The crypto world is currently in a state of intense turbulence due to developments around the major crypto exchange, FTX, which is in a state of near-total collapse. Investors are coming to terms with what looks like irrecoverable losses, and notably, the venture capital firm, Sequoia Capital has marked the value of its stake in FTX down to zero.
For a brief moment this week, it looked as if the finale to the ongoing FTX implosion was to be its acquisition by rival exchange Binance. There would still have been plenty to unpack after that, but in the end, that outcome never came to pass.
In fact, what followed was alarming, as, if we are to believe everything presented on the surface, Binance began the process of due diligence; a process which, along with reports of mishandled customer funds and agency investigations into FTX, immediately prompted Binance to abandon the proposed rescue deal.
In the wider crypto-sphere, the result of FTX’s collapse, and the manner in which it occurred, has been a highly emotional mixture of disorientation and roiling disbelief. It’s fair to say that FTX going under is a greater bombshell than any of the other shattering detonations that have hit crypto this year, and the entire space is reeling and exhausted.
Something tangibly different now, as opposed to earlier in the year when other crypto platforms were teetering, is the expressions of outright anger, which are aimed, for the most part, at the FTX Founder and CEO, Sam Bankman-Fried (known as SBF).
Perhaps it had seemed like the worst was over this year for crypto, and perhaps there is a sinking realization of the damage done by FTX, both to its investors and to the reputation of the entire crypto sector, in which there are a large number of honest developers looking to build working, valuable products.
There is likely also a feeling among some of having been duped, as a conspicuous aspect of SBF’s public persona was the projection of essentially good intentions, for example through promoting the philosophy of effective altruism.
However, despite the raw emotion on display at the moment, there are some practical, important realizations that the entire current debacle is bringing to the surface.
A Better Alternative?
Bitcoin was brought into existence to become a better alternative to fiat money and central banks, DeFi emerged as an attempt to create financial systems that were superior to those already in place, and both have decentralization at their core.
This much is obvious, and so when centralized entities became dominant, it should have been immediately recognizable that this was not what was supposed to play out.
Also, disconcerting is the idea that individual actors in powerful positions can steer crypto in ways that go against every central ethos. Don’t forget, by contrast, that the creator of Bitcoin, Satoshi Nakamoto
Satoshi Nakamoto
“Satoshi Nakamoto” is the alias of the mysterious person (or group of people) that are responsible for the creation and launch of Bitcoin back in 2009 and the authorship of the Bitcoin whitepaper, published in 2008. As such, Satoshi Nakamoto is also the entity who conceptualized and created the first-ever blockchain network. Nakamoto was the first to effectively solve the double-spending problem for digital currency using a Peer-to-Peer (P2P) network. Nakamoto was active in the development of bitcoin up until December 2010, making all modifications to the source code himself. In 2010, he handed over control of the source code repository and network alert key to Gavin Andresen, and transferred several related domains to various prominent members of the bitcoin community.Who is Satoshi Nakamoto?While Nakamoto claimed on his P2P Foundation profile in 2012 that he was a 37-year-old man from Japan, others speculated that he was from an English-speaking country due to his use of perfect English and the fact that none of his work was documented or labelled in Japanese. Analyses of Nakamoto’s post suggest that his sleeping patterns were most similar to those of people living in the UK, and his use of British English in spelling and terminology have led many to believe that Nakamoto is actually of British origin.Several years after the publication of the Bitcoin network, the entity posting under the name Satoshi Nakamoto disappeared from the internet, never known to publish anything under that name again. However, a few bold actors have claimed to be Nakamoto. There has been much speculation about whether any of these claims could be true. Ultimately, the real-world identity of Satoshi has never been established and remains a mystery to this day.
“Satoshi Nakamoto” is the alias of the mysterious person (or group of people) that are responsible for the creation and launch of Bitcoin back in 2009 and the authorship of the Bitcoin whitepaper, published in 2008. As such, Satoshi Nakamoto is also the entity who conceptualized and created the first-ever blockchain network. Nakamoto was the first to effectively solve the double-spending problem for digital currency using a Peer-to-Peer (P2P) network. Nakamoto was active in the development of bitcoin up until December 2010, making all modifications to the source code himself. In 2010, he handed over control of the source code repository and network alert key to Gavin Andresen, and transferred several related domains to various prominent members of the bitcoin community.Who is Satoshi Nakamoto?While Nakamoto claimed on his P2P Foundation profile in 2012 that he was a 37-year-old man from Japan, others speculated that he was from an English-speaking country due to his use of perfect English and the fact that none of his work was documented or labelled in Japanese. Analyses of Nakamoto’s post suggest that his sleeping patterns were most similar to those of people living in the UK, and his use of British English in spelling and terminology have led many to believe that Nakamoto is actually of British origin.Several years after the publication of the Bitcoin network, the entity posting under the name Satoshi Nakamoto disappeared from the internet, never known to publish anything under that name again. However, a few bold actors have claimed to be Nakamoto. There has been much speculation about whether any of these claims could be true. Ultimately, the real-world identity of Satoshi has never been established and remains a mystery to this day. Read this Term, is pseudonymous and let his creation run by itself once it had been set in motion.
