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The Latest Crypto Scandal For People Who Don’t Care About Crypto

On Friday, in a shocking slew of events, cryptocurrency empire FTX filed for Chapter 11 bankruptcy. I don’t think you have to be a crypto expert to know that’s bad. Really bad.


 


FTX was founded in 2019 by Sam Bankman-Fried, the heralded “J.P. Morgan” of the crypto world, according to avid players. The MIT grad launched the cryptocurrency derivatives exchange during the rise of what would become one of the most evolutionary markers of the digital world.


 


Dubbing this article one inclined toward those less experienced with crypto, I feel I owe you a basic definition of the elusive currency. Crypto is an encrypted data string that denotes a unit of currency. It is monitored and organized by a peer-to-peer network called a blockchain, which also serves as a secure ledger of transactions, e.g., buying, selling, and transferring. Unlike physical money, cryptocurrencies are decentralized, which means governments or other financial institutions do not issue them. 


 


Cryptocurrencies are created and secured through cryptographic algorithms maintained and confirmed in mining, where a network of computers or specialized hardware process and validate the transactions. The process incentivizes the miners who run the web with the cryptocurrency. 


 


Now, if you’ve never dared to touch a computer science course or are generally technology-phobic, this definition may not have served many purposes. And if this definition still managed to escape your understanding, I’d advise against attempting investment. Crypto doesn’t need to claim any more unsuspecting victims. 


 


Over three short years, Bankman-Fried grew FTX into one of the leading exchanges for buying and selling crypto derivatives, with investors valuing FTX and its U.S. operations at a combined $40 billion in early 2022. 


 


It appears that nothing gold can stay, though, as his empire came crashing down this month after users began withdrawing their investments from FTX rapidly. Competitor Binance even agreed to acquire the exchange on November 8 at a steep discount. Still, that deal appears to have fallen through; as Binance has said, “the issues are beyond our control or ability to help.”


 


Months before Bankman-Fried’s unraveling, it became known that there were few boundaries between FTX and Alameda Research, the crypto-trading firm he founded first in 2017 and that functioned as his family office. The US Securities and Exchange Commission is investigating how closely intertwined his businesses were and whether FTX mishandled customer funds. 


 


FTX and Alameda played different roles in the world of crypto. FTX was for trading, allowing customers to deposit funds and buy more tokens, and use big loans to make larger higher-risk bets. In contrast, Alameda primarily operated out of the spotlight. It wasn’t exactly a secret that these two ventures had close financial ties, and it was ultimately concern about Alameda that brought Bankman-Freid’s empire under scrutiny.


 


Reports of an Alameda balance sheet showing outstanding debts to FTX through its FTT tokens made investors skittish by the end of last week. Officials got word that Alameda used FTX customer funds to finance their operations. In response, Binance CEO Zhao tweeted that his exchange was liquidating its holdings of FTT. 


 


About 1 million customers will be left in limbo, wondering if they’ll get their money back from an initially risky investment. Perhaps the notion that investors and employees were duped will provide some comfort. It certainly would for me.


 


As for Bankman-Fried, his collapse was finalized on Friday, as his estimated $15.6 billion worth was reduced to zero by the end of the week. Those familiar with the matter, however, say that he will likely avoid indictment. 


 


Perhaps the most important victim of FTX’s demise? The crypto industry as a whole. Regulation, which the world of cryptocurrency has long sought to avoid, might be inevitable, as congressional leaders are wondering about when to send subpoenas, according to Bloomberg.


 


I must admit that FTX’s fate provides me some solace in my lack of crypto investment. I speak for those still skeptical of cryptocurrency when I say I might embody the spirit of the phrase “better safe than sorry” for a few more years. 


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