Ethereum co-founder Vitalik Buterin has outlined a new framework for crypto security, offering practical strategies rooted in redundancy, multi-angle verification, and human-centric design.

He argues that the best way to protect users is to close the gap between their intent and system behavior.

Vitalik Buterin Explains Closing the Gap Between User Intent and System Security

Buterin’s insights, dismantling the idea of perfect security, arrive at a time when crypto platforms continue to face wallet hacks, smart contract exploits, and complex privacy risks.

By merging security with user experience, Buterin provides developers with a roadmap for balancing protection with usability.

Buterin reframes security as an effort to minimize the divergence between what users want and what systems do.

While user experience broadly addresses this gap, security specifically targets tail-risk scenarios in which adversarial behavior could lead to severe consequences.

“Perfect security is impossible—not because machines are flawed, or because humans designing them are flawed, but because the user’s intent is fundamentally an extremely complex object,” Buterin wrote.

He points out that even a seemingly simple action, like sending 1 ETH to a recipient, involves assumptions about identity, blockchain forks, and common-sense knowledge that cannot be fully encoded.

More intricate objectives, such as preserving privacy, add layers of complexity: metadata patterns, message timing, and behavioral signals can all leak sensitive information. This makes it difficult to distinguish between “trivial” and “catastrophic” losses.

The challenge mirrors early debates in AI safety, where specifying goals strongly proved notoriously difficult. In crypto, translating human intent into code faces a similar barrier.

Redundancy and Multi-Angle Verification

To compensate for these limitations, Buterin advocates redundancy: users specify intent through multiple overlapping methods. Systems act only when all specifications align.

This approach applies across Ethereum wallets, operating systems, formal verification, and hardware security.

For instance, programming type systems require developers to specify both program logic and expected data structures; mismatches prevent compilation.

Formal verification adds mathematical property checks to ensure code behaves as intended. Transaction simulations allow users to preview on-chain consequences before confirming actions.

Post-assertions require both action and expected outcomes to match. Multisig wallets and social recovery mechanisms distribute authority across multiple keys. This ensures that single-point failures do not compromise security.

The Role of AI in Security

Buterin also envisions large language models (LLMs) as a complementary tool, describing them as “a simulation of intent.”

Generic LLMs mirror human common sense, while user-fine-tuned models can detect what is normal or unusual for an individual.

“LLMs should under no circumstances be relied on as a sole determiner of intent. But they are one ‘angle’ from which a user’s intent can be approximated,” he noted.

Integrating LLMs with traditional redundancy methods could enhance mismatch detection without creating single points of failure.

Balancing Security and Usability

Critically, Buterin emphasizes that security should not translate into unnecessary friction for routine actions.

 Low-risk tasks should be easy or even automated, while risky actions, such as transfers to new addresses or unusually large sums, require additional verification.

This calibrated approach ensures protection without frustrating users.

By blending redundancy, multi-angle verification, and AI-assisted insights, Buterin offers a roadmap for crypto platforms to reduce risk while maintaining usability.

Perfect security may be unattainable, but a layered, human-centered approach can safeguard users and strengthen trust in decentralized systems.

Bithumb CEO admited past mistakes following the latest 620,000 BTC blunder which has prompting further investigations into system flaws.

South Korea’s financial authorities are facing criticism after failing to spot major flaws in Bithumb’s systems that led to an unprecedented Bitcoin error.

Despite repeated inspections by the Financial Services Commission (FSC) and the Financial Supervisory Service (FSS), a vulnerability remained that allowed a single employee to trigger massive coin transfers without detection.

Bithumb Crypto Mishap

According to Rep. Kang Min-guk of the People Power Party, the FSC reviewed Bithumb once in 2022 and twice in 2025, while the FSS carried out three inspections during the same period. Despite this, none identified discrepancies between actual holdings and accounting records.

On February 6, a promotional event went wrong when users were mistakenly credited with 2,000 BTC each instead of coins worth 2,000 won (worth approximately $1.38). This error caused the system to register a total of 620,000 bitcoins being “distributed” to users, which is far more than the exchange’s actual holdings of about 42,800 BTC.

As reported by The Korea Times, the country’s lawmakers said the mistake exposes deeper weaknesses in internal controls, ledger management, and regulatory supervision. Rep. Han Chang-min of the Social Democratic Party questioned whether regulators’ inspections were largely procedural and noted attempts to place responsibility on Bithumb.

The FSS has extended its probe through February and is investigating potential violations involving investor protection, anti-money laundering (AML), and system flaws.

Bithumb CEO Lee Jae-won acknowledged two smaller prior errors that were recovered, which the FSS will also review.

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Meanwhile, an emergency team from the authorities and the Digital Asset eXchange Alliance (DAXA) is reviewing asset verification and internal controls at some of the country’s other prominent exchanges, such as Upbit, Coinone, Korbit, and GOPAX. Results are expected to influence both DAXA’s self-regulatory rules and future crypto legislation.

Lost and Found

The latest setback comes a month after the Gwangju District Prosecutors’ Office reported that Bitcoin seized in a criminal case had gone missing, but authorities have now recovered all 40 billion won worth of the lost cryptocurrency. Prosecutors said the 320.8 bitcoins were returned from the hacker’s electronic wallet to the office’s wallet on February 17, apparently voluntarily, after the hacker was unable to cash them out.

The coins had originally been confiscated from the daughter of a couple arrested for operating an illegal overseas gambling site worth 390 billion won between 2018 and 2021, who had converted their criminal proceeds into Bitcoin. Officials said the BTC were lost last August when prosecutors accidentally accessed a phishing site while checking the wallet, which exposed the funds.