If what has now sprung into being is platforms that are not far from what traditional finance already had to offer, with the main differences being that crypto’s platforms are unregulated and perilous, then something has gone awry.
Viewed from this perspective, a blow-up was inevitable. After all, what’s the long-term purpose of constructing a precariously dishonest financial system in the hinterlands, and how long could that possibly last anyway?
Bitcoin Is Not a Crypto
With every platform that collapses and every hollow new token that washes over the market, the case for Bitcoin, which continues, always, to operate exactly as it should, is strengthened.
Does this mean that everyone must become a Bitcoin maximalist and eschew other blockchains altogether? Arguably not, since there are some other networks that are built optimally, and with practical intentions in mind.
However, it’s noticeable that every bear market and catastrophe shifts some of those who remain in crypto towards Bitcoin and the maxi way of thinking, and it might, over the coming years, be a positive development if the crypto carnival were gradually streamlined down to only its most useful components.
Disaster Scaled
As crypto scales and expands, so do its mishaps. What’s happening now is being compared to the Mt Gox bankruptcy of 2014, but a difference is that Mt Gox
Mt. Gox
Mt. Gox is the name of a Japan-based cryptocurrency exchange that was infamously hacked for 850,000 BTC worth roughly $450 million at the time in February of 2014. During July 2010 Mt. Gox formally launched Mt. Gox launched its exchange and price quoting service. It was subsequently sold to French developer Mark Karpelès in early 2011.Prior to its hacking, Mt. Gox suffered from other security vulnerabilities as early as June 2011. On 19 June, 2011, a security breach of the exchange caused the nominal price of a bitcoin to fraudulently drop on Mt. Gox itself, after a hacker allegedly used credentials from a Mt. Gox auditor’s compromised computer to transfer a large number of bitcoins illegally to himself. Additionally, in October 2011 over 2,600 BTC was sent to invalid addresses and effectively lost. This exposed a weakness in the network protocol as a standard client would check for such an error and reject the transactions.Mt. Gox Controversy and CollapseIn early 2014 Mt. Gox suspended trading, subsequently closing its website and exchange service, and filed for bankruptcy protection from creditors. Liquidation proceedings began shortly after.During this time, the company had publicly announced that nearly 850,000 BTC belonging to customers and the company were missing and presumed stolen.Since then, nearly 200,000 BTC have since been located, though the reasons for the disappearance were unclear. The most likely scenario involves some combination of theft, fraud, or mismanagement.New evidence presented in 2015 by Tokyo security company WizSec led them to conclude that “most or all of the missing bitcoins were stolen straight out of the Mt. Gox hot wallet over time, beginning in late 2011.”At its peak, more than 70 percent of Bitcoin transactions took place on Mt. Gox. The hack was the largest in the history of cryptocurrency until the CoinCheck hack that took place near the beginning of 2018. More than 24,000 customers lost access to their money. The BTC that the exchange lost represented over 6 percent of all of the Bitcoins in circulation at the time. At the time the hack was had a seriously destabilizing effect on the price of Bitcoin and the overall sentiment around the Bitcoin network.
