The collapse of Sam Bankman-Fried’s FTX cryptocurrency exchange brought a lot of attention to the inner workings of the crypto market, even among people who previously did not pay much attention to this world.
The collapse of FTX has also exposed divisions among crypto enthusiasts, some of whom say that Bitcoin — the cryptocurrency that started it all — should not be seen in the same light as FTX, or associated with what they see as less stable currencies.
Associate Slate Writer Nitish Pahwa wrote about division between bitcoin and other parts of the crypto world. He told the Texas Standard that Bitcoin “maxi” or maximalists believe that other cryptocurrencies are too closely tied to the traditional financial system that Bitcoin was created to avoid. Listen to the story above or read the transcript below.
This transcript has been lightly edited for clarity:
Texas Standard: What do you see as the significance of the FTC failure for the crypto industry as a whole? I mean, if you had to define what a value is, what would you say?
Nitish Pahwa: I think there are a few important aspects, but speaking of the biggest ones, I think one is that it was just a huge shock to a lot of people over the last couple of years who are finally interested in cryptocurrencies because Sam Bankman-Fried, man at the center of it all, introduced himself as a very ethical, very smart, very savvy operator who is raising funds through cryptocurrencies for the greater good of the world. And then it turns out that he may have just been running the same scam as every other person in the traditional financial system. We obviously don’t know yet. Criminal charges and civil charges are ongoing, but it’s definitely plausible.
And as for other parts of the crypto world, especially bitcoiners, those who have been firmly committed to bitcoin from the very beginning – they see it as a confirmation of their principles, because they never wanted to see their technology or the very concept itself. their blockchain-based digital currencies have reached the level that Sam Bankman-Fried had. They wanted it to be their own way. So when they see this particular flame, they look at it like, “Okay, that’s why we were right all along.”
To be clear, and correct me if I’m wrong, the term “Bitcoin” is sometimes used generically as “crypto”, but actually “Bitcoin” refers to a specific currency that was introduced in 2008. is happening to FTX, and can Bitcoin be shielded from the failure of FTX?
Yes, Bitcoin did start in 2008-2009 after the financial crisis. It is intended to be a peer-to-peer currency with a certain number of coins in existence, a certain number of blocks from which to mine those coins, and is made in such a way that many people are constantly involved in the work of their own. systems for mining and collaboration in bitcoin transactions. Now, cryptocurrency, on the other hand, has become a catch-all term for everything else, which is mostly led or inspired by Bitcoin. And that means any other major digital currencies that aren’t called “Bitcoin” or any of those major exchanges or companies like FTX that are now heavily entangled in the traditional financial system. They are publicly traded on the stock market and they get typical venture capital investments and such.
But bitcoiners always want to stay out of the traditional financial system – or “TradFi” as they call it – because they have held TradFi responsible for disasters like the financial crisis and many other economic crises before them. As such, they don’t want Bitcoin to fall into the trap that has happened to exchanges like FTX. But of course, companies like FTX, through their aggressive advertising marketing, partnerships with celebrities like Tom Brady, and so on, ended up bringing more attention to this world.
Well, now, of course, Bitcoin hasn’t come out of this unscathed, although I can hear what you’re saying and I understand what the community is doing when they make distinctions. But in 2022, Bitcoin has already fallen heavily. What headwinds are they facing now that the general population is feeling overwhelmed and overwhelmed?
So you are absolutely right that Bitcoin has been heavily affected by the economic hardships of rising interest rates, general stock market crashes, tech layoffs, and so on. Many people trade or store bitcoins on these exchanges, which, to summarize and simplify a bit, operate like banks. You store some currency there. It must be secured by collateral. They make some other loans. And in exchange for your investment, you should get a pretty decent percentage of returns. Now, despite all this, there are a lot of people who have held bitcoins and didn’t want to just stick with the traditional system. They wanted to try and see what they could do with bitcoin on all these other exchanges. And so when these exchanges fail, the value of Bitcoin also falls. And right now, Bitcoin is definitely not all right.
That being said, many “maxis” – as Bitcoin maximalists are called – will tell you that this is not such a severe crash that they have seen before. There have been many bitcoin crashes over the years and their mantra is always: “Hold on with all your might, buy the fall because it will pay off in the end anyway.” I don’t foresee the currency recovering its value anytime soon, but I also don’t think it will completely disappear because its staunchest adherents will keep their faith in it.
Well, I’m also wondering how much FTX has brought attention to bitcoin and the possibility of government regulation.
Oh absolutely. Surely there will be some kind of regulation. The White House weighs, Congress weighs on both sides of the aisle. Something must definitely come of this, because after the fall of Sam Bankman-Freed, lawmakers who received donations from him are under scrutiny. And they will be very eager to prove that they were not just puppets in his interests. And it can be anything in relation to anti-fraud, or simply a designation of whether a certain digital currency is a commodity, security, or some other financial instrument. But I am 99% sure that in the new year the government will take some action regarding cryptocurrencies.
Is Bitcoin free to move forward regardless of FTX or not?
Oh, that’s a great question. Yeah. I think there will definitely be a cold snap, and I think a lot of bitcoin maximalists will take the opportunity to really make their point. How convincing that will be, I don’t know. That being said, I do think that the reputation of crypto and bitcoin in general is definitely damaged, at least not for long, and we will see what it actually takes to restore them in any way imaginable.