Following recent congressional hearings on the FTX collapse, I’m noticing how many congresspeople still struggle to recognize how this is not just about FTX, but how crypto as a whole is fundamentally flawed and will hurt more people than it helps.
The hearing yesterday with John J. Ray III indicated pretty clearly to me that the reason FTX collapsed was because FTX staff had the capability to transfer funds out of their customers’ wallets into their own to spend how they deemed best. Without regulation, and without an independent board, no one was there to know about it, let alone stop it.
It seems to me (as a non-expert), that Sam Bankman-Fried attempted to take money invested into FTT, funnel it into his own “Alameda Research” firm, and in an attempt to grow the wealth, gamble with the money with other speculative cryptocurrencies.
Money cannot be produced on the blockchain, because the tokens themselves aren’t backed by anything. They’re inherently valueless. The fiat value of a token fluctuates only on buying and selling, which is done on pure feeling. Because “nothing” cannot increase its own value, cryptocurrency can only be described as a zero-sum game. When someone makes money, it’s because others lost money.
Sam Bankman-Fried gambling away (and losing) the value of FTX customers’ investments with other speculative cryptocurrency means someone else won. And due to the nature of crypto, we may never know who won.
And so this story will happen again and again, because crypto itself is just gambling without any accountability or regulation. FTX is not an exception to an otherwise great system. It is an example—an instruction manual even—of what can be done.