The defining feature of crypto - decentralized, irreversible, no "higher power" you can go to in order to get your money back - turns out to be the thing that burns people ALL the time.
Surprisingly, there's also no "higher power" to get your money back from scams using traditional banking rails as well. I have family members who have lost thousands from bank transfers to legally registered companies that establish legitimacy through having a business bank account. It usually takes forever to shut them down, even after hundreds of thousands of reports from people like me who recognize what they are early on.
Many haven't actually lost money in significant ways through bank transfers, but when it does happen, the disillusionment of institutional security really falls away. Additionally, governments are slow and ineffective, so when these companies do get caught with class action lawsuits, they usually don't have anything to return.
Maybe but this shit is hard for institutions too. There are so many sharp edges.
Even in a well-respected fintech with responsible, talented people I’ve seen: safe deposit boxes get lost (literally no idea where in the world they actually are), go missing (the bank relocates or closes and disposes of them without notification) or become destroyed (fire, flood). I have seen industrial-grade hardware security modules spontaneously corrupt all the internal keys, happily continuing to produce “encrypted” output which can never be decrypted.
Building crypto offerings at scale that can survive the myriad unknown unknowns of real world and hardware failures that can affect both paper and hardware wallets is a really difficult problem. Not impossible, but the stakes are extreme and getting one thing wrong that leads to the loss of a cold wallet can easily lead to total ruin.
Even if “only” a hot wallet gets popped, the instantaneous and irrevocable loss of those funds needs to be offset by a comparatively large amount of operating profit.
At least with the traditional banking system there are a lot of safeguards in place.
