End of the Crypto Grift Era: SBF’s Prison Sentence Signals a Shift – What Comes Next?
On Thursday, former FTX CEO Sam Bankman-Fried was sentenced to 25 years in prison after being found guilty on seven charges of wire fraud and money-laundering. This marks the end of an era characterized by scams and fraud in the crypto industry. Bankman-Fried and his partners created an exchange called FTX, which took customer deposits to invest in and trade cryptocurrencies. However, some of these deposits were secretly funneled to Bankman-Fried’s other company, hedge fund Alameda Research.
The government’s case, which it won, revealed that Alameda used the money for various unauthorized purposes, such as investing in other crypto startups, purchasing real estate, supporting political campaigns, and propping up FTX’s proprietary crypto token, FTT. The scheme was exposed after document leaks and investigative work by journalists at Coindesk. Additionally, a well-timed tweet by Changpeng “CZ” Zhao, the former CEO of rival crypto exchange Binance, caused panic among FTX customers, leading to a run on the exchange and the loss of billions in customer funds.
This sentencing signals a shift in the crypto industry. The era of get-rich-quick schemes and fraud investigations is coming to an end. However, what comes next remains uncertain. Crypto optimists, like Chris Dixon from Andreessen-Horowitz, believe that we are entering a more sober phase where developers will build useful applications on blockchains. Since the original blockchain underlying bitcoin was proposed by Satoshi Nakamoto in 2008, many blockchains have emerged, including Ethereum and Solana.
However, skeptics argue that developers have been building applications on these blockchains for years, and the only economically viable purpose they have served is speculation. While it is possible to create digitally authenticated art on blockchains, the value of such art lies in the possibility of someone else buying it for more money later, rather than its aesthetic pleasure. Most other blockchain-based applications simply replace existing systems that already function well.
There has yet to be a clear killer app for blockchains or a blockchain-based startup with enough cash flow or profitability to go public. Bitcoin remains the most reliable and valuable cryptocurrency due to its backing by real and tangible assets: energy. Bitcoin’s proof-of-work model requires energy consumption to make and validate new bitcoins. This energy-driven model aligns with the real-world economy and provides bitcoin with real value. In contrast, newer coins are often based on faith and trust assigned by those who hold and trade them.
While some believe that crypto will revert to its original function as an alternative to nation-based currencies for storing and exchanging value, others argue that its volatility may not be suitable for stable economies. However, in countries facing issues like runaway inflation, corrupt governance, civil unrest, or war, converting collapsing local currency to bitcoin to stablecoin to a stable national currency like the U.S. dollar remains a reasonable and in-demand way for people with means to preserve their wealth. Additionally, bitcoin is useful for sending remittances without excessive fees and as a digital replacement for cash in underground economic activities.
As we move forward, it remains to be seen how the crypto industry will evolve. The end of the grift era signifies a necessary shift towards more legitimate and valuable use cases for blockchain technology. Developers will need to prove that they can create applications that go beyond speculation and provide true economic value. Until then, bitcoin’s real-world backing and stability make it the most reliable cryptocurrency in an industry still searching for its breakthrough success story.