Authorities have been tracking the hacker and monitoring domestic and international exchanges to prevent further losses.

The idea that Layer 1 blockspace has become a commodity may be premature, according to Bitwise CIO Matt Hougan, who argues that institutional behavior tells a very different story.

Hougan pushed back on what he described as an “increasing view in crypto that L1 blockspace is a commodity.

Institutional Capital Clusters on Top-Tier Chains as On-Chain Prediction Markets Redefine Information Edge

According to the Bitwise executive, if infrastructure were truly commoditized, capital and development would be evenly distributed across chains.

Instead, the vast majority of institutional building is taking place on very few chains (Ethereum, Solana, etc.).

“…basically, zero interest in building on the twentieth largest L1,” he explained.

Networks like Ethereum and Solana continue to dominate mindshare, liquidity, and developer activity, even as newer Layer 1s compete aggressively on fees and throughput. Hougan offered a simpler explanation for today’s low-fee environment.

“Top-tier L1s built more bandwidth than the market can use at the moment, so fees are rock-bottom.”

However, he cautioned that the current equilibrium may not last.

“The real question is what happens when demand scales as stablecoins/tokenization/DeFi grow into the trillions,” he wrote. “I’m not sure we know the answer yet.”

If blockchain-based financial infrastructure expands to support trillions of dollars in tokenized assets and on-chain settlement, today’s excess capacity could quickly tighten. Such an outcome could potentially reshape the economics of leading networks.

Prediction Markets as a “Reg FD for the Internet Age,” Hougan Argues

Beyond infrastructure, Hougan also weighed in on another contentious topic: insider trading concerns surrounding crypto-based prediction markets.

“The insider trading worries about prediction markets are basically backwards,” he wrote. “Prediction markets are a markets-based extension of Reg FD, putting us all on a level playing field.”

Regulation Fair Disclosure (Reg FD) was designed to prevent selective disclosure of material information to favored investors.

Hougan argues that prediction markets extend that principle by publicly pricing probabilities around major events.

He reflected on how hedge funds historically extracted “alpha” during pivotal legislative moments in Washington, D.C., hiring lobbyists and consultants to gather private intelligence from Capitol Hill.

Today, however, retail investors can track live probabilities on platforms like Polymarket, including markets tied to the potential passage of legislation such as the Clarity Act.

“For liquid markets, those odds are probably as good or better than anything the lobbying complex can provide. It’s a more even playing field,” Hougan said.

He acknowledged that risks remain, citing the need to aggressively police insider trading in prediction markets. Still, he emphasized that the impact balance is dramatically positive and egalitarian.

Therefore, there are two debates here:

• Whether L1s are commoditized and
• Whether prediction markets enable unfair advantages

Both debates revolve around how power is distributed in financial systems. According to Matt Hougan, institutional concentration on top-tier chains reflects economic reality rather than pure commoditization.

Meanwhile, open prediction markets represent a rare instance where information asymmetry may actually be shrinking.

The US Securities and Exchange Commission (SEC) staff last week clarified that broker-dealers can apply a 2% “haircut” to their stablecoin holdings without objection from the SEC.

Previously, broker-dealers were uncertain whether to apply a 100% haircut to their dollar-pegged stablecoins, meaning that they did not count the tokens toward their net capital under existing regulations.

The clarification came in the form of a posting by the staff of the SEC’s Division of Trading and Markets as a “Frequently Asked Questions Relating to Crypto Asset Activities and Distributed Ledger Technology.”

In response, Commissioner Hester Peirce said: In my view, a 100% haircut would be unnecessarily punitive given the underlying reserve assets that back payment stablecoins.”

The SEC requires broker-dealers to maintain minimum levels of net capital to meet financial obligations and absorb potential losses from market downturns and volatility, according to the staff’s clarification. 

For example, if a broker-dealer holds $100 million in stablecoins, a 2% haircut allows them to count $98 million toward their net capital requirements. Celebrating the clarification as positive for the financial system, Peirce said: 

“Stablecoins are essential to transacting on blockchain rails. Using stablecoins will make it feasible for broker-dealers to engage in a broader range of business activities relating to tokenized securities and other crypto assets.”  

The clarification means broker-dealers can hold stablecoins without worrying about excess net capital requirements, and can treat the tokens similarly to money market funds, vehicles that hold low-risk cash equivalents like US Treasurys and certificates of deposit. 

In a social media post over the weekend, Marc Baumann, CEO of crypto intelligence company 51, called the SEC staff communication “a big deal,” adding that “Wall Street can now actually hold and use stablecoins without destroying their capital ratios.”

Related: SEC leaders seek to clarify how tokenized securities interact with existing regulation

Stablecoins gain traction in the United States, but not all US officials are convinced

The stablecoin market cap recently hit a snag, falling by about $6 billion from the December 2025 peak of over $300 billion.

However, the market still has a $295 billion market cap, which has steadily grown since 2023, according to data from RWA.XYZ.

United States President Donald Trump signed the GENIUS stablecoin bill into law in July 2025, which was considered a landmark moment for the crypto industry.

The stablecoin market capitalization was just north of $252 billion at the time of signing and surged following the passage of the bill, according to data from RWA.XYZ.

Despite the meteoric surge in stablecoins and their implications for US dollar dominance in global financial markets, Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, maintains that stablecoins and crypto have no real use cases.

“I could send any one of you $5 with Venmo, or PayPal, or Zelle, so what is it that this magical stablecoin can do? ” he said on Thursday.

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