Hmm. Maybe like the group holding your assets has a centralized check and control system? Like they could operate physical locations and have staff? A novel concept.

Great idea! Those things cost money though and users won't like paying up-front--they'll have to be sure to make up costs with obscene fees, the more obfuscated the better. To minimize pushback on the fees they should consider focusing them on the most disadvantaged users, since they're least likely to be able to do anything about it. Isn't it a great system?

Perhaps these groups could be regulated and insured by an even larger entity, perhaps even one with the authority to punish individuals and organizations for wrongdoing?

With Bitcoin, you could create that third party in a trust minimized way, something impossible to do with the banking system.

For instance, if the third party refuses to authorize a legitimate transaction, you have a third key you keep offline somewhere that can be used to force a transaction through.

Then your third key would be vulnerable to the same $5 wrench attack as your seed phrase is now.

And if you lose the third key you are now beholden to the third party with no recourse

I get the joke, but you could do that without the trusted third party. It is pretty easy to imagine a system where transfers have to be signalled X blocks before the actual transaction takes place if the transaction is statistically weird. The sort of problem smart contracts are there to solve.

Unfortunately you can do awesome security stuff, but the threat comes from the perception of vulnerability, not the reality of it.