Editor’s note: Emily Parker is executive director of global content at CoinDesk, a media, events, indexes and data company, and former policy adviser at the US State Department and writer/editor for The Wall Street Journal. she is the author of “Now I know who my comrades are: voices from the underground of the Internet.” Opinions in this comment are your own. read more opinion on CNN.
Over the past year, as crypto firms have imploded and losses have mounted, a white knight has appeared. Sam Bankman-Fried, the 30-year-old CEO of crypto exchange FTX, helped bailing out struggling crypto businesses like BlockFi and Voyager. In an industry with a reputation that has been tarnished by con artists, hackers, and sheer greed, Bankman-Fried seemed like a relatively nice guy. He even claimed that he he wanted to give away almost all his money.
And then, just like that, it was over. The once lost billionaire 94% of his fortune in one day. Friday FTX declared bankrupt and Bankman-Fried resigned as CEO. The contagion has already begun. Crypto lender BlockFi, one of the companies that Bankman-Fried tried to bail out, has now customer withdrawals on pause. So who will save crypto now?
The answer is nobody, because cryptocurrencies shouldn’t need a savior. The whole point of cryptography is that it is supposed to be decentralized and transparent. The rise and fall of Bankman-Fried show how far the industry has strayed from that ideal. Today’s crypto world is one of opaque entities run by larger than life personalities. There is perhaps no better example than FTX and its leader.
It wasn’t supposed to be this way. Bitcoin, the first in the world major cryptocurrencycame into the world after the 2008 financial crisis, which caused a deep disappointment in bankers and politicians. In light of the distrust of financial institutions, the basic idea was that this new system did not require you to trust anyone at all. Bitcoin transactions are recorded on a decentralized ledger known as a blockchain, which everyone can see and no bad actor should be able to fraudulently tamper with.
But it turned out that the Bankman-Fried empire was far from transparent. Everything seemed fine until my colleague Ian Allison, a CoinDesk journalist, wrote an article last week revealing that Bankman-Fried’s Alameda balance sheet, which is FTX’s sister company, was largely made up of FTT, a token created by FTX. This raised questions about the stability of FTX’s sister company and drew attention to the surprisingly close ties between FTX and Alameda.
It is worth noting that Alameda’s financial weaknesses were disclosed by a journalist, rather than a publicly available blockchain.
Soon after, another larger-than-life crypto personality entered the chat. Changpeng Zhao, CEO of Binance, the world’s largest cryptocurrency exchange, publicly announced that the exchange would liquidate its FTX holdings. Binance then signed a letter of intent to acquire FTX, a plan that Binance abandoned shortly after.
Then more disturbing information came to light. The Wall Street Journal reported that FTX loaned more than half of its clients’ money to the other Bankman-Fried company, Alameda. In other words, he used customer deposits at one company to pay for risky bets at another.
Bankman-Fried said she takes full responsibility for her mistakes. In a lengthy Twitter thread this week, he wrote: “I was CEO, which means *I* was responsible for making sure things ran smoothly. *I*, ultimately, should have been aware of everything. I clearly failed at that. I am sorry.”
This very statement is a perfect illustration of how a decentralized technology like cryptocurrency is not supposed to work. The general idea of a decentralized ledger is to eliminate a single point of failure and decrease the risk of human error. And yet, FTX would be far from the first player in the crypto space, led by an outsized personality, to suddenly deflate. Other examples included Alex Mashinsky, the founder and CEO of crypto lending platform Celsius, and Do Kwon, who co-founded the company that created TerraUSD, a so-called algorithmic stablecoin which was meant to trade at $1 USD. Both projects imploded last year, causing billions of dollars in losses. Both figures had large followings, many of whom learned the hard way that these supposedly powerful leaders did not have the power to pay them back.
The problem of the cult of personality is not limited to cryptography. We also see it in social networks, another supposedly decentralized and leaderless technology. twitter is now subject to the whims from the owner Elon Musk, the richest man in the world.
In the case of cryptocurrencies, many have long pointed to the risk of powerful centralized exchanges like FTX, with some people preferring to hold their own coins rather than store them on an exchange. Another option is to use blockchain technology to provide greater visibility, something Bankman-Fried is now promising to do. In the lengthy Twitter thread of him on Thursday, he said his priority would be “radical transparency” or “giving as close to on-chain transparency as possible: so people know *exactly* what’s going on on the chain.” In the case of FTX, of course, it’s probably too late.
For the cryptocurrency industry, the lesson here is to stop looking for saviors. Bankman-Fried’s meteoric rise was not based simply on his own actions: he was propelled by many others. he raised millions of dollars from high-profile investors, it was showered with media attention and, with few exceptions, simply wasn’t questioned much. The bottom line is that so much hope and responsibility should not rest on any one individual. It goes against everything that cryptocurrencies are supposed to stand for.