authorize logins.
• Users should maintain separate identities for public interactions and sensitive financial management.
• Antivirus and EDR (Endpoint Detection and Response, or software that monitors and responds to threats on a device) can prevent 90% of common malware infections.

• “Everything is a scam until proven otherwise.” — Pablo Sabatella

Investor & Researcher Alpha

• The New Bottleneck: Security is no longer a code problem but a human resource problem. Capital is moving toward "Security as a Service" firms that provide continuous OpSec monitoring rather than one-time audits.
• Obsolete Research: Traditional SMS-based 2FA (Two-Factor Authentication) is now considered a liability. Research into SIM-swap resistant authentication is the new priority.
• The Privacy Pivot: Privacy tools like Privacy Pools are gaining traction by offering "Proof of Innocence." This allows users to maintain privacy while proving they are not part of a known criminal set (e.g., DPRK-linked addresses).

Strategic Conclusion

• Crypto security has transitioned from a battle of code to a battle of identities. Organizations must assume their internal systems are already compromised and build defenses based on least privilege and intentional friction.
• The next step for the industry is the universal adoption of hardware-based authentication and standardized white hat legal protections.