Mt. Gox is the name of a Japan-based cryptocurrency exchange that was infamously hacked for 850,000 BTC worth roughly $450 million at the time in February of 2014. During July 2010 Mt. Gox formally launched Mt. Gox launched its exchange and price quoting service. It was subsequently sold to French developer Mark Karpelès in early 2011.Prior to its hacking, Mt. Gox suffered from other security vulnerabilities as early as June 2011. On 19 June, 2011, a security breach of the exchange caused the nominal price of a bitcoin to fraudulently drop on Mt. Gox itself, after a hacker allegedly used credentials from a Mt. Gox auditor’s compromised computer to transfer a large number of bitcoins illegally to himself. Additionally, in October 2011 over 2,600 BTC was sent to invalid addresses and effectively lost. This exposed a weakness in the network protocol as a standard client would check for such an error and reject the transactions.Mt. Gox Controversy and CollapseIn early 2014 Mt. Gox suspended trading, subsequently closing its website and exchange service, and filed for bankruptcy protection from creditors. Liquidation proceedings began shortly after.During this time, the company had publicly announced that nearly 850,000 BTC belonging to customers and the company were missing and presumed stolen.Since then, nearly 200,000 BTC have since been located, though the reasons for the disappearance were unclear. The most likely scenario involves some combination of theft, fraud, or mismanagement.New evidence presented in 2015 by Tokyo security company WizSec led them to conclude that “most or all of the missing bitcoins were stolen straight out of the Mt. Gox hot wallet over time, beginning in late 2011.”At its peak, more than 70 percent of Bitcoin transactions took place on Mt. Gox. The hack was the largest in the history of cryptocurrency until the CoinCheck hack that took place near the beginning of 2018. More than 24,000 customers lost access to their money. The BTC that the exchange lost represented over 6 percent of all of the Bitcoins in circulation at the time. At the time the hack was had a seriously destabilizing effect on the price of Bitcoin and the overall sentiment around the Bitcoin network. Read this Term wasn’t on so many people’s radars outside of crypto. FTX, by comparison, is more visible, and the non-crypto world is paying attention.
That said, there is still a distinct separation between crypto and traditional finance. On the positive side, this means a crypto collapse is unlikely to spread contagion to the broader financial world. However, this accentuates a barrier that crypto may hit as it moves towards integrating with (or even superseding) traditional finance.
After all, who would look at the damage done this year in crypto, and then want to remove the airlock separating crypto and traditional structures?
It could be argued that the standard financial and economic setup isn’t looking too sturdy either, but then, if entities like FTX are center stage, what kind of choice does crypto appear to offer: a greater variety of perils to add to the ones that already exist?
A key tenet of the crypto movement has been that the blockchain never lies, and another critical point is that we must verify not trust. This means that a decentralized blockchain mechanism removes the need to rely on either centralized third parties or regulatory bodies.
Or perhaps these principles really did only ever apply to Bitcoin, in which case, once again, we must return to basics.
The crypto world is currently in a state of intense turbulence due to developments around the major crypto exchange, FTX, which is in a state of near-total collapse. Investors are coming to terms with what looks like irrecoverable losses, and notably, the venture capital firm, Sequoia Capital has marked the value of its stake in FTX down to zero.
For a brief moment this week, it looked as if the finale to the ongoing FTX implosion was to be its acquisition by rival exchange Binance. There would still have been plenty to unpack after that, but in the end, that outcome never came to pass.
In fact, what followed was alarming, as, if we are to believe everything presented on the surface, Binance began the process of due diligence; a process which, along with reports of mishandled customer funds and agency investigations into FTX, immediately prompted Binance to abandon the proposed rescue deal.
In the wider crypto-sphere, the result of FTX’s collapse, and the manner in which it occurred, has been a highly emotional mixture of disorientation and roiling disbelief. It’s fair to say that FTX going under is a greater bombshell than any of the other shattering detonations that have hit crypto this year, and the entire space is reeling and exhausted.
Something tangibly different now, as opposed to earlier in the year when other crypto platforms were teetering, is the expressions of outright anger, which are aimed, for the most part, at the FTX Founder and CEO, Sam Bankman-Fried (known as SBF).
Perhaps it had seemed like the worst was over this year for crypto, and perhaps there is a sinking realization of the damage done by FTX, both to its investors and to the reputation of the entire crypto sector, in which there are a large number of honest developers looking to build working, valuable products.
There is likely also a feeling among some of having been duped, as a conspicuous aspect of SBF’s public persona was the projection of essentially good intentions, for example through promoting the philosophy of effective altruism.
However, despite the raw emotion on display at the moment, there are some practical, important realizations that the entire current debacle is bringing to the surface.
A Better Alternative?
Bitcoin was brought into existence to become a better alternative to fiat money and central banks, DeFi emerged as an attempt to create financial systems that were superior to those already in place, and both have decentralization at their core.
This much is obvious, and so when centralized entities became dominant, it should have been immediately recognizable that this was not what was supposed to play out.
