FTX imploded in the most spectacular fashion over the last couple of weeks. But we shouldn’t get blindsided by all the headlines without understanding the root cause behind the collapse – and why it will lead to cryptocurrency reaching the mainstream.
Admittedly the FTX catastrophe couldn’t have come at a worse time as the industry continues to experience growing pains while it progresses along the technology adoption curve.
Referred to as “Crossing the Chasm”, cryptocurrency is at the point where it is accepted by those who value innovation and efficiency on one side, and those who value comfort and reliability on the other. This is the initial indication of it entering the mainstream.
The FTX scandal may mean that cryptocurrency now teeters on the edge, but like any emerging industry, especially those with disruptive technology, there will always be setbacks. This is part of the adoption process and essential to weed out the companies that aren’t sustainable while advancing those who will eventually go on to become the Googles, Apples and Microsoft of their respective markets.
Undeniably what happened with FTX was unforgivable and a significant blow to the industry. This isn’t just because cryptocurrency and blockchain technology already takes enough heat as the industry continues to grow, it’s because the cause of this collapse was due to the fraudulent activity of an SEC regulated company. This wasn’t just another LUNA or completely defi project that was flying under the radar of the regulators, FTX was operating legally in one of the toughest cryptocurrency regulatory jurisdictions in the world, the United States.
The fact that one man, Sam Bankman-Fried, was able to completely dupe institutions, investors, regulators and customers is reminiscent of the ’08 Bernie Madoff scandal where one of the largest Ponzi schemes in the world was operating right under the nose of the SEC.
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Throughout history there are infinite examples of fraudulent individuals – cryptocurrency wasn’t the first industry to be a victim of this and it certainly won’t be the last. It’s just unfortunate that Sam Bankman-Fried happened to be operating a cryptocurrency company and not WorldCom, Tyco, Health South, Enron, AIG, Lehman Brothers or Satyam.
In truth, the collapse of centralised exchanges like FTX are necessary to pave the way for the future of blockchain technology and cryptocurrency. The whole premise behind Bitcoin and the blockchain movement was to eliminate the need for trusted centralised intermediaries like FTX. At its core, blockchain technology is open, transparent and immutable. So if FTX was a true blockchain company and decentralised, the fraudulent actions of Sam Bankman-Fried would have been impossible.
Unfortunately, because centralised exchanges have the capability of on-ramping fiat currency into the cryptosphere, they have become the most popular and widely used even though they don’t operate in the decentralised way that cryptocurrency and blockchain stands for.
One thing that the whole FTX debacle has highlighted is the need to rely more on decentralization and blockchain technology in order to progress the industry forward safely. It’s only through the continued push for decentralization that we will see cryptocurrency and blockchain technology find its way into the mainstream.
Over the last few years, cryptocurrency has shown striking similarities to the dot.com bubble in the 90s, where during its early peak everyone and their dog were jumping on to the internet in the hopes of making a quick buck. Stock prices of internet companies went through the roof just because they had stuck “.com” on the end of their name without anyone ever fully understanding what was going on. It was all just speculative mania. But it was this speculative mania that pushed much of the infrastructure to be built for the internet as we know it to exist today.
After the dot.com bubble burst we were left with an expanding infrastructure, a better understanding of the technology, and a handful of companies with good business models and a vision of what the internet could be.
Companies who survived the dot com bubble had the power to bring the internet to the masses — Google’s search engine, eBay’s auction site, Apple’s Macintosh and Amazon’s online department store — all paved the way to the internet we know now. These companies kept going because they understood the game. They understood that they needed to be compliant and bring the benefits of the internet to the people, not just the stock market.
As with any true world-changing innovation, there is only so long that those who profit from the status quo can hold on to it. Before long they will be forced to adopt the tech, or fail. As the cryptocurrency and blockchain industry continues to grow and expand, eventually the rate of adoption will reach the majority and that’s when we’ll see it truly revolutionise our day-to-day lives similar to the evolution of the internet.
Currently we’re in a transition phase where we’re seeing the early adoption of blockchain technology, but as space continues to evolve, the best is yet to come.
Mark Magliocco CPA is a co-founder of Crypto528, a decentralised cryptocurrency exchange and decentralised autonomous organisation whose mission is to build a community of like-minded people to support blockchain technology, sustainable development, and human rights.