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Why FTX collapse doesn’t mean an end for cryptocurrency


The collapse of a key company in an industry that’s creating a new kind of money has put an odd twist on an age-old question: 

Why do bad people happen to good things?

Why We Wrote This

The big question: If most of the trading in cryptocurrencies is high-risk speculation and they will require traditional regulation anyway, does the world really need such alternative money?

The latest character in this financial saga appears to be Sam Bankman-Fried, founder of FTX, which served as an exchange for a digital form of money called cryptocurrency. On Nov. 11, FTX collapsed in spectacular fashion, declaring bankruptcy after 10 tumultuous days of revelations that the company was using customers’ money to buy assets of a sister company. Since FTX is the world’s No. 2 exchange for cryptocurrencies, its failure has stunned the crypto world the way that the failure of the NASDAQ exchange could cause stock investors to panic.

Already, on Monday, lender BlockFi filed for bankruptcy and analysts say other dominoes could fall in the crypto world, which is already reeling from a string of bankruptcies this year. FTX’s collapse has also shaken confidence in the technology and left its supporters red-faced, including celebrity athletes such as football’s Tom Brady and basketball’s Steph Curry.

And yet, in the midst of what’s become known as the crypto winter, many enthusiasts remain steadfast in their confidence that the technology will transform the way people pay each other.

The collapse of a key company in an industry that’s creating a new kind of money has put an odd twist on an age-old question: Why do bad people happen to good things?

The latest character in this financial saga appears to be Sam Bankman-Fried, founder of FTX, which served as an exchange for a digital form of money called cryptocurrency. On Nov. 11, FTX collapsed in spectacular fashion, declaring bankruptcy after 10 tumultuous days of revelations that the company was using customers’ money to buy assets of a sister company. Since FTX is the world’s No. 2 exchange for cryptocurrencies, its failure has stunned the crypto world the way that the failure of, say, the NASDAQ exchange could cause stock investors to panic.

Already this week, BlockFi filed for bankruptcy and a Japanese exchange called Bitfront shut down. Analysts say other dominoes could fall in the crypto world, which is already reeling from a string of bankruptcies this year, including Celsius and Three Arrows Capital. FTX’s collapse has also shaken confidence in the technology and left its supporters red-faced, including celebrity athletes such as football’s Tom Brady and basketball’s Steph Curry. And yet, in the midst of what’s become known as the crypto winter, many enthusiasts remain steadfast in their confidence that the technology will transform the way people pay each other.

Why We Wrote This

The big question: If most of the trading in cryptocurrencies is high-risk speculation and they will require traditional regulation anyway, does the world really need such alternative money?

“I’m embarrassed to be working in an industry that has had this tendency to rally around people like Sam Bankman-Fried or the people who own Celsius or Three Arrows Capital,” says Omid Malekan, a Columbia Business School professor and author of a new book, “Re-Architecting Trust: The Curse of History and the Crypto Cure for Money, Markets, and Platforms.” “Unfortunately, there’s actually a long history with new and transformative industries – whether we’re talking about railroads, whether we’re talking about the internet itself, other telecommunication – that there’ll always be violent boom-bust cycles in the beginning. And there’s also a tendency to attract certain kinds of grifters and scam artists.”

That confidence stems from the technology that underlies cryptocurrencies, called blockchain. It’s a ledger of transactions spread over a network of computers that makes it easy to check transactions and hard for anyone to hack them. Blockchain is so secure that it’s streamlining real estate sales, giving banks new ways to lend money, and allowing artists to digitally authenticate their art.



Read More: Why FTX collapse doesn’t mean an end for cryptocurrency

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