Also, disconcerting is the idea that individual actors in powerful positions can steer crypto in ways that go against every central ethos. Don’t forget, by contrast, that the creator of Bitcoin, Satoshi Nakamoto
Satoshi Nakamoto
“Satoshi Nakamoto” is the alias of the mysterious person (or group of people) that are responsible for the creation and launch of Bitcoin back in 2009 and the authorship of the Bitcoin whitepaper, published in 2008. As such, Satoshi Nakamoto is also the entity who conceptualized and created the first-ever blockchain network. Nakamoto was the first to effectively solve the double-spending problem for digital currency using a Peer-to-Peer (P2P) network. Nakamoto was active in the development of bitcoin up until December 2010, making all modifications to the source code himself. In 2010, he handed over control of the source code repository and network alert key to Gavin Andresen, and transferred several related domains to various prominent members of the bitcoin community.Who is Satoshi Nakamoto?While Nakamoto claimed on his P2P Foundation profile in 2012 that he was a 37-year-old man from Japan, others speculated that he was from an English-speaking country due to his use of perfect English and the fact that none of his work was documented or labelled in Japanese. Analyses of Nakamoto’s post suggest that his sleeping patterns were most similar to those of people living in the UK, and his use of British English in spelling and terminology have led many to believe that Nakamoto is actually of British origin.Several years after the publication of the Bitcoin network, the entity posting under the name Satoshi Nakamoto disappeared from the internet, never known to publish anything under that name again. However, a few bold actors have claimed to be Nakamoto. There has been much speculation about whether any of these claims could be true. Ultimately, the real-world identity of Satoshi has never been established and remains a mystery to this day.
“Satoshi Nakamoto” is the alias of the mysterious person (or group of people) that are responsible for the creation and launch of Bitcoin back in 2009 and the authorship of the Bitcoin whitepaper, published in 2008. As such, Satoshi Nakamoto is also the entity who conceptualized and created the first-ever blockchain network. Nakamoto was the first to effectively solve the double-spending problem for digital currency using a Peer-to-Peer (P2P) network. Nakamoto was active in the development of bitcoin up until December 2010, making all modifications to the source code himself. In 2010, he handed over control of the source code repository and network alert key to Gavin Andresen, and transferred several related domains to various prominent members of the bitcoin community.Who is Satoshi Nakamoto?While Nakamoto claimed on his P2P Foundation profile in 2012 that he was a 37-year-old man from Japan, others speculated that he was from an English-speaking country due to his use of perfect English and the fact that none of his work was documented or labelled in Japanese. Analyses of Nakamoto’s post suggest that his sleeping patterns were most similar to those of people living in the UK, and his use of British English in spelling and terminology have led many to believe that Nakamoto is actually of British origin.Several years after the publication of the Bitcoin network, the entity posting under the name Satoshi Nakamoto disappeared from the internet, never known to publish anything under that name again. However, a few bold actors have claimed to be Nakamoto. There has been much speculation about whether any of these claims could be true. Ultimately, the real-world identity of Satoshi has never been established and remains a mystery to this day. Read this Term, is pseudonymous and let his creation run by itself once it had been set in motion.
If what has now sprung into being is platforms that are not far from what traditional finance already had to offer, with the main differences being that crypto’s platforms are unregulated and perilous, then something has gone awry.
Viewed from this perspective, a blow-up was inevitable. After all, what’s the long-term purpose of constructing a precariously dishonest financial system in the hinterlands, and how long could that possibly last anyway?
Bitcoin Is Not a Crypto
With every platform that collapses and every hollow new token that washes over the market, the case for Bitcoin, which continues, always, to operate exactly as it should, is strengthened.
Does this mean that everyone must become a Bitcoin maximalist and eschew other blockchains altogether? Arguably not, since there are some other networks that are built optimally, and with practical intentions in mind.
However, it’s noticeable that every bear market and catastrophe shifts some of those who remain in crypto towards Bitcoin and the maxi way of thinking, and it might, over the coming years, be a positive development if the crypto carnival were gradually streamlined down to only its most useful components.
