What is EIP-7702 and why is it important?
Cryptocurrency is always changing, and there's a new update to the Ethereum blockchain called EIP-7702. This upgrade allows external accounts to temporarily act like smart contracts and conduct batch transactions. This should make things run more smoothly on Ethereum. But with this smoother ride, there's a chance for bumpy encounters; it might also let bad actors slip through.
What are the risks introduced by EIP-7702?
When EIP-7702 rolled out, it didn't just bring convenience; it also raised alarms about security. Here are some from the top of my head:
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It lets EOAs delegate smart contract code. This means hackers can trick users into approving their malicious contracts, which opens a floodgate for batch transactions that drain wallets.
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Phishing attacks are more enticing. Batch transactions are complicated, and that makes it easier for bad actors to create fake DeFi sites that look like the real deal. If a sucker approves a transaction, the bad guy swoops in and steals what's in the wallet.
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It could lead to undefined behavior. If something isn't coded just right, multiple wallets pointing to the same nasty contract could cause chaos.
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A lot of these delegations are malicious. Reports say that over 90% of what we've seen so far can be traced back to badness.
How did a recent scam use EIP-7702?
In a recent scam, a crypto investor lost $1.54 million, and EIP-7702 was at the center of it. This scam posted a fake DeFi interface that looked like it belonged to trusted apps. Once the victim approved a transaction, the scammer used the new features of EIP-7702 to empty the victim's wallet all at once.
This scam isn’t just a case of stolen money; it's a blow to confidence in Ethereum and the broader crypto market. The money lost included wrapped Ethereum and Bitcoin, marking a significant loss.
What measures can users take to protect themselves?
If you want to steer clear of scams that use EIP-7702, here are some ideas:
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Ensure that you are only approving transactions from places you can verify.
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Make sure you limit what you're approving.
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Educate yourself regularly.
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Keep an eye on your token permissions.
What about regulatory frameworks?
Current regulations are still catching up with security risks posed by features like EIP-7702. The SEC has made strides by establishing a Crypto Task Force that focuses on transparency and risk mitigation. But these regulations typically lag behind tech advancements, leaving users to handle security largely on their own.
Changes in U.S. legislation are making things clearer regarding token classifications, but they don’t yet cover EIP-7702's unique risks. As the crypto landscape shifts, we desperately need regulations that address these new risks.
How can fintech startups enhance security against crypto scams?
Fintech startups can bolster security against crypto scams by employing multiple strategies:
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Use advanced tech, like PETs and AI-driven models, to detect threats in real time.
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Use end-to-end encryption, multi-factor authentication, and real-time fraud detection systems.
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Be clear about your compliance with regional laws and regulations.
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Work with regulators in the U.S.
These strategies could help protect startups from falling victim to crypto scams.
