Reflection on Crypto in the light of FTX

Looks like with the FTX downfall people are starting to ask good questions about the crypto space. A bunch of people lost their money. What is worse is a bunch of smart people lost their money by keeping them in a centralized institution in a supposedly de-centralized space.

We have a bad habit of thinking that token prices going up make someone right. Token value is an opinion, cash flows are facts.

The major promises of de-fi are yet to really make a difference for mainstream US business or consumers. Here are some major problems that crypto was supposed to solve:

1. Crypto will eliminate high fees of transfers — No. I tried transferring money through Coinbase and it was (a) more complex (b) more expensive than sending a wire through Chase.

2. Crypto will protect me from inflation that fiat money is subject to — No. There is nothing stable about crypto — it goes up and it goes down and it’s very volatile. The perceived scarcity of supply in one cryptocurrency is easily supplemented by many other ones. There is no monopoly enforced by any entity that one must use Bitcoin or any other coin.

3. Decentralized finance insulates me from a particular institution — Maybe for a very sophisticated user. Looking at the consumer and business behavior no one is really using de-centralized tools. Consumers for the most part do not carry their crypto wallets on USB drives. Many large scale businesses and hedge funds relied on FTX and got burned.

Some benefits of crypto currencies are verifiable:

1. Short settlement fees — yes. My transfers to people oversees via Coinbase were much faster than any wire.

2. More precise destination. Yes, it was easier to have someone’s address on the blockchain rather than 10 pieces of information that you need to for a wire transfer. I also didn’t have to force the other party to join some private network like Venmo.

The most interesting thing is that a lot of the same people that wanted to avoid the government involvement in finance are looking to bring Sam Bankman-Fried to justice. Some are pushing for the DOJ to step in and possibly use the federal laws against wire fraud.