Disaster Scaled
As crypto scales and expands, so do its mishaps. What’s happening now is being compared to the Mt Gox bankruptcy of 2014, but a difference is that Mt Gox
Mt. Gox
Mt. Gox is the name of a Japan-based cryptocurrency exchange that was infamously hacked for 850,000 BTC worth roughly $450 million at the time in February of 2014. During July 2010 Mt. Gox formally launched Mt. Gox launched its exchange and price quoting service. It was subsequently sold to French developer Mark Karpelès in early 2011.Prior to its hacking, Mt. Gox suffered from other security vulnerabilities as early as June 2011. On 19 June, 2011, a security breach of the exchange caused the nominal price of a bitcoin to fraudulently drop on Mt. Gox itself, after a hacker allegedly used credentials from a Mt. Gox auditor’s compromised computer to transfer a large number of bitcoins illegally to himself. Additionally, in October 2011 over 2,600 BTC was sent to invalid addresses and effectively lost. This exposed a weakness in the network protocol as a standard client would check for such an error and reject the transactions.Mt. Gox Controversy and CollapseIn early 2014 Mt. Gox suspended trading, subsequently closing its website and exchange service, and filed for bankruptcy protection from creditors. Liquidation proceedings began shortly after.During this time, the company had publicly announced that nearly 850,000 BTC belonging to customers and the company were missing and presumed stolen.Since then, nearly 200,000 BTC have since been located, though the reasons for the disappearance were unclear. The most likely scenario involves some combination of theft, fraud, or mismanagement.New evidence presented in 2015 by Tokyo security company WizSec led them to conclude that “most or all of the missing bitcoins were stolen straight out of the Mt. Gox hot wallet over time, beginning in late 2011.”At its peak, more than 70 percent of Bitcoin transactions took place on Mt. Gox. The hack was the largest in the history of cryptocurrency until the CoinCheck hack that took place near the beginning of 2018. More than 24,000 customers lost access to their money. The BTC that the exchange lost represented over 6 percent of all of the Bitcoins in circulation at the time. At the time the hack was had a seriously destabilizing effect on the price of Bitcoin and the overall sentiment around the Bitcoin network.
Mt. Gox is the name of a Japan-based cryptocurrency exchange that was infamously hacked for 850,000 BTC worth roughly $450 million at the time in February of 2014. During July 2010 Mt. Gox formally launched Mt. Gox launched its exchange and price quoting service. It was subsequently sold to French developer Mark Karpelès in early 2011.Prior to its hacking, Mt. Gox suffered from other security vulnerabilities as early as June 2011. On 19 June, 2011, a security breach of the exchange caused the nominal price of a bitcoin to fraudulently drop on Mt. Gox itself, after a hacker allegedly used credentials from a Mt. Gox auditor’s compromised computer to transfer a large number of bitcoins illegally to himself. Additionally, in October 2011 over 2,600 BTC was sent to invalid addresses and effectively lost. This exposed a weakness in the network protocol as a standard client would check for such an error and reject the transactions.Mt. Gox Controversy and CollapseIn early 2014 Mt. Gox suspended trading, subsequently closing its website and exchange service, and filed for bankruptcy protection from creditors. Liquidation proceedings began shortly after.During this time, the company had publicly announced that nearly 850,000 BTC belonging to customers and the company were missing and presumed stolen.Since then, nearly 200,000 BTC have since been located, though the reasons for the disappearance were unclear. The most likely scenario involves some combination of theft, fraud, or mismanagement.New evidence presented in 2015 by Tokyo security company WizSec led them to conclude that “most or all of the missing bitcoins were stolen straight out of the Mt. Gox hot wallet over time, beginning in late 2011.”At its peak, more than 70 percent of Bitcoin transactions took place on Mt. Gox. The hack was the largest in the history of cryptocurrency until the CoinCheck hack that took place near the beginning of 2018. More than 24,000 customers lost access to their money. The BTC that the exchange lost represented over 6 percent of all of the Bitcoins in circulation at the time. At the time the hack was had a seriously destabilizing effect on the price of Bitcoin and the overall sentiment around the Bitcoin network. Read this Term wasn’t on so many people’s radars outside of crypto. FTX, by comparison, is more visible, and the non-crypto world is paying attention.
That said, there is still a distinct separation between crypto and traditional finance. On the positive side, this means a crypto collapse is unlikely to spread contagion to the broader financial world. However, this accentuates a barrier that crypto may hit as it moves towards integrating with (or even superseding) traditional finance.
After all, who would look at the damage done this year in crypto, and then want to remove the airlock separating crypto and traditional structures?
It could be argued that the standard financial and economic setup isn’t looking too sturdy either, but then, if entities like FTX are center stage, what kind of choice does crypto appear to offer: a greater variety of perils to add to the ones that already exist?
A key tenet of the crypto movement has been that the blockchain never lies, and another critical point is that we must verify not trust. This means that a decentralized blockchain mechanism removes the need to rely on either centralized third parties or regulatory bodies.
Or perhaps these principles really did only ever apply to Bitcoin, in which case, once again, we must return to basics.
