The transponder, and other electronics in the aircraft, must be equipped with on/off switches and or circuit-breakers. This is not just to satisfy certification requirements of the FAA, but in event of a short-circuit and/or fire from this device. It would be like replacing one of the circuit-breakers for your home with a fuse block and a penny jammed in the fuse block. If the item short-circuits and you don't remove power a fire is guaranteed.
There isn't going to be a technological fix that prevents a pilot from hijacking or crashing his own plane. Any proposed system will far more complicated, impossible to certify, and have so many failure modes it would take decades to test.