Sam Bankman-Fried’s recent fraud conviction over the collapse of the cryptocurrency exchange FTX has cast a harsh light on the industry. But looking ahead, blockchain-enabled tools have the power to improve transparency and strengthen the trustworthiness of the financial sector.
NEW YORK/ITHACA – The vertiginous fall of Sam Bankman-Fried, the disgraced founder of the cryptocurrency exchange FTX who was recently convicted of fraud and money laundering in New York, has cast a harsh light on a largely unregulated market. For all the supposed wonders of the blockchain technology underpinning cryptocurrencies, the headline-grabbing events of the past few years indicate an industry in turmoil.
In addition to the criminal activity that led to the spectacular collapse of FTX in 2022 and Bankman-Fried’s guilty verdict in early November, US regulators have sued Binance, the world’s largest crypto exchange, for allegedly operating a “web of deception.” An industry-wide reckoning looms. Will crypto always be a magnet for fraud and malfeasance, or can it eventually transform and democratize finance?
An increasingly obvious paradox has emerged. Satoshi Nakamoto, the pseudonymous creator of Bitcoin, proposed the idea of a purely peer-to-peer version of electronic cash in the wake of the 2008 global financial crisis, when confidence in governments and central banks was at its nadir. Soon after the launch of Bitcoin in 2009, Nakamoto wrote that “the root problem with conventional currency is all the trust that’s required to make it work.” Today, the system that was supposed to eliminate the need for trust between people and in traditional financial institutions is experiencing a crisis of trust.