Web3 was going to be the next big thing, wasn’t it? Decentralized, trustless, and impervious to the whims of governments and corporations. And yet, here we are, sifting through the virtual debris of a Pepe NFT intrusion reportedly masterminded by the Hermit Kingdom. A meme coin and international espionage. Who saw that coming?

Decentralization: A Double-Edged Sword?

Decentralization, the main principle of Web3, was touted as this superpower in the early days. Now, it’s raising security concerns and seems like an obvious vulnerability. We’ve all heard the T-shirt slogans — trust the code, not the people. What’s even worse, what happens when the public employees themselves act as the code’s weakness? The North Korean hacker, said to be part of the infamous Lazarus Group, didn’t hack the blockchain. Instead, they campaigned on and exploited human trust within the system. They posed as IT personnel at Chainsaw, an NFT startup partnering with Matt Furie, the artist behind Pepe the Frog. They had listed themselves as the CTO at Favrr. This isn’t a coding problem, it’s a people problem that looks like a technology problem.

Think about it: The "trustless" nature of Web3 encourages a certain level of naivete. And perhaps most important—we’re too busy celebrating our success in cutting out the middleman. In the rush, we forget that we need to do some basic due diligence. Background checks? Apparently optional. Multi-layered security? A luxury, not a necessity. This isn’t a matter of a few bad apples at all. It’s not about a failure of individual companies or developers, it’s about a systemic failure to prioritize security in the rush to build the next big thing.

The Chainsaw breaches caused over $310,000 in losses and the breach of Favrr caused $680,000. A million dollars down the drain over someone failing to request an ID?

Quick Profits Overshadowing Security?

Let's be honest: the Web3 space has been driven by hype and the promise of overnight riches. This means many of these projects are done on loose, unstable ground – plugging holes for immediate impact and market-readiness rather than investing in structural integrity. It’s a digital, tech gold rush! They’re so busy getting rich that they skip on protecting their wealth.

It’s tempting to place blame squarely on the hacker, who indeed should be condemned. We need to look inward. How many more projects are hurrying to market without the benefit of a security audit? How many are counting on green teams that aren’t aware of the hazards? The crickets that followed from Chainsaw—who posted a warning in the first place and then deleted it—say it all. Complete silence. Are they embarrassed? Scared? Or simply overwhelmed by their own negligence?

Because that’s the real crime here—not just this hack, but the culture that enabled it.

Regulation: The Necessary Evil?

This is where things get controversial. At the same time, many in the Web3 community may push back with equal ferocity against regulation, seeing it as censorship and oppressive governance. They uphold the very same libertarian values of freedom and personal choice. Can we truly adhere to such purist ideals though, with state-sponsored actors continuing to invade the system and eat out our insides from within?

The North Korean angle complicates the entire “I don’t need a fancy degree, just decentralization and a good attitude will fix everything” storyline. We’re not referring to some 14-year-old script kiddie in their mom’s basement. We’re discussing a known cybercriminal that is a nation-state, with the resources to match and history already behind them.

Perhaps, perhaps, possibly, perhaps oversight is a good idea. I know, I know, heresy! But consider this: Would you leave your physical assets completely unguarded in a high-crime area? Probably not. So why are we approaching our digital assets any differently?

Maybe the Web3 future we’re all seeking isn’t an extreme version of decentralization after all, but something that straddles the line between freedom and security. Perhaps we should call for some sort of digital KYC (Know Your Customer) for development leads on projects. Perhaps the time has come for Congress to mandate independent security audits for any project dealing with large sums of user dollars.

Or, we can just do what we’ve been doing. Or better yet, let’s wait until the next state-sponsored hack incurs another million-dollar loss. The choice is ours.

At the end of the day, the Pepe NFT hack serves as a reminder. It doesn’t just provide the download on the biggest developments over the past 12 months. This is a much-needed reminder that decentralization, though undoubtedly powerful, is not a magic bullet. The community is at a crossroads. Crypto regulators need to focus on security and not on stamping out hype, focusing instead on the regulation that is needed to secure the future of Web3. Because as it stands, that future appears to be a lot less safe than we previously believed.